In his 1995 talk at Harvard, Charlie Munger, an American investor, and right-hand man of Warren Buffett, coined something called the “Lollapalooza effect”. Munger’s term for the phenomenon wherein different biases layer and interlock with one another is the “Lollapalooza effect.” It occurs when multiple different tendencies and mental models combine to act in the same direction. This makes them especially powerful drivers of behavior, and can lead to both positive and negative results.
Munger used open outcry auctions as an example of the Lollapalooza effect. Participants are pushed to bid by reciprocity (“I should buy because I was invited to the auction”), consistency (“I have been on record saying that I like this so I must buy it”), commitment tendency (“I am already bidding so I must continue”), and social proof (“I know that buying is good because my peers are doing it”).
Lollapalooza is a great problem-solving tool. When you learn the important mental models and start applying them for problem-solving, you will realize that multiple models seem to converge in one direction and together they form the critical mass for a cascading of positive effects – a lollapalooza. It simplifies your decision making tremendously.
According to Munger, a majority of the worldly problems would be no-brainers if you look at them through the lens of lollapalooza. To wrap our head around Munger’s idea of lollapalooza effect, let’s look at a case which exemplify this concept: a Tupperware Party.
A Tupperware party, according to Munger, is the best example of Lollapalooza effect because multiple psychological biases work in the same direction and push people towards irrational decisions. Famous psychologist Robert Cialdini, in his book Influence, has written extensively about how the structure of Tupperware parties is designed to exploit many of the human biases.
A Tupperware party takes advantage of four weapons of influence, i.e., reciprocity, liking bias, social proof, and confirmation bias. Here’s a crash course on these biases.
Reciprocity is the deep-seated urge to return a favour. When someone does something nice for you, it sows the seed to reciprocate. This feeling of obligation to repay is what’s known as reciprocation bias. Even if we didn’t need the initial favour in the first place, it’s hard to get rid of the feeling that you have to return the favour in some form. This urge to reciprocate may lead us to do things which we wouldn’t have done otherwise.
Liking bias explains why people prefer to do business with people they like rather than people they don’t like. And who do we like? Those who are similar to us, who cooperate with us, who makes us feel special. Especially our friends and neighbours. We find it hard to refuse a request that comes from such people.
Social proof is a way to deal with uncertainty. When we’re in doubt we often make decisions by imitating what others are doing. Humans find great comfort in social validation. Following others usually serves well under normal circumstances but social proof can lead us astray when making crucial decisions.
Commitment and consistency bias is when we resist changing our views even if we’re wrong. Once we’ve taken a stand on something, it’s cognitively tough to change it even when we’re shown evidence that counters our original beliefs. The more we affirm our past decisions the stronger we believe in them.
Back to Tupperware party.
The invite for the Tupperware party comes from someone you like — a friend, a colleague, a neighbour or a relative. Liking bias at play. The party then starts with a game where everyone is allowed to win a prize. Winning “prizes” invokes the force of reciprocation. You want to pay back those who gave you the free items. Then old customers are asked to share the benefits of the Tupperware products. This unleashes the commitment bias. Then you see other people at the party buying items and that triggers the social validation — since other similar people want the product; it must be good. Social proof bias at work.
Combine these effects, and it’s not hard to see why many people try to avoid going to a Tupperware party in the first place, because they know that once they are there, they will buy something.
So what can you do? Try out these mental models.
Mental Model #1: Using “Social Proof” to your benefit.
This can also be called the herd instinct where you think and act like others around you. In a workplace, herd instinct leads to uninspiring, run-of-the-mill thinking that doesn’t help the company. If you’re following the herd instinct, you’re not thinking for yourself and are instead blindly following the social norm and practices. When businesses have to grow, herd instinct is a confirmed dampener. It must be each of our pursuits to ensure that we use our time, not to parrot other people’s views, but develop original, insightful analyses that can help our progress at the workplace. However, it’s worth noting that herd might not be all bad. There are communities, such as the Alcoholics Anonymous, where being part of them and using our tendency of imitating others can help us live more valuable lives.
Mental Model #2: Using First Principles
Write down your goals to understand where you want to go Elon Musk, James Clear writes, ran into a major challenge while forming his company SpaceX: the astronomical cost of purchasing a rocket. Instead of giving in, he looked at first principles and decided to build a rocket from scratch. Today, other companies are 3D printing entire rockets to bring costs down even further. This is, in fact, a result of a first principles thinking. What first principles thinking suggests is that we must dig deeper till we are left with the foundational truths of the problem. When you understand why, you work better.
Mental Model #3: Ditching Confirmation Bias, Embracing Rationality
The problem, however, is that we ignore the ‘why’ and disconfirm available evidence. This means that we develop a bias so strong that any contrary information is automatically filtered out. Our failing to evaluate an unbiased position leads to, what should be a carnal business sin, irrationality. Charles Darwin, for example, trained himself to consciously pay attention to any evidence that would disprove what he had worked on so far. He did what was the opposite of confirmation bias. In fact, he particularly paid more attention to the corollaries the better he thought his hypothesis was. Warren Buffett, much to Munger’s delight, is credited with similar psychological insight.
It’s all well and good to say, “Well, I’m smarter than the crowd, so I won’t worry about being swept up by it.” But by their very nature, Lollapalooza effects work in the subconscious mind, and are not easily controlled by the conscious brain. So when you are presented with a similar situation, take a step back and recognise this.
Check out my related post: Can you get rid of the bias in your head?