Behavioral Economics Primer

I recently ran across this audio file of a talk given at Harvard Law School in 1995 by Charles Munger, entitled "Causes of Human Misjudgment."   Munger is a Harvard Law alum and a founding partner of the L.A. law firm of Munger, Tolles & Olsen.  He later left the firm to run an investment fund.  In the mid-1970s, he joined Berkshire Hathaway to serve as Vice-Chairman with Warren Buffett.

Make no mistake:  Munger is explicitly talking about the intersection of economics and psychology, acknowledging that the nascent (at the time) field of behavioral economics was on the right path and citing insights of Daniel Kahneman and Amos Tversky (note seven years before Kahneman won the Nobel Prize).

I am particularly interested in applied behavioral economics.  And here I don't mean writing papers on the topic;  rather, I mean honing my own decisionmaking processes to eliminate bias and susceptibility to manipulation.  For this purpose, I doubt I will ever find a better resource.  A written version of this talk, including an interesting preface, is online here.   It has quite a few things to say about academia and the pervasive problem of the "truffle hound."  (You will have to read/listen to the links to figure out the truffle hound reference.) 

Finally, Munger's remarks inspired Paul Brest (Hewlett Foundation, former dean at Stanford) and Laura Hamilton Krieger (UC Berkeley) to create a law school  course on professional judgment and decisionmaking at Stanford Law.  The course began in the early 1990s and continues to this day (materials are online at www.professionaljudgment.org).   Several prominent behavioral law & econ scholars took this course while students at Stanford, including Russell Korobkin (UCLA), Jeff Rachlinski (Cornell), and Chris Gurthie (Vanderbilt).    In case there was any doubt, cornerstones of the course appear to be empiricism, applied probability theory, and due attention to disconfirmatory evidence in the face of cognitive biases.  Great stuff.

Comments

[Odnawianie kościoła]

Munger is very nice man :)
Very interest article...
Regards,

[Jeff Lipshaw]

Bill, I just downloaded the transcript and am filled with awe and admiration for (a) Charlie Munger's intellectual prowess (not to mention his gifts to my alma maters, Stanford and Michigan), and (b) your own passion for self-improvement.

As a corporate veteran of the data-intuition wars, however, let me sound a word of caution. It is far easier to do an assessment of somebody else's tendencies than your own. The problem, of course, in assessing your own bias and behavioral tendencies is the infinitive regress as well as the self-recursiveness of the exercise. In short, you assess your own behavior, and decide you have the tendency, and correct it. But was your assessment affected by the tendency (or another one)? And was your assessment of the assessment so affected? And so on.

To interject a philosophical note, this was one of Kant's key points about the relationship of empiricism and reason. Your reason wants to follow the infinite regress to the infinite end, and to see the world objectively. It is unrestrained by the empirical world. So reason is capable of positing (or playing) God - that Being that can be both subjective and wholly objective at the same time.

The inspiring thing about your post lies in a slight corruption of Robert Louis Stevenson's dictum that it is better to travel hopefully than to arrive. In this regard, it is impossible to arrive, but it's no reason not to travel hopefully nevertheless.