Poor Charlie's Almanack

Highlights

“Charlie, when you borrow a man’s car, you always return it with a full tank of

“Charlie, when you borrow a man’s car, you always return it with a full tank of gas.”

“Quickly eliminate the big universe of what not to do;

“Quickly eliminate the big universe of what not to do; follow up with a fluent, multidisciplinary attack on what remains; then act decisively when, and only when, the right circumstances appear.”

On this subject he is famous for his viewpoint that “a great business at a fair price is superior to a fair business at a great price.”

Charlie’s exhaustive screening process requires considerable self-discipline and results in long periods of apparent inactivity.

This habit of committing far more time to learning and thinking than to doing is no accident.

Like world-class bridge player Richard Zeckhauser, Charlie scores himself not so much on whether he won the hand but rather on how well he played it. While poor outcomes are excusable in the Munger–Buffett world—given the fact that some outcomes are outside of their control—sloppy preparation and decision-making are never excusable because they are controllable.

his fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness.

My second prescription for misery is to learn everything you possibly can from your own experience, minimizing what you learn vicariously from the good and bad experiences of others, living and dead. This prescription is a sure-shot producer of misery and second-rate achievement.

My final prescription to you for a life of fuzzy thinking and infelicity is to ignore a story they told me when I was very young about a rustic who said, “I wish I knew where I was going to die, and then I’d never go there.”

The great algebraist Jacobi had exactly the same approach as Carson and was known for his constant repetition of one phrase: “Invert, always invert.”

Einstein said that his successful theories came from “curiosity, concentration, perseverance, and self-criticism.”

As I review in 2006 this talk made in 1986, I would not revise a single idea. If anything, I now believe even more strongly that 1) reliability is essential for progress in life and 2) while quantum mechanics is unlearnable for a vast majority, reliability can be learned to great advantage by almost anyone.

If you don’t get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one legged man in an ass kicking contest.

First, there’s mathematics. Obviously, you’ve got to be able to handle numbers and quantities—basic arithmetic. And the great useful model, after compound interest, is the elementary math of permutations and combinations.

And it was all worked out in the course of about one year in correspondence between [Blaise] Pascal and [Pierre de] Fermat.13 They worked it out casually in a series of letters.

I’ve worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations.

One of the advantages of a fellow like Buffett, whom I’ve worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations.

Which models are the most reliable? Well, obviously, the models that come from hard science and engineering are the most reliable models on this earth.

So there’s an iron rule that just as you want to start getting worldly wisdom by asking “Why, why, why?,” in communicating with other people about everything, you want to include why, why, why. Even if it’s obvious, it’s wise to stick in the why.

I suppose the next most reliable models are from biology and physiology because, after all, all of us are programmed by our genetic makeup to be much the same.

There’s another saying that comes from Pascal that I’ve always considered one of the really accurate observations in the history of thought. Pascal said, “The mind of man at one and the same time is both the glory and the shame of the universe.” And that’s exactly right. It has this enormous power. However, it also has these standard misfunctions that often cause it to reach wrong conclusions. It also makes man extraordinarily subject to manipulation by others. For example, roughly half of the army of Adolf Hitler was composed of believing Catholics. Given enough clever psychological manipulation, what human beings will do is quite interesting.

Now we come to another, somewhat less reliable form of human wisdom: microeconomics. Here I find it quite useful to think of a free-market economy—or a partly free-market economy—as sort of the equivalent of an ecosystem.

Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche.

The very nature of things is that if you get a whole lot of volume through your operation, you get better at processing that volume. That’s

And your advantage of scale can be an informational advantage. If I go to some remote place, I may see Wrigley chewing gum alongside Glotz’s chewing gum. Well, I know that Wrigley is a satisfactory product whereas I don’t know anything about Glotz’s. So if one is 40¢ and the other is 30¢, am I going to take something I don’t know and put it in my mouth—which is a pretty personal place, after all—for a lousy dime? So, in effect, Wrigley, simply by being so well known, has advantages of scale—what you might call an informational advantage.

The constant curse of scale is that it leads to big, dumb bureaucracy—which, of course, reaches its highest and worst form in government, where the incentives are really awful.

CBS provides an interesting example of another rule of psychology, namely Pavlovian association.17 If people tell you what you really don’t want to hear, what’s unpleasant, there’s an almost automatic reaction of antipathy. You have to train yourself out of it. It isn’t foredestined that you have to be this way. But you will tend to be this way if you don’t think about it.

So they told Paley only what he liked to hear. Therefore, he was soon living in a little cocoon of unreality and everything else was corrupt—although it was a great business.

The great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you.

And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.

“They’ve invented a new loom that we think will do twice as much work as our old ones.” And Warren said, “Gee, I hope this doesn’t work—because if it does, I’m going to close the mill.” And he meant it. What was he thinking? He was thinking, “It’s a lousy business. We’re earning substandard returns and keeping

When you’re an early bird, there’s a model that I call surfing—when a surfer gets up and catches the wave and just stays there, he can go a long, long time. But if he gets off the wave, he becomes mired in shallows. But people get long runs when they’re right on the edge of the wave, whether it’s Microsoft or Intel or all kinds of people, including National Cash Register

And, of course, that’s exactly what an investor should be looking for. In a long life, you can expect to profit heavily from at least a few of those opportunities if you develop the wisdom and will to seize them.

So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction you can make. You have to figure out where you’ve got an edge.

But it is given to human beings who work hard at it—who look and sift the world for a mispriced bet—that they can occasionally find one. And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.

To me, it’s obvious that the winner has to bet very selectively. It’s been obvious to me since very early in life. I don’t know why it’s not obvious to very many other people.

How many insights do you need? Well, I’d argue that you don’t need many in a lifetime. If you look at Berkshire Hathaway and all of its accumulated billions, the top 10 insights account for most of it. And that’s with a very brilliant man—Warren’s a lot more able than I am and very disciplined—devoting his lifetime to it. I don’t mean to say that he’s only had 10 insights. I’m just saying that most of the money came from 10 insights.

