Sunday, November 22, 2015

Dog Training the Corporation

Charlie Munger to the left, Warren Buffet to the right.
In a 1995 speech, Charlie Munger, the life-long investment partner of Warren Buffet, talked about the “Psychology of Human Misjudgment.”

Munger's 24-point treatise begins by observing that that there is a dramatic “under-recognition of the power of what psychologists call ‘reinforcement’ and what economists call ‘incentives.’”  Munger notes:

Well you can say, ‘Everybody knows that.’ Well I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it. And never a year passes but I get some surprise that pushes my limit a little farther.

Read the whole thing!  Munger mentions Skinner 16 times, Pavlov 12, and operant conditioning three times.

Incentives are a double-edged sword, of course.  You can incentivize people to do good and you can incentivize them to do evil as well.

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