The lollapalooza tendency comes into action when more than one of the previously mentioned tendencies work together towards an outcome
28-Sep-2015 •Mohammed Ekramul Haque
What is it? The dictionary definition of 'lollapalooza' is: one that is extraordinarily impressive; also: an outstanding example. The lollapalooza tendency comes into action when more than one of the previously mentioned tendencies work together towards an outcome. For instance, when once asked what brought about the current economic mess, Munger replied, "It was a lollapalooza event - a confluence of causes that is how complex systems work."
Often found in: Instances where more than one psychological tendencies work towards a result.
The lollapalooza effect can be used with positive benefits, for example, in the Alcoholics Anonymous programme. Says Munger, "The system of Alcoholics Anonymous: a 50 per cent no-drinking rate outcome when everything else fails? It's a very clever system that uses four or five psychological systems at once toward, I might say, a very good end."
One of the more pronounced examples of the lollapalooza effect is visible in auctions, wherein a number of tendencies work together - often, not in the interest of the bidder. Says Charlie Munger, "Well the open-outcry auction is just made to turn the brain into mush: you've got social proof, the other guy is bidding, you get the reciprocation tendency, you get the deprival super-reaction syndrome, the thing is going away... I mean it just absolutely is designed to manipulate people into idiotic behavior."
What is the importance of studying and understanding the lollapalooza effect? It makes you think how the different tendencies work together and cause a response. Let's see what Munger says. He says, "Why would anyone think his study of psychology was adequate without his having endured the complexity involved in dealing with intertwined psychological tendencies?"
In investing: Like in any other field, it is important to understand how these tendencies work together to affect your choices and decisions. If you think you can ignore the lollapalooza effect when it comes to investing, here's a final piece of advice from Munger, "Maybe you think this doesn't happen in picking investments? If so, you're living in a different world than I am." Avoid this tendency and get better at investing.
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.