Author Topic: Psychology of Misjudgment #16. Contrast-Misreaction Tendency  (Read 1299 times)

LongHaul

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Psychology of Misjudgment #16. Contrast-Misreaction Tendency
« on: September 10, 2020, 02:58:14 AM »
16. Contrast-Misreaction Tendency

"Because of the nervous system of man does not naturally measure in absolute scientific units, it must instead rely on something simpler. The eyes have a solution that limits their programming needs: the contrast in what is seen is registered. And as in sight, so does it go, largely, in the other senses. Moreover, as perception goes, so goes cognition. The result is manís Contrast-Misreaction Tendency. Few psychological tendencies do more damage to correct thinking. Small-scale damages involve instances such as manís buying an overpriced $1,000 dashboard merely because the price is so low compared to his concurrent purchase of a $65,000 carÖ"

"Small changes are almost imperceptible to see, but quickly add up. Compounding does this for the better, but also for the worse. Tiny mistake after tiny mistake, add up to huge problems:"

"Cognition misled by tiny changes involving low contrast, will often miss a trend that is destiny."

"One of Ben Franklinís best-remembered and most useful aphorisms is ďA small leak will sink great ships.Ē The utility of the aphorism is large precisely because the brain so often misses the functional equivalent of a small leak in a great ship.

Price anchoring and upgrades also take advantage of this."
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Perhaps a solution could be to think more in absolutes.  Price vs value when buying something.  Helps to step away from the situation for a time.
« Last Edit: September 10, 2020, 02:59:46 AM by LongHaul »


Cigarbutt

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Re: Psychology of Misjudgment #16. Contrast-Misreaction Tendency
« Reply #1 on: September 10, 2020, 04:02:17 AM »
^Yes, that's another important one in investing.

To link with a topic you seem to be following:

By focusing on the what's happening now and attributing short terms reactions to actions, mechanisms such as debt limits can lose their effectiveness.



Perspective (historical etc) can help. Here's an example, complementing the above graph. In order to lessen the impact of the recent contrast, this is a graph showing pre-covid projections.

Similar dynamics are at play with political drifts which can sometimes reach further than typical standard deviations. Benjamin Franklin also said: "If you can keep it" in relation to the destiny aspect and the "work" involved. It's amazing to think that our brains, in the end, depend on binary 0 to 1 chemical reactions. Somehow, in certain cases, higher functions need to kick in higher gears.

LongHaul

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Re: Psychology of Misjudgment #16. Contrast-Misreaction Tendency
« Reply #2 on: September 10, 2020, 05:22:25 PM »
Good example.    Reminds me of this:

ďSome people seem to think thereís no trouble just because it hasnít happened yet. If you jump out the window at the 42nd floor and youíre still doing fine as you pass the 27th floor, that doesnít mean you donít have a serious problem.Ē  Charlie Munger

fkw1979

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Re: Psychology of Misjudgment #16. Contrast-Misreaction Tendency
« Reply #3 on: November 03, 2020, 06:06:26 AM »
I realized a few things with this one today so I thought I'd share.

This one I had not given much attention to but it is more important than I realized. Mungers mention of it in his essay is quite short so that is probably one of the reasons why, both in his lack of depth in explanation and the amount of time spent on discussing it.

This goes specifically to his frog in the pot analogy. That tiny changes slowly increased over time will often lead to what is an almost predictable trend in to greater stronger behavior in that direction over time that is almost unnoticable as it feels quite natural in the person being influenced. As a lawyer, this is where the typical "slippery slope" analogy we like to use comes in. This could potentially include and explain:

1) lying- small innocent lies eventually leading to bigger and bigger ones, including both ones you tell to yourself and ones you tell to others
2) committing of crimes- petty crimes eventually escalating to felonies or robbery
3) hatred
4) anger
5) negativity
6) mob behaviour
7) violence toward others

Despite the above, I don't think it is all negative. I believe and Munger does not seem to mention that this also can be purposefully used in the other more positive directions:

1) kindness- small acts of kindness, making you a kinder human being so that you better understand it, which leads to larger acts
2) love- small acts of love, helping you understand love better, which leads to being a more loveable person
3) generosity
4) positivity

I think when you understand this and our natural proclivities as human beings, I would hope it would make you much more kinder to those that have fallen victims to it in harmful ways and at the same time want to utilize this model in ways that helps and is a positive force for good.

As for how it applies to business, I would utilize these truths when evaluating management and be forewarned if you see the beginning of warning signs that arise and give due consideration to the fact that is and will likely escalate in severity over time.
« Last Edit: November 03, 2020, 09:24:16 AM by fkw1979 »

LC

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Re: Psychology of Misjudgment #16. Contrast-Misreaction Tendency
« Reply #4 on: November 03, 2020, 08:48:14 AM »
Quote
Despite the above, I don't think it is all negative. I believe and Munger does not seem to mention that this also can be purposefully used in the other more positive directions:

1) kindness- small acts of kindness, making you a kinder human being, which leads to larger acts
2) love- small acts of love, helping you understand love better, which leads to being a more loveable person
3) generosity
4) positivity

Well said.
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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