Munger Likes Reciprocity
Picking up where we left off last week, here is tendency #9 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.
Tendency #9 – Reciprocation Tendency
Good or bad, reciprocity is simply human nature. Key here is good or bad; I think that probably most people, when they think reciprocity, first think about positive things. Someone opens the door for me on the way in, maybe I get the chance to open the door for them on the way out. My buddy buys me a delicious iced coffee today, maybe I get the chance to reciprocate and buy him one tomorrow. But the knife cuts both ways and reciprocity can be as bad as it can be good.
War is a great example. Country A bombs country B and country B then reciprocates the “favor” and bombs country A right back; and on it goes. It’s pretty interesting what history has taught us in regard to reciprocity. Munger suggests that:
• Nature has no algorithm that makes “turn-the-other-cheek” behavior a booster to species survival;
• It’s not clear that a country would benefit from abandoning reciprocating disfavors directed at outsiders; and
• If one considers turn-the-other-cheek behavior good as it relates to outsiders, then it’s going to be a long road ahead.
And it’s no accident that reciprocity is tendency #9; it follows tendencies that it has ties with. Not only does reciprocity tie in with the power of incentives, but it also joins the Inconsistency-Avoidance tendency as it helps cause the fulfillment of promises struck during bargaining or deal-making as well as encouraging appropriate behavior from the people we most expect it (and all others for that matter) like priests, doctors, teachers, etc.
My favorite part of this reading came from the account of a famous psychology experiment conducted by Robert Cialdini. In it, Cialdini asked a group of “compliance practitioners” to go around his campus and ask perfect strangers if they would be willing to supervise a bunch of juvenile delinquents on a trip to the zoo. Approximately one in six people agreed to do this. He then took a different approach to this situation. First he had his practitioners go around asking strangers (different ones from the initial experiment) if they would devote a large chunk of their time each week to the supervision of juvenile delinquents. Not surprising this earned a big fat goose egg; a 100% rejection rate. However he added one follow-up question asking if they would at least consider spending just one afternoon taking a group of juvenile delinquents to the zoo. Upon the follow-up he received one in two positive responses; triple the first experiment.
What this all boils down to is that in the second experiment, Cialdini’s practitioners made a small concession. In turn, the individuals questioned in the experiment reciprocated with a small concession as well.
Do we ever make one-sided concessions in investing? Or is it more of a “you scratch-my-back-I’ll-scratch-yours” kind of thing. It could be argued (and frequently is with great success) that institutions and funds have more consideration and pull with companies versus us individual investors. That’s why it’s extremely important we have a process and understand what qualifies and disqualifies our investments. Know where you’ll draw the line before you even get started. Then you won’t catch yourself negotiating your way through a potentially troublesome situation.
It’s always fun on Market Foolery: http://bit.ly/gEjds5
Looks like I’m not the only one seeing some potential in our little bank from Georgia: http://bit.ly/e1A3qp
For whatever reason, I don’t find myself too concerned with this move by Kraft: http://bloom.bg/hFv5KH
Straight from the Onion
We can only hope for the best: http://onion.com/i7HnIw
Jason owns shares of Ameris Bancorp