The "Liking-Loving Tendency" causes investors to identify personally with their holdings. They ignore faults, favor associated things, and distort facts to maintain positive feelings. This emotional attachment leads them to rationalize bad news and hold deteriorating assets for too long, destroying capital.

While studying cognitive biases (like Charlie Munger advises) is useful, it's hard to apply in real-time. A more practical method for better decision-making is to use a Socratic approach: ask yourself simple, probing questions about your reasoning, assumptions, and expected outcomes.

Post-mortems of bad investments reveal the cause is never a calculation error but always a psychological bias or emotional trap. Sequoia catalogs ~40 of these, including failing to separate the emotional 'thrill of the chase' from the clinical, objective assessment required for sound decision-making.

Work by Kahneman and Tversky shows how human psychology deviates from rational choice theory. However, the deeper issue isn't our failure to adhere to the model, but that the model itself is a terrible guide for making meaningful decisions. The goal should not be to become a better calculator.

Humans naturally conserve mental energy, a concept Princeton's Susan Fisk calls being 'cognitive misers.' For most decisions, people default to quick, intuitive rules of thumb (heuristics) rather than deep, logical analysis. Marketing is more effective when it works with this human nature, not against it.

Kahneman's research reveals a critical asymmetry: we prefer a sure gain over a probable larger one, but we'll accept a probable larger loss to avoid a sure smaller one. This explains why investors often sell winning stocks too early ("locking in gains") and hold onto losing stocks for too long ("hoping to get back to even").

Our brains are wired to find evidence that supports our existing beliefs. To counteract this dangerous bias in investing, actively search for dissenting opinions and information that challenge your thesis. A crucial question to ask is, 'What would need to happen for me to be wrong about this investment?'

In situations like investing, where stakes are high but control is limited, humans invent compelling narratives they want to believe. Morgan Housel calls these "appealing fictions," which can lead investors to ignore reality and make poor decisions based on comforting stories.

Conventional wisdom says to eliminate emotion from investing. Nima Shaye argues that emotions like awe at a product are valuable signals. The real danger is the ego, which distorts perception through fear of looking wrong, inability to admit mistakes, and an illusion of control.