When Warren lectures at business schools, he says, “I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches, representing all the investments that you got to make in a lifetime. And once you’d punched through the

Of course, the best part of it all was his concept of Mr. Market. Instead of thinking the market was efficient, Graham treated it as a manic depressive who comes by every day. And some days Mr. Market says, “I’ll sell you some of my interest for way less than you think it’s worth.” And other days, he comes by and says, “I’ll buy your interest at a price that’s way higher than you think it’s worth.” And you get the option of deciding whether you want to buy more, sell part of what you already have, or do nothing at all.

And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times.

Over the long term, it’s hard for a stock to earn a much better return than the business that underlies it earns. If the business earns 6 percent on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6 percent return, even if you originally buy it at a huge discount. Conversely, if a business earns 18 percent on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with one hell of a result. So the trick is getting into better businesses.

How do you get into these great companies? One method is what I’d call the method of finding them small—get ’em when they’re little. For example, buy Walmart when Sam Walton first goes public and so forth. A lot of people try to do just that. And it’s a very beguiling idea. If I were a young man, I might actually go into it.

And ideally—and we’ve done a lot of this—you get into a great business that also has a great manager, because management matters.

However, averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager.

Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you’re going to buy something that compounds for 30 years at 15 percent per annum and you pay one 35 percent tax at the very end, the way that works out is that after taxes, you keep 13.3 percent per annum. In contrast, if you bought the same investment but had to pay taxes every year of 35 percent out of the 15 percent that you earned, then your return would be 15 percent minus 35 percent of 15 percent, or only 9.75 percent per year compounded. So the difference there is over 3.5 percent. And what 3.5 percent does to the numbers over long holding periods like 30 years is truly eye opening.

But in terms of business mistakes that I’ve seen over a long lifetime, I would say that trying to minimize taxes too much is one of the great standard causes of really dumb mistakes.

Anytime somebody offers you a tax shelter from here on in life, my advice would be don’t buy it. In fact, anytime anybody offers you anything with a big

your fellow man. There are huge advantages for an individual to get into a position where you make a few great investments and just sit on your ass: You’re paying less to brokers. You’re listening to less nonsense. And if it works, the governmental tax system gives you an extra 1, 2, or

There are huge advantages for an individual to get into a position where you make a few great investments and just sit on your ass: You’re paying less to brokers. You’re listening to less nonsense. And if it works, the governmental tax system gives you an extra 1, 2, or

Within the growth stock model, there’s a sub position: There are actually businesses that you will find a few times in a lifetime where any manager could raise the return enormously just by raising prices, and yet they haven’t done it.

That existed in Disney. It’s such a unique experience to take your grandchild to Disneyland. You’re not doing it that often. And there are lots of people in the country. And Disney found that it could raise those prices a lot and the attendance stayed right up.

You will get a few opportunities to profit from finding underpricing. There are actually people out there who don’t price everything as high as the market will easily stand. And once you figure that out, it’s like finding money in

way-above-average results through unusual skill. William Poundstone’s book Fortune’s Formula collects much of the modern evidence on this point in a highly entertaining way.

And during that 12 years much useful thought and data collection has supported the idea that neither securities markets nor pari-mutuel betting systems at race tracks prevent some venturers from gaining highly satisfactory, way-above-average results through unusual skill. William Poundstone’s book Fortune’s Formula collects much of the modern evidence on this point in a highly entertaining way.

What should a young person look for in a career? I have three basic rules—meeting all three is nearly impossible, but you should try anyway: Don’t sell anything you wouldn’t buy yourself. Don’t work for anyone you don’t respect and admire. Work only with people you enjoy. I have been incredibly fortunate in my life: With Warren I had all three.

Life and its various passages can be hard, brutally hard. The three things I have found helpful in coping with its challenges are: Have low expectations. Have a sense of humor. Surround yourself with the love of friends and family.

Warren would have gotten rich, because what he learned from Ben Graham at Columbia was enough to make anybody rich. But he wouldn’t have the kind of enterprise Berkshire Hathaway is if he hadn’t kept learning.

One of my favorite business stories comes from Hershey.33 They get their flavor because they make their cocoa butter in old stone grinders that they started with in the 1800s in Pennsylvania. And

They manage to do that by helping companies develop flavors and aromas in their trademarked products, like shaving cream. The slight aroma of shaving cream is very important to consumption. So all of this stuff is terribly important.

distributed is on log paper, which is based on the natural table of logarithms. And that’s based on the elementary mathematics of compound interest, which is one of the most important models there is on earth. So there’s a reason why that graph is in that form. And

The graph I’ve distributed is on log paper, which is based on the natural table of logarithms. And that’s based on the elementary mathematics of compound interest, which is one of the most important models there is on earth.

You’ve got to learn 100 models and a few mental tricks and keep doing it all of your life. It’s not that hard. And the beauty of it is that most people won’t do it—partly because they’ve been miseducated.

And that gets into another lesson in worldly wisdom: If ideology can screw up the head of Chomsky, imagine what it does to people like you and me.

Well, I have far less in the way of qualifications than Pinker. In fact, I’ve never taken a single course in psychology. However, I’ve come to exactly the same conclusion—that the psychology texts, while they are wonderful in part, are also significantly daft.

About three centuries before the birth of Christ, Demosthenes said, “What a man wishes, that also will he believe.”

This is a very complicated system. And life is one damn relatedness after another. It’s all right to think that, on balance, you suspect that civilization is better if it lowers the minimum wage or raises it. Either position is okay. But being totally sure on issues like that with a strong, violent ideology, in my opinion, turns you into a lousy thinker. So beware of ideology-based mental misfunctions. [Charlie laments how poorly the field of psychology deals with incentive-caused bias.] Another reason that I mentioned Pinker, the semanticist who wrote the book that I told you about earlier, is that at the end of his book, he says, roughly, “I’ve read the psychology textbooks. And they’re daft.” He says, “This whole subject is misorganized and mistaught.” Well, I have far less in the way of qualifications than Pinker. In fact, I’ve never taken a single course in psychology. However, I’ve come to exactly the same conclusion—that the psychology texts, while they are wonderful in part, are also significantly daft. In fact, just take simple psychological denial. About three centuries before the birth of Christ, Demosthenes said, “What a man wishes, that also will he

The mind will sometimes flip so that the wish becomes the belief.

