A (ongoing) list of quotes from Munger:
The Influence of Incentives on Behavior and Outcomes. "Almost everyone thinks he fully recognizes how important incentives and disincentives are in changing cognition and behavior. But this is not often so. For instance, I think I’ve been in the top five percent of my age cohort almost all my adult life in understanding the power of incentives, and yet I’ve always underestimated that power. Never a year passes but I get some surprise that pushes a little further my appreciation of incentive super-power." Source: "The Psychology of Human Misjudgment”
The Role of Multiple Mental Models in Sound Judgment. "You can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head." Source: "A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business"
Problem-Solving Through Inversion. “The third helpful notion is that it is not enough to think problems through forward. You must also think in reverse, much like the rustic who wanted to know where he was going to die so that he’d never go there. Indeed, many problems can’t be solved forward. And that is why the great algebraist Carl Jacobi so often said, “Invert, always invert,” and why the Pythagoreans thought in reverse to prove that the square root of two was an irrational number.” Source: "Practical Thought about Practical Thought?”
Second-and-Third Order Consequences. The business version of the Medicare-type insanity is when you own a textile plant and a guy comes in and says, “Oh, isn’t this wonderful? They invented a new loom. It’ll pay for itself in three years at current prices because it adds so much efficiency to the production of textiles.” And you keep buying these looms, and their equivalent, for 20 years, and you keep making 4 percent on capital; you never go anywhere. And the answer is, it wasn’t that technology didn’t work, it’s that the laws of economics caused the benefit from the new looms to go to the people that bought the textiles, not to the guy who owned the textile plant. “Source: Academic Economics: Strengths and Faults after Considering Interdisciplinary Needs”
Lollapalooza Effects. “What difference does all this psychological ignorance make?” Well, if I’m right, you need these models that are blanked out by this ignorance. And, furthermore, you need them in a form whereby, if there are 20 constructs, you have all 20. In other words, you shouldn’t be operating with 10. And you need to use them as a checklist. So you have to go back and put in your own head what I’d call the psychology of misjudgment in a form whereby you have all of the important models and you can use them. And you especially need them when four or five forces from these models come together to operate in the same direction. In such cases, you often get lollapalooza effects—which can make you rich, or they can kill you. So it’s essential that you beware of lollapalooza effects.” Source: "A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business"
Avoid the Man-with-a-Hammer Syndrome. “The only antidote for being an absolute klutz due to the presence of a man-with-a-hammer syndrome is to have a full kit of tools. You don’t have just a hammer, you’ve got all the tools. And you’ve got to have one more trick: You’ve got to use those tools checklist-style, because you’ll miss a lot if you just hope that the right tool is going to pop up unaided whenever you need it. But if you’ve got a full list of tools and go through them in your mind, checklist-style, you will find a lot of answers that you won’t find any other way. So limiting this big general objection that so disturbed Alfred North Whitehead is very important, and there are mental tricks that help do the job.” Source: “Academic Economics: Strengths and Faults after Considering Interdisciplinary Needs”
The Safest Way to Try and Get What You Want is to Try and Deserve What You Want. “It's such a simple idea. It's the Golden Rule, so to speak. You want to deliver to the world what you would buy if you were on the other end. There is no ethos, in my opinion, that is better for any lawyer or any other person to have. By and large, the people who have this ethos win in life. And they don't win just money, just honors and emoluments; they win the respect, the deserved trust of the people they deal with. And there is huge pleasure in life to be obtained from getting deserved trust. And so the way to get it is to deliver what you'd want to buy if the circumstances were reversed.” Source: USC Law Commencement Speech 2007
Authority-misinfluence Tendancy. “When I once fished in the Rio Colorado in Costa Rica, my guide, in a state of shock, told me a story about an angler who’d earlier come to the river without ever having fished for tarpon. A fishing guide like the one I had runs the boat and gives fishing advice, establishing himself in this context as the ultimate authority figure. In the case of this guide, his native language was Spanish, while the angler’s native language was English. The angler got a big tarpon on and began submitting to many directions from this authority figure called a guide: tip up, tip down, reel in, etc. Finally, when it was necessary to put more pressure on the fish by causing more bending of the angler’s rod, the guide said in English, “Give him the rod, give him the rod.” Well, the angler threw his expensive rod at the fish, and when last seen, it was going down the Rio Colorado toward the ocean. This example shows how powerful is the tendency to go along with an authority figure and how it can turn one’s brain into mush.” Source: “The Psychology of Human Misjudgement”
Inconsistency-avoidance Tendency. “Proper education is one long exercise in the augmentation of high cognition so that our wisdom becomes strong enough to destroy wrong thinking maintained by resistance to change. As Lord Keynes pointed out about his exalted intellectual group at one of the greatest universities in the world, it was not the intrinsic difficulty of new ideas that prevented their acceptance. Instead, the new ideas were not accepted because they were inconsistent with old ideas in place” Source: “The Psychology of Human Misjudgement”
Prescriptions for Sure Misery. “First, be unreliable. Do not faithfully do what you have engaged to do. If you will only master this one habit, you will more than counterbalance the combined effect of all your virtues, howsoever great. If you like being distrusted and excluded from the best human contribution and company, this prescription is for you. Master this one habit, and you will always play the role of the hare in the fable, except that instead of being outrun by one fine turtle, you will be outrun by hordes and hordes of mediocre turtles, and even some mediocre turtles on crutches.” Source: “Harvard School Commencement Speech, 1996
Don’t Let People Behave Immorally. “For example, take the issue of stealing. A very significant fraction of the people in the world will steal if a) it’s very easy to do and b) there’s practically no chance of being caught. And once they start stealing, the consistency principle—which is a big part of human psychology—will soon combine with operant conditioning to make stealing habitual. So if you run a business where it’s easy to steal because of your methods, you’re working a great moral injury on the people who work for you.” Source: “A Lesson on Elementary, Worldly Wisdom, Revisited”