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Tuesday, June 26, 2012

Academic Economics: Strengths and Faults After Considering Interdisciplinary Needs - a speech by Charles T Munger


It is a pretty interesting speech by Vice Chairman of Berkshire Hathaway.   The text of the speech can be found here.

The table of content is as follow:

TABLE OF CONTENTS
Page
Introduction by Rajnish Mehra ...................................................................................................... 1
Munger’s Opening Remarks:......................................................................................................... 1
Non-use of Efficient Market Theory at Berkshire ............................................................. 2
Personal Multidisciplinary Education................................................................................ 3
The Obvious Strengths of Academic Economics .............................................................. 4
What’s Wrong with Economics......................................................................................... 5
1) Fatal Unconnectedness, Leading To “Man With A Hammer
Syndrome,” Often Causing Overweighing What Can Be Counted ........... 5
2)  Failure To Follow The Fundamental Full Attribution Ethos of Hard
Science ....................................................................................................... 6
3) Physics Envy.............................................................................................. 7
Washington Post case study....................................................................... 7
Einstein and Sharon Stone ......................................................................... 7
4)  Too Much Emphasis on Macroeconomics................................................. 8
Case study:  Nebraska Furniture Mart’s new store in Kansas City ........... 8
Case study:  Les Schwab Tires.................................................................. 9
Causes of problem-solving success ........................................................... 9 
5)  Too Little Synthesis in Economics.......................................................... 10
6)  Extreme and Counterproductive Psychological Ignorance...................... 13
7)  Too Little Attention to Second and Higher Order Effects....................... 14
Mispredicting Medicare costs.................................................................. 14
Investing in textile looms......................................................................... 14
Workman’s comp madness...................................................................... 15
Niederhoffering the curriculum ............................................................... 15
8)  Not Enough Attention to the Concept of Febezzlement .......................... 17
9)  Not Enough Attention to Virtue and Vice Effects................................... 18
Religion.................................................................................................... 18
Pay for directors and judges..................................................................... 18
Not a vice that some systems are deliberately made unfair..................... 19
Contributions of vice to bubbles.............................................................. 19
Paradoxical good contributions from vice; the irremovability of
paradox......................................................................................... 19
Conclusion ....................................................................................................................... 20
Clinging to failed ideas – a horror story .................................................. 20
Repeating the big lesson .......................................................................... 21


Some quotes from the speech:

But you shouldn’t accept all my notions because you’ll risk becoming unemployable.  You shouldn’t take my notions unless you’re willing to risk being unemployable by all but a few.


Keynes said “It’s not bringing in the new ideas that’s so hard.  It’s
getting rid of the old ones.”  And Einstein said it better, attributing his mental success to
“curiosity, concentration, perseverance and self-criticism.”  By self-criticism he meant becoming  good at destroying your own best-loved and hardest-won ideas.  If you can get really good at
destroying your own wrong ideas, that is a great gift.




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