Hi there Fabulous Traveler,

Have you heard of Charles Munger? He was Warren Buffett's closest adviser, who is considered by many to be the most successful investor in the world. As of February 2017 he is also the second wealthiest person in the United States. Buffet has clearly always been interested in making the right financial decisions. Through his own search for the best evaluation methods, he created a system.

He called this system his checklist of Mental Biases, and using it,  he and his partner became some of the richest men on the planet. Charles Munger later realized his system could be applied universally and sought to teach it to the world. It’s something we can use for all our decision making.

Mental Biases are essentially ingrained mental models that are put into place to help us act quickly in difficult situations. This was very useful back in prehistoric days to keep us alive. They are ‘heuristics’, or ‘mental shortcuts’ we use to make decisions by focusing on one aspect of a more complex problem.

However, today, these Mental Biases tend to get us into trouble. They lead to act irrationally in a variety of environments and when making particular choices.

Have you ever bought a ticket to a bad movie Fabulous Traveler, and stayed until the end? That’s the result of a mental bias that caused you to waste time along with losing money.

To master Mental Fitness Fabulous Traveler, you need to learn how to detect these biases when your mind presents them to you. Being aware of the situations in which you succumb to biases allows you to take a step back and make the right decision every time.

Catch Your Biases Before they Take Hold.

Each day, we encounter many scenarios that can trigger our biases. Biases “turn our brains into mush” as Charles put it, no matter how smart or ‘logical’ we are.

Similar to a trap, it’s easier to avoid Mental Biases than it is to get out of them, and that’s what this letter is all about. Below you can read about the 5 most common mental biases. Study them enough and you’ll be able to spot them a mile away.

The Big 5

1. Loving/Hating Bias

Every week sports fans are disappointed when their favorite team loses, even if they are the worst team in the league. Before a big game, you’ll find fans debating in a sports bar, each utterly convinced that their team will prevail.

They come up with statistics, logical arguments, and historical upsets to prove why their team will win. Yet the other team believes the opposite, just as strongly. How can two groups of people predict, with such strong confidence, two contradicting outcomes?

Because they love their team and hate the opposition.

Humans are wired to naturally favor those we like and disfavor those we dislike, often to an irrational level.

We follow our predispositions to the point that we ignore the faults of our friends and the virtues of our rivals.

When you catch yourself trusting or mistrusting a prediction, ask yourself why?

2. Contrast Bias

Real estate agents love the contrast effect.

Every time someone moves into their city for the first time, the agent takes them to the most overpriced and run down house they can find.

The agent knows the client will hate it. But when they take them to the next house, a nice one that’s still a bit overpriced, the client loves it because it’s so much cheaper and nicer than the first. So they buy it.

The contrast effect can make anything look good by placing it alongside something truly terrible, or vice versa.

Make sure you analyze each and every decision independently of other influences. If something is bad, it doesn’t matter how terrible the thing next to it is, you need to recognize that it’s still bad.

3. Authority Bias

When I was a baby, I always had stuffy, leaky, and congested sinuses.

My mother would take me to the doctor and he would prescribe antibiotics. Obediently, my mother would give them to me. One doctor's casual mistake permanently damaged my immune system.

When the antibiotics didn’t work, the doctor recommended surgery. They were going to drill holes in my head and put tubes in my ears. Had they performed the surgery, I wouldn’t be able to fly in planes, go deep underwater, as well as many other things.

Luckily, this suggestion frightened my mother into visiting a different doctor. The doctor took one look at my red eyes, drippy nose, and puffy cheeks and said I had allergies.

One pill a day and I haven't  had issues since.

What is it about doctors that make us trust them? What about politicians, professors, coaches, and bosses?

The authority bias leads us to trust authority figures to a fault. We forget that they are capable of mistakes and cease to healthily question their assumptions.

No matter how educated, experienced, or confident someone is, they can always be wrong. That’s why it’s important to always look for second opinions, no matter how much you trust your adviser.

4. Social Proof Bias

One day, my brother left the house early to go climbing with his friends.