Psychology, to me, as currently organized, is like electromagnetism after [Michael] Faraday37 but before Maxwell—a lot has been discovered, but no one mind has put it all together in proper form. And it should be done because it wouldn’t be that hard to do—and it’s enormously important.

Books that thick are teaching a psychology course without envy? And with no simple psychological denial? And no incentive-caused bias?

However, here’s the main experiment in all of psychology, and even at Stanford, they still leave out some of the important causes of Milgram’s results.

However, for some crazy reason or other, the psychology books are grossly inadequate in dealing with misery-caused mental misfunction.

One reason psychology professors so screw up denial is that it’s hard to do demonstrative experiments without conduct forbidden by ethics. To demonstrate how misery creates mental dysfunction in people, think of what you’d have to do to your fellow human beings. And you’d have to do it without telling them about the injury to come.

Pavlov himself spent the last 10 years of his life torturing dogs. And he published. Thus, we have a vast amount of data about misery-caused mental misfunction in dogs and its correction. Yet it’s in no introductory psychology book that you’ll ever see.

There’s only one right way to do it: You have to get the main doctrines together and use them as a checklist. And, to repeat for emphasis, you have to pay special attention to combinatorial effects that create lollapalooza consequences.

So here’s what he did: Officers ate at one place where the men could observe them. And for a long time, he served sauerkraut to the officers but not to the men. And then, finally, Captain Cook said, “Well, the men can have it one day a week.” In due course, he had the whole crew eating sauerkraut.

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.

Again, that’s obvious. It’s very, very important to create human systems that are hard to cheat.

Otherwise, you’re ruining your civilization, because these big incentives will create incentive-caused bias and people

Of course, as I said before, there is one big consideration that needs huge and special attention as part of any use of techniques deliberately harnessing elementary psychological forces, and that is that once you know how to do it, there are real moral limits regarding how much you should do it. Not all of what you know how to do should you use to manipulate people.

Each of you will have to figure out where your talents lie. And you’ll have to use your advantages. But if you try to succeed in what you’re worst at,

don’t want you to think we have any way of learning or behaving so you won’t make a lot of mistakes. I’m just saying that you can learn to make fewer mistakes than other people—and how to fix your mistakes faster when you do make them. But there’s no way that you can live an adequate life without making many mistakes. Part of what you must learn is how to handle mistakes and new facts that change the odds. Life, in part, is like a poker game, wherein you have to learn to

I don’t want you to think we have any way of learning or behaving so you won’t make a lot of mistakes. I’m just saying that you can learn to make fewer mistakes than other people—and how to fix your mistakes faster when you do make them. But there’s no way that you can live an adequate life without making many mistakes. Part of what you must learn is how to handle mistakes and new facts that change the odds. Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much-loved hand.

In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke. You’ve made an enormous commitment to something. You’ve poured effort and money in. And the more you put in, the more the whole consistency principle makes you think, “Now it has to work. If I put in just a little more, then it’ll work.”

And deprival-superreaction syndrome also comes in: You’re going to lose the whole thing if you don’t put in a little more. People go broke that way

Disney didn’t have to invent anything or do anything except take the thing out of the can and stick it on the cassette. And every parent and grandparent wanted his descendants to sit around and watch that stuff at home on videocassette.

To be fair, they have been brilliant about creating new stuff, like Pocahontas and The Lion King, to catch the same tailwind. But by the time it’s done, The Lion King alone is going to do plural billions. And by the way, when I say “when it’s done,” I mean 50 years from now or something. But plural billions—from one movie?

A lot of people are like that bee. They attempt to answer a question like that. And that is a huge mistake. Nobody expects you to know everything about everything. I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.

I’d argue that my father’s model when I asked him about the two clients was totally correct didaction. He taught me the right lesson. The lesson? As you go through life, sell your services once in a while to an unreasonable blowhard if that’s what you must do to feed your family. But run your own life like Grant McFayden. That was a great lesson. And he taught it in a very clever way—because instead of just pounding it in, he told it to me in a way that required a slight mental reach. I had to make the reach myself in order to get the idea that I should behave like Grant McFayden. And because I had to reach for it, he figured I’d hold it better. And, indeed, I’ve held it all the way through until today, through all of these decades. That’s a very clever teaching method.

You can approach that situation in either of two ways: You can say, “I just won’t work for him,” and duck it. Or you can say, “Well, the circumstances of my life require that I work for him.

Do you want to spend a lot of time working for people where you have to use methods like that to get them to behave well? I think the answer is no. But if you’re hooked with it, appealing to his interest is likely to work better as a matter of human persuasion than appealing to anything else. That, again, is a powerful psychological principle with deep biological roots.

People adapt to a changing litigation climate. They have various ways of doing it. That’s how it’s always been and how it’s always going to be.

Yeah, I’m passionate about wisdom. I’m passionate about accuracy and some kinds of curiosity. Perhaps I have some streak of generosity in my nature and a desire to serve values that transcend my brief life. But maybe I’m just here to show off. Who knows? I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up

Or as Mark Twain once complained, “These are sad days in literature. Homer is dead. Shakespeare is dead. And I myself am not feeling at all well.”

Without numerical fluency, in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest.

The first helpful notion is that it is usually best to simplify problems by deciding big no-brainer questions first.

The second helpful notion mimics Galileo’s50 conclusion that scientific reality is often revealed only by math as if math was the language of God. Galileo’s attitude also works well in messy, practical life. Without numerical fluency, in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest.

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 Pythagoreans51 thought in reverse to prove that the square root of two was an irrational number.

The fourth helpful notion is that the best and most practical wisdom is elementary academic wisdom. But there is one extremely important qualification: You must think in a multidisciplinary manner.

“In the last analysis, every profession is a conspiracy against the laity.”

The fifth helpful notion is that really big effects, lollapalooza effects, will often come only from large combinations of factors. For instance, tuberculosis was tamed, at least for a long time, only by routine, combined use in each case of three different drugs. And other lollapalooza effects, like the flight of an airplane, follow a similar pattern.

