Robert Cialdini

Cialdini according to Michael Burry

• Cialdini describes “Fixed Action Patterns” deeply embedded in the human mind. In short, they are:
  • Scarcity: The more limited something is, the more people value it – regardless of its true value
    • 3-1c2e4.1 ‘Scarcity’ - Knowledge is rare but never a scarce resource
  • Reciprocation: If someone does us a favor, or gives us something, we feel obligated to reciprocate their generosity somehow
    • 2-5 ‘Reciprocity’ - You never know who you touch. You never know how or when you’ll have an impact, or how important your example can be to someone else.
  • Social Proof: We tend to mimic the behavior of the crowds around us, especially in the presence of uncertainty
    • 2-1a6b ‘Pavlovian association’ & ‘Social proof’ - Understand the arbitrary association formed within your culture. There are no pure indexes for humans.
  • Liking: It is easier for us to be persuaded by the opinions of those whom we like or find attractive
    • 3-1c3c4 ‘Tendency to distort due to liking or disliking’ - Never be ashamed of citing a bad author if the line is good.
  • Authority: The opinions of anyone viewed as an “authority” carry a lot of weight, even in areas where the authority has no expertise
  • Consistency/Commitment: Once we’ve arrived at a conclusion or made a choice, we often stick by it
    • 2-4a ‘Commitment & Consistency bias’ - To change your behavior, make changing your belief difficult
  • Unity: When we identify closely with a given group, we revert to tribalistic behavior and favor those in our group while disfavoring those not in it
• These shortcuts can cause harmful or perverse outcomes however, and this is partly enabled by the information explosion
  • E.g., the NFT craze—the Scarcity principle took hold
    • <> Eric Voskuilrevisit
• The modern world has inundated us with endless streams and unimaginable amounts of information, and it seems as though we cannot handle this without more use of these shortcuts.
• In this way, more information has not led to a more knowledgeable population making wiser decisions. Instead, information overload triggers Fixed Action Patterns and other cognitive biases. The result: the more information available to us, the more we will fall back on shortcuts.
  • <> 5-2a0 Know what to measure
    • <> 4-1a3b Go to specific places to get specific feedbacks <> 3-1c3c6 Nerds have an advantage in doing great work because they expend little effort on seeming anything
• Munger grouped these biases under the banner “The Psychology of Misjudgment.” A famous 1995 speech that Munger gave at Harvard is a must read for investors.revisit
• As investors, we might do well to learn to recognize and to fear the places where these shortcuts seem to pile up in a cheery consensus, while taking advantage of the rare moments when these shortcuts pile up in a gloomy manner, thereby allowing us to buy great businesses at super cheap levels.
  • <> 3-1c3c4.3 “Be fearful when others are greedy and be greedy only when others are fearful”
• This is the essence of Ben Graham’s “Mr. Market” analogy, and the information explosion has only made Mr. Market more extreme over the years.
  • <> 2-1a7a6 Mr. Market is there to serve me, never to guide me