Here's How Most People Make Bad Decisions

Charles Munger has made a career of avoiding common errors in judgment. The longtime vice chairman of Berkshire Hathaway long ago assembled a checklist of 25 tendencies that lead to what he called “psychology-based dysfunction.” In other words, they are predictable traps that cause professionals to make bad decisions.

Mr. Munger collected these misjudgments in a lengthy, dense document he called The Psychology of Human Misjudgment.

Unfortunately, you can’t live by what you can’t remember. Most of us can’t remember 25 ways we act dumb, misguided or rash…especially at the time we are in the middle of acting dumb, misguided or rash.

To solve that problem, I adapted the 25 tendencies into this much shorter list. Some – but not all – of these items include an “antidote.” These are steps you can take to counterbalance the negative tendency. But many have no antidote other than for you to be fully aware that, like all of us, you possess certain tendencies that can cause you to make misjudgments.

One last note... I've tried to stay true to Munger's language, which includes some words you may not be accustomed to seeing, such as "superresponse" in this first one:

1. Reward & Punishment Superresponse: Never underestimate the power of incentives to change behavior. Antidote: Beware of advice from – and actions by – people who are rewarded for certain outcomes.

2. Liking/Loving: You are not objective about people you like.

3. Disliking/Hating: Hatred causes distorted thinking and blindness to the facts.

4. Doubt Avoidance: To remove doubt, people rush to decide. Antidote: Only decide when you have sufficient information to make a sound judgment.

5. Inconsistency Avoidance: You resist change and are unlikely to change your loyalties, beliefs, habits or roles.

6. Curiosity: Humans are inherently curious. Antidote: Not all bad! Can counterbalance other tendencies.

7. Kantian Fairness: Inclination to be fair to others. 

8. Envy/Jealousy: Envy is widespread, but seldom acknowledged or understood.

9. Reciprocation: You like to reciprocate both favors and disfavors. Antidote: Beware when a salesperson does you even a small favor!

10. Influence from Mere Association: People falsely associate products with other elements. Example: high price = great quality. Antidote: Analyze past successes; find any differences between then & now.

11. Simple, Pain-Avoiding Psychological Denial: To avoid pain, people will deny reality.

12. Excessive Self-Regard: You have inflated opinions not just of yourself, but also of people like you. Antidote: Force yourself to adopt objective metrics for assessing yourself.

13. Overoptimism: If you think you are going to win the lottery, you suffer from this tendency. Antidote: Make it a habit to study probabilities.

14. Deprival Superreaction: Losing causes more pain than winning causes pleasure. People will fight like dogs to avoid losing power, prestige, etc. Antidote: Recognize that your over-sensitivity to losses is irrational.

15. Social Proof: Automatic tendency to think/act like those around you, especially in stressful times. Antidote: Learn to ignore others when they are wrong.

16. Contrast Misreaction: Faulty comparisons = bad decisions. Example: 3 inflated prices make you think 4th is fair.Antidote: Evaluate every decision on its own merits.

17. Stress Influence: Stress causes depression and pessimism.

18. Availability Misweighing: You love the one you’re with, giving “extra credit” for proximity. Antidote: Use checklists to gain perspective.

19. Use It or Lose It: If you don’t use your skills, they fade.Antidote: Practice, practice.

20. Drug Misinfluence: Drugs (and alcohol) distort your judgment. Antidote: Don’t use either.

21. Senescence Misinfluence: Being good at hiding age-related deterioration. Antidote: As you age, it is easier to keep skills than to acquire new ones.

22. Authority Misinfluence: To follow leaders even if they are wrong. Antidote: Question authority.

23. Twaddle: The gift of language is not the same as the gift of insight. Antidote: Keep the people who don’t work from slowing down those who do.

24. Reason Respecting: If someone tells you why they are making a request, you are more likely to honor it.Antidote: This is a positive tendency, except when the reason given is flawed.

25. Lollapalooza: Psychological misjudgment tendencies can act in tandem towards a particular outcome.

When you have to make a critically important decision,  I’d suggest you go through this list and see whether you might be on the verge of making an error in judgment. Sorry to say this, but the odds are pretty good you will be very close to dangerous territory.

Here’s a PDF of Munger’s The Psychology of Human Misjudgment.

Even better, here is a large PDF of all 25 misjudgments in one image.

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Bruce Kasanoff is a ghostwriter for entrepreneurs. 

He is the author of GIVERS DELIVER: Grow Your Career by Helping Others and also How to Self-Promote without Being a Jerk.

An earlier version of this article appeared on Forbes.