Their wordsThis maxim is a wise guide to a great and simple precaution in life: Never, ever, think about something else when you should be thinking about the power of incentives.
Charlie MungerWarren Buffett's business partner and vice chairman of Berkshire HathawayA man has an acculturated nature making him a pretty decent fellow, and yet, driven both consciously and subconsciously by incentives, he drifts into immoral behavior in order to get what he wants, a result he facilitates by rationalizing his bad behavior, like the salesmen at Xerox who harmed customers in order to maximize their sales commissions.↗The Psychology of Human Misjudgment (revised text, 2005)fs.blog · c. 2005All korrents from this piece
Their wordsA man has an acculturated nature making him a pretty decent fellow, and yet, driven both consciously and subconsciously by incentives, he drifts into immoral behavior in order to get what he wants, a result he facilitates by rationalizing his bad behavior, like the salesmen at Xerox who harmed customers in order to maximize their sales commissions.
Charlie MungerWarren Buffett's business partner and vice chairman of Berkshire HathawayWidespread incentive-caused bias requires that one should often distrust, or take with a grain of salt, the advice of one’s professional advisor, even if he is an engineer. The general antidotes here are: (1) especially fear professional advice when it is especially good for the advisor; (2) learn and use the basic elements of your advisor’s trade as you deal with your advisor; and (3) double check, disbelieve, or replace much of what you’re told, to the degree that seems appropriate after objective thought.↗The Psychology of Human Misjudgment (revised text, 2005)fs.blog · c. 2005All korrents from this piece
Their wordsWidespread incentive-caused bias requires that one should often distrust, or take with a grain of salt, the advice of one’s professional advisor, even if he is an engineer. The general antidotes here are: (1) especially fear professional advice when it is especially good for the advisor; (2) learn and use the basic elements of your advisor’s trade as you deal with your advisor; and (3) double check, disbelieve, or replace much of what you’re told, to the degree that seems appropriate after objective thought.
Their wordsYou also have to allow for the self-serving bias of everybody else, because most people are not gonna remove it all that successfully, the only condition being what it is. If you don’t allow for self-serving bias in your conduct, again, you’re a fool.
Their wordsAnd then you have a choice which is do you blame the people who are exhibiting the terrible behavior or do you blame the people who created the incentives? Right? And and and he he believes and I agree on this. I I think 100% you blame the people who created the incentives.
Their wordsSo as I like to say, incentives drive all human behavior and that certainly applies in the business world. So understanding the people and what drives them, and what the actual financial and other incentives of a business, are very important part of the analysis for investing in a company.