It was the perfect day for rock climbing. A cool nip in the air to provide the perfect grip on the rock, clear skies, and plenty of sunshine.

There were three of them out on the cliffs, pushing their limits to prove who was the best climber. When one boy completed a particularly difficult route, my brother decided he had to one-up him.

What he did next was the most reckless thing he’s ever done. He tried to climb the wall without a rope. His friends, though clearly worried, failed to speak up. No one was saying anything and no one wanted to be the first to suggest it was a bad idea.

Guess what happened next.

The rock crumbled in his fingertips as he gripped it. He fell 3 stories, lost half of the skin on his torso, and broke multiple bones.

He would never have made that mistake on his own. It was the desire to prove himself to his friends that made him tackle the wall so arrogantly. Luckily, he was left with no permanent injuries.

5. Loss Bias

Charles Munger explains the Loss Bias with a story about his neighbors.

Both millionaires, they lived in the most beautiful spot in the city with 180-degree views of the harbor.

Then, one of the millionaires planted a 3-foot pine tree near the edge of the water. Suddenly, his neighbor only had a 179-degree view of the harbor.

The feud that followed lead to weeks of arguments, headaches, and shouting matches.

One neighbor refused to give up his cute little tree. The other couldn’t manage the loss of 1 degree of vista.

They continued the feud long after the headache outweighed the result of victory.

The lesson? We overvalue the things we already own.

The Lollapalooza Effect

On their own, these biases can cause us to occasionally make irrational decisions. However, Charles warns, they are most dangerous when they team up against us.

He calls this the Lollapalooza effect.

Imagine an open auction. As we bid for an item, we feel that it’s almost ours, so we experience the Loss Bias.

There is also a large group of people watching us. This triggers the Social Proof Bias because we don’t want to lose the auction in front of everyone.

Furthermore, an authority figure is describing the object’s endless value. Convincing us that a beat up old clock is a multi-million dollar antique.

It’s when these biases congregate that we are most at risk of having our brains “turn to mush”.

This Week’s Plan

One-time action

In your Mental Fitness notebook, write down the Big 5 biases in your own words.

Try to describe them without referring back to this letter. By writing them down and thinking about each one, you’ll imprint them into your memory.

Next, write about a time where you succumbed to each of these biases when  it had detrimental effects.

Lastly, try to imagine what the right decision would have been had you recognized the bias in time.

Your goal

5 days this week, during your Evening Ritual, get out your Mental Fitness notebook and write about 2 or 3 Biases that you either recognized or gave in to that day. Really think about it. They are definitely there.

Write about the situation with as much context as possible. List the Bias involved and describe how you either recognized it in time or realized its effects afterward.

Then, write about the opposite scenario. Write about what could have happened had you been controlled by the bias. If you fell victim to the bias, write about what you should have done.

Here’s my entry from yesterday for inspiration:

“Today, I fell victim to the Loss Bias. I went to the store needing to buy a pair of shorts. While I was walking to the changing room, I saw a beautiful pair of pants.

I brought it with me to the changing room and it fit perfectly. I imagined myself wearing them, and suddenly I felt like they were already mine.

The attendant saw the pants in my hand and told me they were flying off the shelves. The fear that I might never get a pair made me buy the pants I didn’t need.

I should have recognized the Loss Bias at play and ignored the fear of losing something I didn’t even own. Had I done so, I would’ve ended up with a fatter wallet and without a pair of pants I didn’t need.”

Write 2 or 3 of these each day and soon you’ll be able to recognize and avoid all of the Big 5 Biases.

Tap Accept below when you're ready to learn some Biases.

Throughout your day, try to recognize these Biases and think “I’ll write about this moment tonight.”

What Are We Doing?

Mental Biases are excellent hijackers of the rational decision making process. By learning to recognize them, we are learning to tune into our brain  to focus on the useful thoughts and ignore the dangerous ones.

I hope these Mental Biases are as much of an eye-opener for you as they were for me.

I’ll talk to you soon,