Video Link: https://youtu.be/QjzJnURhTZ0
In this episode, Charlie Munger shared the eleventh causes of human misjudgment, bias from deprival super reaction syndrome.
In this episode, you’ll learn:
What is bias from deprival super reaction syndrome?
Coke & Pepsi business case of Deprival Super Reaction Syndrome.
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CHARLIE MUNGER 00:08
Eleven, bias from Deprival Super Reaction Syndrome, including bias caused by present or threatened scarcity, including threatened removal of something almost possessed but never possessed. Here I took the Munger dog, a lovely harmless dog. The one way, the only way to get that dog to bite you was to try and take something out of its mouth after it was already there.
Any of you who’ve tried to do take-aways in labor negotiations will know the human version of that dog is there in all of us. I had a neighbor, a predecessor, on a little island where I have a house, and his next-door neighbor put a little pine tree in that was about three feet high, and it turned his 180-degree view of the harbor into 179 and three-quarters. Well, they had a blood feud like the Hatfields and McCoys, and it went on and on and on. I mean, people are really crazy about minor decrements down.
And then if you act on them, you get into reciprocation tendency because you don’t just reciprocate affection, you reciprocate animosity. And the whole thing can escalate, and so huge insanities can come from just subconsciously over-weighing the importance of what you’re losing or almost getting and not getting.
The extreme business case here was New Coke. Now Coca-Cola has the most valuable trademark in the world. We’re the major shareholder. I think we understand that trademark. Coke has armies of brilliant engineers, lawyers, psychologists, advertising executives, and so forth. And they had a trademark on a flavor, and they’d spent better part of 100 years getting people to believe that trademark had all these intangible values, too. And people associate it with a flavor, so they were gonna tell people not that it was improved ’cause you can’t improve a flavor. If a flavor’s a matter of taste, you may improve a detergent or something, but telling you’re gonna make a major change in a flavor, I mean… So they got this huge Deprival Super Reaction Syndrome.
Pepsi was within weeks of coming out with Old Coke in a Pepsi bottle, which would have been the biggest fiasco in modern times. Perfect, pluperfect insanity. And by the way, both Goizueta and Keough are just wonderful about it. I mean, they just joke. I mean, they don’t… Keough always says I must’ve been away on vacation. He participated in every single… he’s a wonderful guy. And by the way, Goizueta’s a wonderful, smart guy, an engineer.
Smart people make these terrible blunders. How can you not understand Deprival Super Reaction Syndrome? But people do not react symmetrically to loss and gain. Now maybe a great Bridge player like Zeckhauser does, but that’s a trained response. Ordinary people subconsciously affected by their inborn tendencies.