Why are Charlie Munger's views on Nobel laureates in Economics so polarized?

The Root of Charlie Munger's Polarizing Views on Nobel Laureates in Economics: Divergent Approaches to "Human Nature"

Charlie Munger's starkly divided opinions on Nobel laureates in economics stem from a fundamental, black-and-white disagreement with the discipline's core assumptions. His critique targets not the Nobel Prize itself, but rather categorizes winners into two distinct camps:

1. Realists Embracing "Human Nature" and "Psychology" (which he passionately praises)
2. Theorists Adhering to the "Rational Man" and "Perfect Market" (which he vehemently attacks)

This division arises directly from Munger's core investment philosophy of "multiple mental models" and the "psychology of human misjudgment." He contends that any economic model built without acknowledging irrational, emotional, and error-prone human psychology is not only flawed but profoundly dangerous.

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Camp One: Nobel Laureates Highly Praised by Munger – Realists Embracing "Behavioral Psychology"

The Nobel laureates Munger admires are almost exclusively pioneers of behavioral economics who successfully integrated psychology into economic research.

• Key Figures:

  • Daniel Kahneman: 2002 Nobel Laureate in Economics.
  • Amos Tversky: Kahneman's long-time collaborator, who would have undoubtedly shared the prize had he not died prematurely.
  • Richard Thaler: 2017 Nobel Laureate in Economics.

• Reasons for Munger's Praise:

  1. Validation of Munger's Core Ideas: Munger spent his life advocating the importance of the "psychology of human misjudgment." Kahneman and Tversky, through rigorous academic experiments, systematically demonstrated the pervasive cognitive biases in human decision-making (e.g., anchoring, loss aversion, availability heuristic). This provided powerful theoretical backing and academic validation for Munger's practical experience. Munger noted that his own list of psychological tendencies aligned remarkably with Kahneman's findings, which greatly pleased him.
  2. Revealing Market Realities: Behavioral economics explains why markets frequently experience bubbles and crashes. This is precisely the fundamental reason Munger and Buffett have consistently "beaten the market" over the long term – they exploit the market inefficiencies caused by human irrationality.
  3. Providing Practical Decision Tools: Kahneman's Thinking, Fast and Slow and Thaler's "nudge" theory offer concrete, actionable methods for individuals and institutions to avoid decision traps and make better choices. This aligns perfectly with Munger's philosophy of "avoiding stupidity" rather than solely "pursuing brilliance."

For Munger, these scholars are true heroes because they pulled economics back from being an ivory-tower mathematical game into the messy, human reality of the real world.

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Camp Two: Nobel Laureates Harshly Criticized by Munger – Theorists Believing in the "Rational Man" and "Efficient Market"

Munger disdains Nobel laureates who primarily constructed elegant but unrealistic mathematical models based on the assumption that market participants are perfectly rational "economic men."

• Key Figures/Theories:

  • Eugene Fama: 2013 Nobel Laureate in Economics, renowned for his "Efficient Market Hypothesis" (EMH).
  • Myron Scholes & Robert Merton: 1997 Nobel Laureates in Economics, awarded for developing the Black-Scholes-Merton option pricing model.

• Reasons for Munger's Criticism:

  1. "Efficient Market Hypothesis" is Utterly Detached from Reality: Munger considers EMH one of the most absurd theories in modern finance. If markets were always efficient and prices instantly reflected all information, Berkshire Hathaway's decades of market-beating returns would be impossible. He argues this theory has rigidified the thinking of generations of business school students, blinding them to obvious market opportunities and risks.
  2. "Physics Envy": This is a term coined by Munger to satirize economists' desire to describe the complex world with neat, elegant formulas like physicists. He argues that economic systems resemble complex biological ecosystems, full of feedback loops, adaptation, and non-linear effects, not mechanical systems predictable by Newtonian laws. The Scholes-Merton option pricing model is, for Munger, a prime example of this "physics envy."
  3. Theories Led to Disastrous Consequences: For Munger, the ultimate cautionary tale is the collapse of Long-Term Capital Management (LTCM). Scholes and Merton were partners in this firm. They relied excessively on their Nobel-winning mathematical models, completely ignoring how human panic and irrationality under extreme market stress could render the models useless (so-called "fat-tail risks"). LTCM's near-triggering of a global financial crisis stands, in Munger's view, as irrefutable proof of these "brilliant" theories crumbling in the face of reality.

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Core Disagreement: A Clash of Two Worldviews

In summary, Munger's polarized views on Nobel laureates reflect a fundamental conflict between two opposing worldviews:

Conclusion

Charlie Munger's judgment criterion is crystal clear: whether an economic theory acknowledges and incorporates "human nature" – the most crucial, chaotic, and undeniably real variable.

• He praises Kahneman and others because they courageously admitted and systematically studied human imperfection, grounding economics more firmly in reality.
• He attacks Fama, Scholes, and others because he believes their theories are built on the false foundation of the "rational man," creating a seemingly perfect but fragile house of cards that has caused tangible harm in the real world.

Therefore, this polarization is not mere personal preference; it is the inevitable expression of his lifelong commitment to the philosophies of "latticework of mental models" and "inversion."