Charlie Munger’s Supply Demand Curve Puzzle - Commoncog

What a puzzle from Charlie Munger tells us about a supply-side business model with unreasonably high returns.

This is a companion discussion topic for the original entry at

About a decade ago I read Robert Cialdini’s Influence, after hearing Buffett and Munger recommending it effusively in multiple places. I remember finishing the book and coming away unimpressed.

About a month ago, I read an interview with Alice Shroeder that changed my view on Influence. (h/t Neckar’s Behind the Curtains of Buffett’s Life):

When I read Cialdini I thought, “Gosh. It’s as if Warren wrote this book based on his experience.”

Miguel: He understands the psychology of people.

Alice: Reciprocity and Social Proof. Those are his top two techniques.

I think it was also Cialdini who mentioned that if people do you a favor they like you more. Warren has an ability to get people to invest psychologically in him.

One reason he prefers people visit him in Omaha is that somebody spending the time and money to make that journey is going to leave persuaded. They aren’t going to go away thinking they wasted their money. Because the way you resolve cognitive dissonance is in whatever way makes you feel most comfortable.

Now obviously it’s not a waste to go see Buffett speak. What I’m saying is that this kind of structural persuasion and elicited psychological investment tilts the odds in his favor.

(…) > I also believe his understanding of human nature is immensely valuable. He is superb at figuring out what the great businesses are, but great people must run them. And he has been successful at seeking out really terrific management. He has made a few whopper mistakes, but they are definitely outliers in the trend of being great at picking top people.

… his steady pulse is helped by his exceptional skill at reading other people’s emotions. He reads people in a conscious manner that could be the result of self-training to recognize ”emotional tells”; even so, he’s remarkably fluent at it. If this skill could be bottled he could sell it for an awful lot of money.

Neckar had the same reaction as I did:

This one was really interesting to me. Buffett has recommended Cialdini’s work many times but I’ve never deeply thought about how he incorporated its lessons to further his edge.

If there’s a generalised lesson here, maybe it’s “if presented with a model or riddle or book recommendation by the dynamic duo, always think about the context in which Buffett and Munger uses that concept in their lives.”

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Got this via email from David Golden:

Another reversed demand curve example: many years ago in my consulting days, we got to run price elasticity experiments at a supermarket. A key insight was that certain generic products like ibuprofen were typically priced too low relative to the name brand. Raising prices on generics closer to the name brand but still with a slight discount increased sales volumes noticeably compared to a deep discount.