We must next consider the Pavlovian conditioning we must also use. In Pavlovian conditioning, powerful effects come from mere association. The neural system of Pavlov’s dog causes it to salivate at the bell it can’t eat. And the brain of man yearns for the type of beverage held by the pretty woman he can’t have.

For as long as we are in business, our beverage and its promotion must be associated in consumer minds with all other things consumers like or admire. Such extensive Pavlovian conditioning will cost a lot of money, particularly for advertising.

Considering Pavlovian effects, we will have wisely chosen the exotic and expensive-sounding name “Coca-Cola” instead of a pedestrian name like “Glotz’s Sugared, Caffeinated Water.” For similar Pavlovian reasons, it will be wise to have our beverage look pretty much like wine instead of sugared water. So we will artificially color our beverage if it comes out clear. And we will carbonate our water, making our product seem like champagne, or some other expensive beverage, while also making its flavor better and imitation harder to arrange for competing products.

We can now see, Glotz, that by combining 1) much Pavlovian conditioning, 2) powerful social proof effects, and 3) a wonderful-tasting, energy-giving, stimulating, and desirably cold beverage that causes much operant conditioning, we are going to get sales that speed up for a long time by reason of the huge mixture of factors we have chosen. Therefore, we are going to start something like an autocatalytic

This brings us to a final reality check for our business plan. We will, once more, think in reverse like Jacobi. What must we avoid because we don’t want it? Four answers seem clear:

In short, academic psychology departments are immensely more important and useful than other academic departments think. And at the same time, the psychology departments are immensely worse than most of their inhabitants think.

Indeed, Thaler believes, with me, that people are often massively irrational in ways predicted by psychology that must be taken into account in microeconomics.

No less a figure than Einstein said that one of the four causes of his achievement was self-criticism, ranking right up there alongside curiosity, concentration, and perseverance.

And, to further appreciate the power of self-criticism, consider where lies the grave of that very “ungifted” undergraduate, Charles Darwin. It is in Westminster Abbey, right next to the headstone of Isaac Newton, perhaps the most gifted student who ever lived, honored on that headstone in eight Latin words constituting the most eloquent praise in all graveyard print: “Hic depositum est, quod mortale fuit Isaaci Newtoni”—“Here lies that which was mortal of Isaac Newton.”

And so, for that and other reasons, we train a pilot in a strict six-element system: His formal education is wide enough to cover practically everything useful in piloting. His knowledge of practically everything needed by pilots is not taught just well enough to enable him to pass one test or two; instead, all his knowledge is raised to practice-based fluency, even in handling two or three intertwined hazards at once. Like any good algebraist, he is made to think sometimes in a forward fashion and sometimes in reverse, and so he learns when to concentrate mostly on what he wants to happen and also when to concentrate mostly on avoiding what he does not want to happen. His training time is allocated among subjects so as to minimize damage from his later malfunctions, and so what is most important in

The need for this clearly correct six-element system, with its large demands in a narrow-scale field where stakes are high, is rooted in the deep structure of the human mind.

Second, there should be much more problem-solving practice that crosses several disciplines, including practice that mimics the function of the aircraft simulator in preventing loss of skills through disuse.

Fourth, in filling scarce academic vacancies, professors of superstrong, passionate political ideology, whether on the left or right, should usually be avoided. So also for students. Best-form multidisciplinarity requires an objectivity such passionate people have lost, and a difficult synthesis is not likely to be achieved by minds in ideological fetters.

like those of physicist Richard Feynman61 when he so quickly found in cold O-rings the cause of our greatest space shuttle disaster.

But I early took elementary physics and math and paid enough attention to somehow assimilate the fundamental organizing ethos of hard science, which I thereafter pushed further and further

Smart, hardworking people aren’t exempted from professional disasters from overconfidence. Often, they just go aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.

But you may think, “My foundation, at least, will be above average. It is well endowed, hires the best, and considers all investment issues at length and with objective professionalism.” And to this I respond that an excess of what seems like professionalism will often hurt you horribly, precisely because the careful procedures themselves often lead to overconfidence in their outcome.

After all, centuries before Christ, Demosthenes noted, “What a man wishes, he will believe.” And in self-appraisals of prospects and talents, it is the norm, as Demosthenes predicted, for people to be ridiculously over-optimistic.

In the United States, a person or institution with almost all wealth invested long-term in just three fine domestic corporations is securely rich.

And I also think that one should recognize reality even when one doesn’t like it—indeed, especially when one doesn’t like it.

And, of course, that term has been borrowed from “penis envy,” as described by one of the world’s great idiots, Sigmund Freud.

Well, that’s the way Mankiw does it. He just grabs. This is much better than not grabbing. But it is much worse than grabbing with full attribution and full discipline, using all knowledge plus extreme reductionism where feasible.

At any rate, this rustic legislator proposed a new law in his state. He wanted to pass a law rounding pi to an even 3.2 so it would be easier for the schoolchildren to make the computations.

Well, how did I solve those problems? Obviously, I was using a simple search engine in my mind to go through checklist-style, and I was using some rough algorithms that work pretty well in a great many complex systems, and those algorithms run something like this: Extreme success is likely to be caused by some combination of the following factors: Extreme maximization or minimization of one or two variables. Example, Costco or our furniture and appliance store. Adding success factors so that a bigger combination drives success, often in nonlinear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often, results are not linear. You get a little bit more mass and you get a lollapalooza result. And, of course, I’ve been searching for lollapalooza results all my life, so I’m very interested in models that explain their occurrence. An extreme of good performance over many factors. Example, Toyota or Les Schwab. Catching and riding some sort of big wave. Example, Oracle. By the way, I cited Oracle before I knew that the Oracle CFO [Jeff Henley] was a big part of the proceedings here today.

And finally, in each of the two business schools in which I’ve tried this, maybe one person in 50 could name one instance. They come up with the idea that under certain circumstances, a higher price acts as a rough indicator of quality and thereby increases sales volumes.

But only one in 50 can come up with this sole instance in a modern business school—one of the business schools being Stanford, which is hard to get into. And nobody has yet come up with the main answer that I like. Suppose you raise that price and use the extra money to bribe the other guy’s purchasing agent? Is that going to work? And are there functional equivalents in economics, microeconomics, of raising the price and using the extra sales proceeds to drive sales higher? And, of course, there are a zillion, once you’ve made that mental jump. It’s so simple.

