Seeing beyond the hammer

Understanding why smart people can have such varying opinions using Charlie Munger’s thinking framework.

This post explores Munger's multi-disciplinary decision-making model: why we're all trapped in our own version of reality, and what it takes to break out of it.

I recently read Poor Charlie's Almanack, a book about Charlie Munger that sparked a series of reflections on decision-making, why people think the way they do, and why it's often so difficult to change someone else's mind, or for them to change yours.

A person's life is shaped by the series of decisions they make. While a single choice may not always matter in the grand scheme, small improvements in each decision over time creates a profound impact. If we can learn to make better decisions by adopting a stronger decision-making model, we can also create a better life.

Throughout the book, Munger emphasises a concept he calls "multi-disciplinary decision-making." He often illustrates this with an adage:

"To a man with a hammer, every problem looks like a nail."

I understood the concept in theory, but I didn't really grasp it. What did it actually mean? How did it apply to my life? After thinking it over for a while, I finally had an "aha" moment that opened my eyes to many past experiences.

The family business

My family ran a small but relatively successful business, which they and a few others built from the ground up. Growing up, I saw firsthand how acting in the best interests of the business had an immensely positive ripple effect on the community.

My parents were able to support me financially, provide jobs for fellow immigrants, and even offered help to friends and family during tough times. I saw this small business support many families, make customers happy, and help popularise Chinese cuisine in a small city.

A large part of what made it successful was that my parents treated people fairly and didn't exploit employees or the community. No single party took an outsized share, everyone benefited. Over time, acting in the best interests of the business led to the best outcomes.

So when I hear arguments about blindly raising the minimum wage or adding employee benefits to fight the "big bad corporate bosses," my immediate reaction is scepticism. If we prioritise employee benefits at the expense of employers, eventually business owners will wonder why they're taking all the risk for diminishing rewards. Why not just close down and work for someone else? And if that happens, everyone loses their jobs.

I'd find myself in debates with people on the opposite side of these issues, and we could never reach common ground. Eventually, I concluded that I must be smarter than they were, that they just didn't get it.

Have you ever read comments from Redditors, or worse, Facebook where you think this idiot has no idea?

Two versions of reality

After reflecting on Munger's model, I finally understood the root of these disagreements.

In my version of reality, prioritising the business is the best decision, because that's what I know. But perhaps the person I'm debating with grew up in a different environment. Maybe their parents were employees who worked for bosses that didn't care, who exploited workers and the community. For them, the best choice isn't to act in the interest of the company, it's to protect themselves and prioritise the welfare of employees, because they see bosses as inherently exploitative.

That is their version of reality. And it's just as real to them as mine is to me.

Here's a simpler way to think about it: imagine I'm from Earth, where water is cold, and someone else is from Mars, where water is hot. We could never convince each other otherwise. If we're then placed on a third planet, this becomes risky, we might assume water is cold and jump into boiling water, or vice versa.

“We all carry cognitive biases shaped by our own versions of reality. If we don't consider other possible realities, our decisions may be limited or even wrong, because we're trying to fit a unique situation into a single model.”

If you put a doctor, accountant, psychologist, athlete, and scientist in a room and ask them to solve the same problem, each would approach it differently based on their expertise. The best solution would likely require a blend of all their perspectives. By drawing on multiple disciplines, we can make better decisions.

The takeaway

Going back to the "third planet" example: instead of blindly jumping into water I assume is cold, I should stop, dip my toe in, and assess the situation before making my decision.

When assessing a company, or deciding how to act as a business owner or employee, I need to evaluate the specific situation rather than assuming that acting in the company's best interest is always the right path. If the company has strong leadership, my model might work well. But if the management, conditions, or culture are very different from what I'm used to, it may be wiser to adjust my approach.

Three things changed for me after understanding this:

First, being open-minded became much easier. I now understand that there is rarely a one-size-fits-all answer and that every situation can be different.

Second, if we go through life with only one discipline, we are heavily restricting our ability to make the best decision. Through learning, people can broaden their decision-making framework by adapting concepts from other disciplines, psychology is an easy one that Munger constantly points to.

Third, and this probably saves me the most time, I've realised I can't always change someone's mind. It's the same as telling them the water in the ocean is boiling hot. Sometimes you just have to accept that their reality is different from yours, and move on.