Three Questions about Charlie Munger

Bryan Kelleher, a CPA from Ohio, who is fascinated by Mr. Munger's teachings, sent me a mail in which he asked me three questions. I am listing here, Bryan's questions, and my response:

In one of his most recent speeches on Academic Economics, he posed several issues and questions I have been pondering:

1. How some consultants in a small South American country helped eliminate corruption and turn the economy around?
2. How Mr. Munger is way ahead of other experts in the principles of Mind control and why it works on Moonies?
3. How a slot machine receives better results than other machines based on the same payouts, same locations, same design, etc?

My reply:

Thank you for your mail . . .

I have read the Munger speech you referred to in your mail. If you have not already got this book, I recommend that you buy it. It contains lots of Munger wisdom:

Now, here are my responses to your questions:

1. South American Company - the publishers of the above book (see page 448) asked Mr. Munger the same question you have asked. And his response was:

"Oh yes - I ran across that fascinating story not in an economics book, but in a psychology paper. I could take it out of my files for you, but its too much effort, so I wont."

The editor noted: "Sometimes we remain in the dark."

2. Moonies:
If you read the talk by Mr. Munger on psychology - "The Psychology of Human Misjudgment- you will have your answer. The earlier version of this talk can be seen from here.

The greatly updated version of this talk is in the book mentioned earlier.

Basically, Reverend Moon used a combination of psychological mental models which produce the effect desired by him. Some of them were Authority, Social Proof, Stress, and Reciprocation.

3. Slot Machines - this is an example of deprival super-reaction - for meaning read the talk on psychology. The difference between the two slot machines is this : even though the overall probability of winning or losing is the same in both, one machine has a lot more "near misses" than the other one. This triggers the deprival super-reaction in the gambler who now tends to play more, which translates into more collections for the casino from the "doctored" machine.

The psychology of a near miss is a very powerful influence. You can learn more about it from here.