Now, why did Max Planck, one of the smartest people who ever lived, give up economics? The answer is, he said, “It’s too hard. The best solution you can get is messy and uncertain.”

Anyway, as the Medicare example showed, all human systems are gamed, for reasons rooted deeply in psychology, and great skill is displayed in the gaming because game theory has so much potential.

I’ll go further: I say economic systems work better when there’s an extreme reliability ethos. The traditional way to get a reliability ethos, at least in past generations in America, was through religion. The religions instilled guilt.

Well, if the mathematicians can’t get the paradox out of their system when they’re creating it themselves, the poor economists are never going to get rid of paradoxes, nor are any of the rest of us. It doesn’t matter. Life is interesting with some paradox. When I run into a paradox, I think either I’m a total horse’s ass to have gotten to this point or I’m fruitfully near the edge of my discipline. It adds excitement to life to wonder which it is.

Keynes said, “It’s not bringing in the new ideas that’s so hard. It’s getting rid of the old ones.” And Einstein said it better, attributing his mental success to “curiosity, concentration, perseverance, and self-criticism.” By self-criticism, he meant becoming good at destroying your own best-loved and hardest-won ideas. If you can get really good at destroying your own wrong ideas, that is a great gift.

Well, it’s time to repeat the big lesson in this little talk. What I’ve urged is the use of a bigger multidisciplinary bag of tricks, mastered to fluency, to help economics and everything else. And I also urged that people not be discouraged by irremovable complexity and paradox. It just adds more fun to the problems. My inspiration again is Keynes: Better roughly right than precisely wrong. And so, I end by repeating what I said once before on a similar occasion. If you skillfully follow the multidisciplinary path, you will never wish to come back. It would be like cutting off your hands.

And I know, from having educated an army of descendants, who it is that really deserves a lot of the honors that are being given today to the robe-wearing students in front. The sacrifices and the wisdom and the value transfer that come from one generation to the next should always be appreciated.

What are the core ideas that helped me? Well, luckily I had the idea at a very early age that the safest way to try to get what you want is to try to deserve what you want. It’s such a simple idea. It’s the golden rule. 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 had this ethos win in life, and they don’t win just money and honors. 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.

funeral is not the life you want to have. The second idea that I developed very early is that there’s no love that’s so right as admiration-based love, and such love should include the instructive dead.

The second idea that I developed very early is that there’s no love that’s so right as admiration-based love, and such love should include the instructive dead.

Another idea—and this may remind you of Confucius, too—is that the acquisition of wisdom is a moral duty. It’s not something you do just to advance in life.

The same requirement exists in lower walks of life. I constantly see people rise in life who are not the smartest, sometimes not even the most diligent. But they are learning machines. They go to bed every night a little wiser than they were that morning. And boy, does that habit help, particularly when you have a long run ahead of you.

Cicero is famous for saying that a man who doesn’t know what happened before he’s born goes through life like a child. That is a very correct idea. Cicero is right to ridicule somebody so foolish as not to know history. But if you generalize Cicero, as I think one should, there are a lot of other things that one should know in addition to history. And those other things are the big ideas in all the disciplines. And it doesn’t help you much just to know

This business of not drifting into extreme ideology is very, very important in life. If you want to end up wise, heavy ideology is very likely to prevent that outcome.

Another thing that often causes folly and ruin is the self-serving bias, often subconscious, to which we’re all subject. You think that “the true little me” is entitled to do what it wants to do. For instance, why shouldn’t the true little me get what it wants by overspending its income?

Generally speaking, envy, resentment, revenge, and self-pity are disastrous modes of thought. Self-pity can get pretty close to paranoia. Paranoia is one of the very hardest things

The card said, “Your story has touched my heart. Never have I heard of anyone with as many misfortunes as you.”

Every time you find you’re drifting into self-pity, whatever the cause, even if your child is dying of cancer, self-pity is not going to help. Just give yourself one of my friend’s cards. Self-pity is always counterproductive. It’s the wrong way to think. And when you avoid it you get a great advantage over everybody else, or almost everybody else, because self-pity is a standard response. And you can train yourself out of it.

Ben Franklin. He said, “If you would persuade, appeal to interest, not to reason.”

Ben Franklin. He said, “If you would persuade, appeal to interest, not to reason.” The self-serving bias of man is extreme, and should have been used in attaining the correct outcome.

Perverse associations are also to be avoided. You particularly want to avoid working directly under somebody you don’t admire and don’t want to be like. It’s dangerous. We’re all subject to control to some extent by authority figures, particularly authority figures who are rewarding us. Dealing properly with this danger requires both some talent and will.

Generally, your outcome in life will be more satisfactory if you work under people you correctly admire.

One also needs checklist routines. They prevent a lot of errors, and not just for pilots. You should not only possess wide-ranging elementary wisdom but also go through mental checklist routines in using it. There is no other procedure that will work as well.

Another thing that I have found is that intense interest in any subject is indispensable if you’re really going to excel in it. I could force myself to be fairly good in a lot of things, but I couldn’t excel in anything in which I didn’t have an intense interest. So, to some extent, you’re going to have to do as I did. If at all feasible, you want to maneuver yourself into doing something in which you have an intense interest.

Another thing you have to do is have a lot of assiduity. I like that word because to me it means “Sit down on your ass until you do it.”

Another thing to cope with is that life is very likely to provide terrible blows, unfair blows. Some people recover and others don’t. There I think the attitude of Epictetus helps guide one to the right reaction. He thought that every mischance in life, however bad, created an opportunity to behave well.

The last idea that I want to give to you, as you go out into a profession that frequently puts a lot of procedure and some mumbo-jumbo into what it does, is that complex bureaucratic procedure does not represent the highest form civilization can reach. One higher form is a seamless, non-bureaucratic web of deserved trust. Not much fancy procedure, just totally reliable people correctly trusting one another.

