The Innoculated Investor recently posted a transcription of 39 questions with Charlie Munger. It was a fantastic read, and I’d suggest you take a look.
What is fascinating about Warren & Charlie is their understanding of human behavior, and the understanding of irrationalities or rationalities (depending on your view) that models can’t explain. Charlie goes on to explain how economists, using marginal utility, could not understand why popcorn and drinks are priced so high at theatres relative to their prices.
Charlie calls these situations lollapaloozas, and believes they are best explained by a holistic approach from multiple disciplines vs. an exclusively economic lens. He then goes on to explain to explain many confounding circumstances, such as the failure of Keynesian economics and failed companies, using lollapaloozas. His point is that quite often we get caught following processes, models and logic and fail to think outside of our training. For example, perhaps Keynesian economics is failing not because the model is ineffective, but because it partly relies on the publics ignorance of economic theory. At a high level, this has changed as a result of recessions and recoveries.
This comes back to a point I often make, and is a key learning from when I was troubleshooting business units: that quite often individuals understand their models, customers and companies, but rarely have an implicit understanding of macro trends. An implicit understand is hard to teach, but increasingly I see companies and executives move in directions and markets they do not implicitly understand (‘China is booming, let’s do business there’.)
I’ve embedded the interview with Charlie below. It is worth the read.