From Charlie Munger’s “Poor Charlie’s Almanack”
“We all commonly observe the excessive self-regard of man. He mostly misappraises himself on the high side, like the ninety percent of Swedish drivers that judge themselves to be above average.” (p.473)
One spouse usually over appraises the other spouse. A parent usually believes their kids are better than reality. People usually believe their belongings are worth more than reality.
“Man’s excess of self regard typically makes him strongly prefer people like himself. This can be dangerous in business. “Some of the worst consequences in modern life come when dysfunctional groups of cliquish persons, dominated by Excessive Self-Regard Tendency, select as new members of their organizations persons who are very much like themselves. “the sales department of a brokerage firms slips into routine fraud, the problem will have a natural tendency to get worse and be quite resistant to change for the better.” (p. 474) Sometimes it’s better to “clean house” when they find a mess getting out of control.
“In lotteries, the play is much lower when numbers are distributed randomly than it is when the player picks his own number. This is quite irrational. The odds are almost exactly the same and much against the player. Because state lotteries take advantage of man’s irrational love of self-picked numbers, modern man buys more lottery tickets than he otherwise would have, with each purchase foolish.” (p. 474)
“Intensify man’s love of his own conclusions by adding the possessory wallop from the “endowment effect,” and you will find that a man who has already bought a pork belly future on a commodity exchange now foolishly believes, even more strongly than before, in the merits of his speculative bet.”
“Foolish sports betting, by people who love sports and think they know a lot about relative merits of a team, is a lot more addictive than race track betting- partly because of man’s automatic overappraisal of his own complicated conclusions”
“Excesses of self-regard often cause bad hiring decisions because employers grossly overappraise the worth of their own conclusions that rely on impressions in face to face contact. The correct antidote to this sort of folly is to underweigh face-to-face impressions and overweigh the applicant’s past record.”
“I convinced fellow committee members to stop all further interviews and simply appoint a person whose achievement record was much better than that of any other applicant. And when it was suggested to me that I wasn’t giving “academic due process,” I replied that I as the one being true to academic values because I was using academic research showing poor predictive value of impressions from face-to-face interviews.” (p. 475)
“The best antidote to folly from an excess of self-regard is to force yourself to be more objective when you are thinking about yourself, your family and friends, your property, and the value of your past and future activity.“
“While an excess of self-regard is often counterproductive in its effects on cognition, it can cause some weird success from overconfidence that happens to cause success. This factor account for the adage: “Never underestimate the man who overestimates himself.” (p. 476)