I was greatly helped in my quest by two turns of mind. First, I had long looked for insight by inversion in the intense manner counseled by the great algebraist Jacobi: “Invert, always invert.” I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes.

And partly, I had found that theory-structure was a superpower in helping one get what one wanted, as I had early discovered in school, wherein I had excelled without labor, guided by theory, while many others, without mastery of theory, failed despite monstrous effort.

outcome predicted by the German folk saying “We are too soon old and too late smart.”

Influence, aimed at a popular audience by a distinguished psychology professor, Robert Cialdini at Arizona State, a very big university. Cialdini had made himself into a super-tenured regents professor at a very young age by devising, describing, and explaining a vast group of clever experiments in which man manipulated man to his detriment, with all of this made possible by man’s intrinsic thinking flaws.

immediately sent copies of Cialdini’s book to all my children. I also gave Cialdini a share of Berkshire stock (Class A) to thank him for what he had done for me and the public. Incidentally, the sale by Cialdini of hundreds of thousands of copies of a book about social psychology was a huge feat, considering that Cialdini didn’t claim that he was going to improve your sex life or make you any money.

I immediately sent copies of Cialdini’s book to all my children. I also gave Cialdini a share of Berkshire stock (Class A) to thank him for what he had done for me and the public. Incidentally, the sale by Cialdini of hundreds of thousands of copies of a book about social psychology was a huge feat, considering that Cialdini didn’t claim that he was going to improve your sex life or make you any money.

Cognition is ordinarily situation-dependent, so that different situations often cause different conclusions, even when the same person is thinking in the same general subject area.

Reward- and punishment-superresponse tendency I place this tendency first in my discussion because almost everyone thinks he fully recognizes how important incentives and disincentives are in changing cognition and behavior.

We should also heed the general lesson implicit in the injunction of Ben Franklin in Poor Richard’s Almanack: “If you would persuade, appeal to interest and not to reason.”

Perhaps the most important rule in management is “Get the incentives right.”

Widespread incentive-caused bias requires that one should often distrust or take with a grain of salt the advice of one’s professional adviser, even if he is an engineer.

The strong tendency of employees to rationalize bad conduct in order to get rewards requires many antidotes in addition to the good cash control promoted by Patterson. Perhaps the most important of these antidotes is the use of sound accounting theory and practice.

Another generalized consequence of incentive-caused bias is that man tends to game all human systems, often displaying great ingenuity in wrongly serving himself at the expense of others.

Also needed in system design is an admonition: Dread, and avoid as much you can, rewarding people for what can be easily faked.

A monkey can be trained to seek and work for an intrinsically worthless token as if it were a banana if the token is routinely exchangeable for a banana. So it is with humans working for money, only more so, because human money is exchangeable for many desired things in addition to food, and one ordinarily gains status from either holding or spending it. Moreover, a rich person will often, through habit, work or connive energetically for more money long after he has almost no real need for more.

Although money is the main driver among rewards, it is not the only reward that works. People also change their behavior and cognition for sex, friendship, companionship, advancement in status, and other nonmonetary items.

Granny’s rule, to be specific, is the requirement that children eat their carrots before they get dessert. The business version requires that executives force themselves daily to first do their unpleasant and necessary tasks before rewarding themselves by proceeding to their pleasant tasks. Given reward superpower, this practice is wise and sound.

The emphasis on daily use of this practice is not accidental. The consultants well know, after the teaching of Skinner, that prompt rewards work best.

Punishments, of course, also strongly influence behavior and cognition, although not so flexibly and wonderfully as rewards. For instance, illegal price fixing was fairly common in America when it was customarily punished by modest fines. Then, after a few prominent business executives were removed from their eminent positions and sent to federal prisons, price-fixing behavior was greatly reduced.

And George Washington hanged farm-boy deserters 40 feet high as an example to others who might contemplate desertion.

One very practical consequence of liking/loving tendency is that it acts as a conditioning device that makes the liker or lover tend to 1) ignore the faults of, and comply with the wishes of, the object of his affection; 2) favor people, products, and actions merely associated with the object of his affection, as we shall see when we get to influence-from-mere-association tendency; and 3) distort other facts to facilitate love.

Well, he will like and love being liked and loved. So many a courtship competition will be won by a person displaying exceptional devotion, and man will generally strive lifelong for the affection and approval of many people not related to him.

For instance, a man who is so constructed that he loves admirable persons and ideas with a special intensity has a huge advantage in life.

In a pattern obverse to liking/loving tendency, the newly arrived human is also born to dislike and hate, as triggered by normal and abnormal triggering forces in its life. It is the same with most apes and monkeys. As a result, the long history of man contains almost continuous war.

But we also get what we observe in present-day Switzerland and the United States, wherein the clever political arrangements of man channel the hatreds and dislikings of individuals and groups into nonlethal patterns, including elections.

Disliking / hating tendency also acts as a conditioning device that makes the disliker / hater tend to 1) ignore virtues in the object of dislike; 2) dislike people, products, and actions merely associated with the object of his dislike; and 3) distort other facts to facilitate hatred.

“An ounce of prevention is worth a pound of cure.” What Franklin is here indicating, in part, is that inconsistency-avoidance tendency makes it much easier to prevent a habit than to change it.

The brain of man conserves programming space by being reluctant to change, which is a form of inconsistency avoidance.

Also tending to be maintained in place by the anti-change tendency of the brain are one’s previous conclusions, human loyalties, reputational identity, commitments, accepted role in a civilization, etc.

It is easy to see that a quickly reached conclusion, triggered by doubt-avoidance tendency, when combined with a tendency to resist any change in that conclusion, will naturally cause a lot of errors in cognition for modern man.

What Keynes was reporting is that the human mind

What Keynes was reporting is that the human mind works a lot like the human egg.

What Keynes was reporting is that the human mind works a lot like the human egg. When one sperm gets into a human egg, there’s an automatic shut-off device that bars any other sperm from getting in. The human mind tends strongly toward the same sort of result. And so, people tend to accumulate large mental holdings of fixed conclusions and attitudes that are not often reexamined or changed, even though there is plenty of good evidence that they are wrong.

