How the brain's tendency to grab the most readily available option may not be the best decision
17-Sep-2015 •Mohammed Ekramul Haque
What is it? This is the tendency of the human brain to overweigh conveniently available information. Munger warns against the folly of this tendency. He says, "An idea or a feat is not worth more merely because it is easily available to you."
Munger gives a beautiful example of the availability-misweighing tendency with a Frank Sinatra song that goes, "When I'm not near the girl I love, I love the girl I'm near."
Availability plays an important role in the functioning of the brain. "Man's imperfect, limited-capacity brain easily drifts into working with what's easily available to it. And the brain can't use what it can't remember or what it is blocked from recognizing because it is heavily influenced by one or more psychological tendencies bearing strongly on it, as the fellow is influenced by the nearby girl in the song. And so the mind overweighs what is easily available and thus displays the availability-misweighing tendency."
How do you stay away from the availability-misweighing tendency? Munger recommends using checklists, which, he says, he has found helpful. A second antidote is to behave like Darwin and search out for disconfirming evidence. Yet another is to search for people who are sceptical of incumbent notions. They can help you.
Often found in: Instances where the brain the most readily optionavailable to it
In Corporations: Availability works wonders for corporations which have their products most closely available to prospective customers. That is how global cola majors Coca-Cola and Pepsi play their game - being the most readily available option. Charlie Munger says, "Ask the Coca-Cola Company, which has raised availability to a secular religion, if availability changes behavior. You will drink a helluva lot more Coke if it's always available. I mean availability does change behavior and cognition."
In investing: This tendency provides fuel to 24-hour business channels, which analyse threadbare how a particular quarter's performance can make or break a company. What the reporters do here is use the most readily available information and try to extrapolate it into the future. So, a company that has performed well gets a pat on the back and is often hard-sold, whereas one that may have seen a dip in the most recent performance is blasted to kingdom come. Take Sun Pharma's most recent quarterly result. The company, struggling to put Ranbaxy in shape, has warned that it could take more time than thought earlier. Weak operating performance has seen analysts downgrade the stock. Does Sun's current problems appear a long- term headache? Sun has exhibited in the past that it can successfully assimilate its acquisitions, Ranbaxy being its biggest. Yet assuming that the current problems will persist forever or that Sun may not be able to turn around Ranbaxy is giving very narrow space to the founder of the country's largest and most successful pharma company. The company may indeed be successful.
You just read about one of the misjudgements people generally make while investing. Read 25 ways to (Not) make mistakes to get an account of Charlie Munger's twenty-five typical misjudgements, along with our commentary on how they fit into Indian businesses and Indian investments.