Contrast-Caused Misperceptions In Investing

Part three of a short series on Charlie Munger’s Human Misjudgment Revisited:

“The sensation apparatus of man is over-influenced by contrast – it has no absolute scale but it has a contrast scale. And it’s a scale with quantum effects too – it takes a certain percentage chance before it’s noticed. Here the great truth is that cognition mimics sensation. People are manipulating you all day with contrast. If it comes to you in small pieces you’re likely to miss it.” – Charlie Munger

Psychological distortions caused by sensation, perception, and cognition are some of the most dangerous in the investment (and real) world because they are so difficult to see initially. Even correct decisions may be influenced by these factors....