“Bias [arises] from the nonmathematical nature of the human brain in its natural state as it deals with probabilities employing crude heuristics, and is often misled.
—CHARLIE MUNGER, HARVARD UNIVERSITY, 1995”

When facing a big decision – or a decision under stress – I make an effort to swing focus away from the decision and focus directly on my thought process instead. As Naval puts it “run your brain in debug mode”. Stop execution and analyze, with a dose of intellectual honestly, all the biological and emotional forces at play.

A key benefit of this is the ability to identify bias. Charlie Munger, Warren Buffet’s partner at Berkshire Hathaway, is systematic in his approach to identifying and removing bias. In “Poor Charlie’s Almanac” he details the “Psychology of Human Misjudgment”, a framework for identifying common bias and making good decisions. Or, not making bad decisions. Here’s the full list:

Psychology of Human Misjudgment

1. Reward and Punishment Superresponse Tendency
2. Liking/Loving Tendency
3. Disliking/Hating Tendency
4. Doubt-Avoidance Tendency
5. Inconsistency-Avoidance Tendency
6. Curiosity Tendency
7. Kantian Fairness Tendency
8. Envy/Jealousy Tendency
9. Reciprocation Tendency
10. Influence-from-Mere-Association Tendency
11. Simple, Pain-Avoiding Psychological Denial
12. Excessive Self-regard Tendency
13. Over-Optimism Tendency
14. Deprival Super-Reaction Tendency
15. Social-Proof Tendency
16. Contrast-Misreaction Tendency
17. Stress-Influence Tendency
18. Availability-Misweighing Tendency
19. Use-It-or-Lose-It Tendency
20. Drug-Misinfluence Tendency
21. Senescence-Misinfluence Tendency
22. Authority-Misinfluence Tendency
23. Twaddle Tendency
24. Reason-Respecting Tendency
25. Lollapalooza Tendency

It’s useful to be cognizant of all these biases but the following resonated in a big way:

1 Reward and Punishment Superresponse Tendency

I think I’ve been in the top 5 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 superpower. —CHARLIE MUNGER, HARVARD UNIVERSITY, 1995

4 Doubt-Avoidance Tendency

“Researchers believe that the doubt-avoidance tendency exists because a brain’s processing load can be substantially reduced if a person rejects doubt.”
— Tren Griffen, The Complete Charlie Munger

8 Envy/Jealousy Tendency

The idea of caring that someone is making money faster [than you] is one of the deadly sins. Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?
—CHARLIE MUNGER, WESCO ANNUAL MEETING, 2003

11 Simple, Pain-Avoiding Psychological Denial

The reality is too painful to bear, so you just distort it until it’s bearable. We all do that to some extent, and it’s a common psychological misjudgment that causes terrible problems.
—CHARLIE MUNGER, HARVARD UNIVERSITY, 1995

14 Deprival Super-Reaction Tendency

One of prospect theory’s most important contributions to finance is loss aversion, the idea that, for most people, losses loom larger than corresponding gains. The empirical evidence suggests we feel losses about two to two-and-a-half times more than we feel gains.
—MICHAEL MAUBOUSSIN, AVER AND AVERSION, 2005

You can explore these ideas more in the last chapter of Poor Charlie’s Almanac.  Or if you prefer an e-book Tren Griffen also has a nice summary in Charlie Munger: The Complete Investor.

Sources:

The Psychology of Human Misjudgement – Charlie Munger Full Speech

Poor Charlie’s Almanac
https://www.amazon.com/dp/1578645018

Charlie Munger: The Complete Investor