“What happens when these standard psychological tendencies combine? What
happens when the situation, or the artful manipulation of man, causes several of these
tendencies to operate on a person toward the same end at the same time?
When you get these lollapalooza effects, you will almost always find four or five of these things
working together.
When I was young there was a whodunit hero who always said, “Cherche la femme.” [In
French, "Look for the woman."] What you should search for in life is the combination,
because the combination is likely to do you in. Or, if you’re the inventor of Tupperware
parties, it’s likely to make you enormously rich if you can stand shaving when you do it.
One of my favorite cases is the McDonald-Douglas airliner evacuation disaster. The
government requires that airliners pass a bunch of tests, one of them is evacuation: get
everybody out, I think it’s 90 seconds or something like that. It’s some short period of
time. The government has rules, make it very realistic, so on and so on. You can’t select
nothing but 20-year-old athletes to evacuate your airline. So McDonald-Douglas
schedules one of these things in a hangar, and they make the hangar dark and the concrete
floor is 25 feet down, and they’ve got these little rubber chutes, and they’ve got all these
old people, and they ring the bell and they all rush out, and in the morning, when the first
test is done, they create, I don’t know, 20 terrible injuries when people go off to hospitals,
and of course they scheduled another one for the afternoon.
By the way they didn’t read[?] the time schedule either, in addition to causing all the
injuries. Well…so what do they do? They do it again in the afternoon. Now they create
20 more injuries and one case of a severed spinal column with permanent, unfixable
paralysis. These are engineers, these are brilliant people, this is thought over through in a
big bureaucracy. Again, it’s a combination of [psychological tendencies]: authorities told
you to do it. He told you to make it realistic. You’ve decided to do it. You’d decided to
do it twice. Incentive-caused bias. If you pass you save a lot of money. You’ve got to
jump this hurdle before you can sell your new airliner. Again, three, four, five of these
things work together and it turns human brains into mush. And maybe you think this
doesn’t happen in picking investments? If so, you’re living in a different world than I am.
Finally, the open-outcry auction. Well the open-outcry auction is just made to turn the
brain into mush: you’ve got social proof, the other guy is bidding, you get reciprocation
tendency, you get deprival super-reaction syndrome, the thing is going away… I mean it
just absolutely is designed to manipulate people into idiotic behavior.
Finally the institution of the board of directors of the major American company. Well, the
top guy is sitting there, he’s an authority figure. He’s doing asinine things, you look
around the board, nobody else is objecting, social proof, it’s okay? Reciprocation
tendency, he’s raising the directors fees every year, he’s flying you around in the corporate
airplane to look at interesting plants, or whatever in hell they do, and you go and you really
get extreme dysfunction as a corrective decision-making body in the typical American
board of directors. They only act, again the power of incentives, they only act when it gets
so bad it starts making them look foolish, or threatening legal liability to them. That’s
Munger’s rule. I mean there are occasional things that don’t follow Munger’s rule, but by
and large the board of directors is a very ineffective corrector if the top guy is a little nuts,
which, of course, frequently happens.”
Via: Munger’s Speech
