Markets are made up of people

If you've followed up on Charlie Munger's book recommendations, then you'll know Robert Cialdini. Cialdini is most famous for "Influence", and he joins a cavalcade of authors at the big book signing every year in Omaha at the annual Berkshire meeting.

The story behind how he got involved with the Berkshire network is pretty interesting. Munger was so impressed with Influence, that he sent Cialdini a thank you note and a share of Berkshire stock.  Subsequently, Cialdini began learning more about how Berkshire operates.

Cialdini's observation captures an important component of the Berkshire approach - “They know that markets are not made up of econometric models. They're made up of people.” And that perspective is at the heart of what behavioral investing is trying to investigate further. The numbers matter obviously, but beyond that human behavior matters at least as much, they matter to market dynamics, company actions, and investor behavior.