AI-powered
podcast player
Listen to all your favourite podcasts with AI-powered features
1min snip
TIP571: Charlie Munger & The Psychology of Human Misjudgment
We Study Billionaires - The Investor’s Podcast Network
The Impact of Recent Experiences on Investment Behavior
When people experience failures or financial losses, they often become overly pessimistic and risk-averse. This is because humans tend to overreact to recent experiences. It's similar to how a child won't touch a hot stove after getting burned once. If a retail investor loses money in a certain type of stock, they are unlikely to invest in that type again due to the negative association. However, it's important to note that good consequences don't always mean a good decision was made, and bad consequences don't always mean a bad decision was made. To incentivize good behavior and discourage bad behavior, pleasurable experiences should be broken into segments while painful experiences should be given all at once. This principle is similar to how kids' presents are usually placed in different boxes at a birthday party. Getting rewards frequently feels better, like receiving $50 twice instead of $100 once, and losing $100 once feels less bad than losing $50 twice. Overall, humans prefer a sequence of experiences that improve over time, such as gaining $50 after losing $100 rather than the other way around.
00:00
Transcript
Episode notes
Get the Snipd
podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered
Discover
highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any
moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share
& Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered
podcast player
Listen to all your favourite podcasts with AI-powered features
Discover
highlights
Listen to the best highlights from the podcasts you love and dive into the full episode