One of the most successful users of an antidote to first-conclusion bias was Charles Darwin. He trained himself, early, to intensively consider any evidence tending to disconfirm any hypothesis of his, more so if he thought his hypothesis was a particularly good one.

As he was rising from obscurity in Philadelphia and wanted the approval of some important man, Franklin would often maneuver that man into doing Franklin some unimportant favor, like lending Franklin a book. Thereafter, the man would admire and trust Franklin more because a non-admired and non-trusted Franklin would be inconsistent with

Curiosity, enhanced by the best of modern education—which is, by definition, a minority part in many places—much helps man to prevent or reduce bad consequences arising from other psychological tendencies. The curious are also provided with much fun and wisdom long after formal education has ended.

Kant was famous for his categorical imperative, a sort of golden rule that required humans to follow those behavior patterns that, if followed by all others, would make the surrounding human system work best for everybody.

As I have shared the observation of life with Warren Buffett over decades, I have heard him wisely say on several occasions, “It is not greed that drives the world but envy.”

Carrying out this experiment, Cialdini caused his compliance practitioners to wander around his campus and ask strangers to supervise a bunch of juvenile delinquents on a trip to a zoo. Because this happened on a campus, one person in six out of a large sample actually agreed to do this. After accumulating this 1-in-6 statistic, Cialdini changed his procedure. His practitioners next wandered around the campus asking strangers to devote a big chunk of time every week for two years to the supervision of juvenile delinquents. This ridiculous request got him a 100 percent rejection rate. But the practitioner had a follow-up question: “Will you at least spend one afternoon taking juvenile delinquents to a zoo?” This raised Cialdini’s former acceptance rate of 1 in 6 to 1 in 2—a tripling.

There is a charming Irish Catholic priest in my neighborhood who, with rough accuracy, often says, “The old Jews may have invented guilt, but we Catholics perfected it.”

To the extent the feeling of guilt has an evolutionary base, I believe the most plausible cause is the mental conflict triggered in one direction by reciprocation tendency and in the opposite direction by reward-superresponse tendency pushing one to 100 percent of some good thing.

But there is another type of conditioned reflex wherein mere association triggers a response. For instance, consider the case of many men who have been trained by their previous experience in life to believe that when several similar items are presented for purchase, the one with the highest price will have the highest quality. Knowing this, some seller of an ordinary industrial product will often change his product’s trade dress and raise its price significantly, hoping that quality-seeking buyers will be tricked into becoming purchasers by mere association of his product and its high price.

With luxury goods, the process works with a special boost because buyers who pay high prices often gain extra status from thus demonstrating both their good taste and their ability to

to pay. Even association that appears to be trivial, if carefully planned, can have extreme and peculiar effects on purchasers of products. The target purchaser of shoe polish may like pretty girls, so he chooses the polish with the pretty girl on the can or the one with the pretty girl in the last ad for shoe polish that he saw.

Even association that appears to be trivial, if carefully planned, can have extreme and peculiar effects on purchasers of products. The target purchaser of shoe polish may like pretty girls, so he chooses the polish with the pretty girl on the can or the one with the

However, the most damaging miscalculations from mere association do not ordinarily come from advertisers and music providers. Some of the most important miscalculations come from what is accidentally associated with one’s past success, or one’s liking and loving, or one’s disliking and hating, which includes a natural hatred for bad news.

Some of the most important miscalculations come from what is accidentally associated with one’s past success, or one’s liking and loving, or one’s disliking and hating, which includes a natural hatred for bad news.

The proper antidotes to being made such a patsy by past success are 1) to carefully examine each past success, looking for accidental, non-causative factors associated with such success that will tend to mislead as one appraises the odds implicit in a proposed new undertaking; and 2) to look for dangerous aspects of the new undertaking that were not present when past success occurred.

Franklin counseled, “Keep your eyes wide open before marriage and half shut thereafter.” Perhaps this eyes-half-shut solution is about right, but I favor a tougher prescription: “See it like it is and love anyway.”

Persian messenger syndrome is alive and well in modern life, albeit in less lethal versions. It is actually dangerous in many careers to be a carrier of unwelcome news.

The proper antidote to creating Persian messenger syndrome and its bad effects, like those at CBS, is to develop, through exercise of will, a habit of welcoming bad news.

His mother, who was a very sane woman, then refused to believe he was dead. That’s simple, pain-avoiding psychological denial. The reality is too painful to bear, so one distorts the facts until they become bearable. We all do that to some extent, often causing terrible problems.

One should stay far away from any conduct at all likely to drift into chemical dependency. Even a small chance of suffering so great a damage should be avoided.

Excessive self-regard tendency We all commonly observe the excessive self-regard of man. He mostly misappraises himself on the high side, like the 90 percent of Swedish drivers who judge themselves to be above average. Such misappraisals also apply to a person’s major “possessions.” One spouse usually over-appraises the other spouse. And a man’s children are likewise appraised higher by him than they are likely to be in a more objective view.

There is a name in psychology for this over-appraise-your-own-possessions phenomenon: the endowment effect. All man’s decisions are suddenly regarded by him as better than would have been the case just before he made them.

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.

Because man is likely to be overinfluenced by face-to-face impressions that, by definition, involve his active participation, a job candidate who is a marvelous presenter often causes great danger under modern executive search practice.

According to Tolstoy, the worst criminals don’t appraise themselves as all that bad. They come to believe either that 1) they didn’t commit their crimes or 2) considering the pressures and disadvantages of their lives, it is understandable and forgivable that they behaved as they did and became what they became.

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. This isn’t easy to do well and won’t work perfectly, but it will work much better than simply letting psychological nature take its normal course.

“Never underestimate the man who overestimates himself.”

About three centuries before the birth of Christ, Demosthenes, the most famous Greek orator, said, “What a man wishes, that also will he believe.” Demosthenes, parsed out, was thus saying that man displays not only simple, pain-avoiding psychological denial but also an excess of optimism, even when he is already doing well.

One standard antidote to foolish optimism is trained, habitual use of the simple probability math of Fermat and Pascal, taught in my youth to high school sophomores. The mental rules of thumb that evolution gives you to deal with risk are not adequate. They resemble the dysfunctional golf grip you would have if you relied on a grip driven by evolution instead of golf lessons.

