“Hey Charlie, if you throw a frog into hot water the frog will immediately jump out. But if you put the frog into room temperature water, then slowly, slowly heat the water up, the frog will die before it is aware of the change.”
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@Charlie Munger: “Talking about bias from contrast-caused distortion of sensation, perception and cognition, here is the great experiment psychology professor Cialdini did in his class. He took 3 buckets of water: one hot, one cold and one at room temperature. He called one student to put the left hand in the hot bucket, right hand in the cold bucket, then taking both hands into the room temperature bucket, and of course, one hand felt hot and one hand felt cold despite putting into one temperature level.
This can be explained as our brain recognizes the contrast sensation heavily, it has no absolute scale. Maybe you remember about the magician who removes your watch when you are not noticing it? I certainly bet the he applies the same thing about contrast bias of our human brains. Cognition mimics sensation, and cognition manipulators take advantage of the contrast. Another popular example in business in the real estate broker. One he drives you to the town you would like to buy, the first route is into two awfully overpriced houses you ever seen, and then he drives you to the third moderately overpriced house and you bought it!
You think you immune from these things and you laugh, but I want to tell you you aren’t.
My favorite analogy is from a friend I used to play bridge with him. He said: ‘Hey Charlie, if you throw a frog into hot water the frog will immediately jump out. But if you put the frog into room temperature water, then slowly, slowly heat the water up, the frog will die before it is aware of the change.’ Well I don’t know if whether that’s true about the frog, but it was true as hell about many businessmen I know.”
The talk about contrast distortion bias from Mr. Charlie Munger ends there, leaves us with a lot to think for. With the pride we always have, we thought we are immune to these biases. However in the stock market, the fact that controlling your EQ weaknesses is always more important than the IQ score that we have. And with the recent bull market, creating numerous FOMO, overconfidence, overoptimism tendencies, we must not become aggressive, forgetting the signature boiling frog story, or we will be soon drowned in the same “boiling water” that Mr. Munger had already warned us.”
(quote & translate from The Golden Newsletter Vietnam article: https://newslettervietnam.com/chuyen-ngan-loai-ech-va-nhung-doanh-nhan-toi-biet/)