The social proof that we will next consider tends to convince man that the last price from another bidder was reasonable, and then deprival-superreaction tendency prompts him strongly to top the last bid. The best antidote to being thus triggered into paying foolish prices at open-outcry auctions is the simple Buffett practice: Don’t go to such auctions.

Many of these shareholders simply can’t stand the idea of having their Berkshire Hathaway holdings smaller. Partly they dislike facing what they consider an impairment of identity, but mostly they fear missing out on future gains from stock sold or given away.

For some such reason, man’s evolution left him with social-proof tendency, an automatic tendency to think and act as he sees others around him thinking and acting.

For instance, if a professor arranges for some stranger to enter an elevator wherein 10 compliance practitioners are all silently standing so that they face the rear of the elevator, the stranger will often turn around and do the same.

This phenomenon was recently involved in a breakthrough by Judith Rich Harris,98 who demonstrated that super-respect by young people for their peers, rather than for parents or other adults, is ordained to some

This makes it wise for parents to rely more on manipulating the quality of the peers than on exhortations to their own offspring.

In the highest reaches of business, it is not uncommon to find leaders who display followership akin to that of teenagers. If one oil company foolishly buys a mine, other oil companies often quickly join in buying mines.

When will social-proof tendency be most easily triggered? Here, the answer is clear from many experiments: Triggering most readily occurs in the presence of puzzlement or stress, and particularly when both exist.

Such corruption was being driven by social proof plus incentives, the combination that creates Serpico syndrome.

In social proof, it is not only action by others that misleads but also their inaction. In the presence of doubt, inaction by others becomes social proof that inaction is the right course.

The Middle East now presents just such a threat. By now the resources spent by Jews, Arabs, and all others over a small amount of disputed land, if divided arbitrarily among land claimants, would have made every one better off, even before taking into account any benefit from reduced threat of war, possibly nuclear.

If only one lesson is to be chosen from a package of lessons involving social-proof tendency and used

man’s contrast-misreaction tendency. Few psychological tendencies do more damage to correct thinking. Small-scale damages involve instances such as man’s buying an overpriced $1,000 leather dashboard merely because the price is so low compared to his concurrent purchase of a $65,000 car.

Few psychological tendencies do more damage to correct thinking. Small-scale damages involve instances such as man’s buying an overpriced $1,000 leather dashboard merely because the price is so low compared to his concurrent purchase of a $65,000 car.

The salesman deliberately shows the customer three awful houses at ridiculously high prices. Then he shows him a merely bad house at a price only moderately too high. And boom, the broker often makes an easy sale.

Contrast-misreaction tendency is routinely used to cause disadvantage for customers buying merchandise and services. To make an ordinary price seem low, the vendor will very frequently create a highly artificial price that is much higher than the price always sought, then advertise his standard price as a big reduction from his phony price. Even when people know that this sort of customer manipulation is being attempted, it will often work to trigger buying. This phenomenon accounts in part for much advertising in newspapers. It also demonstrates that being aware of psychological ploys is not a perfect defense.

But no matter, because many businesses die in just the manner claimed by my friend for the frog. Cognition, misled by tiny changes involving low contrast, will often miss a trend that is destiny.

Even before modern drugs were available, many people afflicted by depression, such as Winston Churchill and Samuel Johnson, gained great achievement in life.

He found that 1) he could classify dogs so as to predict how easily a particular dog would break down, 2) the dogs hardest to break down were also the hardest to return to their pre-breakdown state, 3) any dog could be broken down, and 4) he couldn’t

I never wanted to get into the legal controversy that existed about this subject. But I did conclude that the controversy couldn’t be handled with maximized rationality without considering whether, as Pavlov’s last work suggests, the heavy-handed imposition of stress might be the only reversal method that would work to remedy one of the worst evils imaginable: a stolen mind. I have included this discussion of Pavlov 1) partly out of general antagonism toward taboos, 2) partly to make my talk reasonably complete as it considers stress, and 3) partly because I hope some listener may continue my inquiry with more success.

An idea or a fact is not worth more merely because it is easily available to you.

The hard rule of use-it-or-lose-it tendency tempers its harshness for the diligent. If a skill is raised to fluency, instead of merely being crammed in briefly to enable one to pass some test, then the skill 1) will be lost more slowly and 2) will come back faster when refreshed with new learning. These are not minor advantages, and a wise man engaged in learning some important skill will not stop until he is really fluent in it.

The obvious implication: Be careful whom you appoint to power, because a dominant authority figure will often be hard to remove, aided as he will be by authority-misinfluence tendency.

“The principal job of an academic administration is to keep the people who don’t matter from interfering with the work of the people who do.”

He had a very simple rule, one of many in his large, Teutonic company: You had to tell who was to do what, where, when, and why. And if you wrote a communication leaving out your explanation of why the addressee was to do what was ordered, Braun was likely to fire you,

Here is a short list of examples reminding us of the great utility of elementary psychological knowledge: Carl Braun’s communication practices. The use of simulators in pilot training. The system of Alcoholics Anonymous. Clinical training methods in medical schools. The rules of the US Constitutional Convention: totally secret meetings, no recorded vote by name until the final vote, votes reversible at any time before the end of the convention, then just one vote on the whole Constitution. These are very clever, psychology-respecting rules. If the founders had used a different procedure, many people would have been pushed by various psychological tendencies into inconsistent, hardened positions. The elite founders got our Constitution through by a whisker only because they were psychologically acute. The use of granny’s incentive-driven rule to manipulate oneself toward better performance of one’s duties. The Harvard Business School’s emphasis on decision trees. When I was young and foolish, I used to laugh at the Harvard Business School. I said, “They’re teaching 28-year-old people that high school algebra works in real life?” But later, I wised up and realized that it was very important that they do that to counter some bad effects from psychological tendencies. Better late than never. The use of autopsy equivalents at Johnson & Johnson. At most corporations, if you make an acquisition and it turns out to be a disaster, all

Well, one answer is paradox. In social psychology, the more people learn about the system, the less it is true, and this is what gives the system its great value as a preventer of bad outcomes and a driver of good outcomes.