24 years ago, Charlie Munger gave brilliant life advice at Harvard—and it's important now more than ever

Charlie Munger, Berkshire Hathaway
Lacy O’ Toole | CNBC

Charlie Munger, like his business partner Warren Buffett, is a walking encyclopedia of investment history. But he's also widely also known for his unique ability to inject timeless wisdom right when you need it most.

The Berkshire Hathaway vice chairman has given several speeches on the intersection of psychology and economics. During one talk at Harvard University in 1995, he spoke extensively about the framework for decision-making and the psychological factors that influence us to make poor choices.

"I am very interested in the subject of human misjudgment, and Lord knows I've created a good bit of it," Munger said before going on to share a handful of cognitive biases that interfere with our ability to make smart decisions in business and life.

I found all of them incredibly insightful — and worth listening to if you have an hour to spare — but there's one that stood out in particular: "Now this is a lollapalooza, and Henry Kaufman wisely talked about this bias from over-influence by social proof," Munger says. "It's adopting the conclusions of others, particularly under conditions of natural uncertainty and stress."

He cites the murder of Kitty Genovese in 1964 to demonstrate how many people tend to adopt the most popular behavior. "[...] all these people, I don't know, 50, 60, 70 of them just sort of sat and did nothing while she was slowly murdered," Munger says. "Now one of the explanations is that everybody looked at everybody else and nobody else was doing anything, and so there's automatic social proof that the right thing to do is nothing."

Munger also compares those bystanders to "big-shot businessmen" who, instead of betting against the market, simply make investments others are making.

"There are microeconomic ideas and gain/loss ratios and so forth that also come into play," he continues. "I think time and time again, in reality, psychological notions and economic notions interplay, and the man who doesn't understand both is a damned fool."

Munger's advice from 25 years ago ring truer than ever in today's always-connected world, in which constant activity from social media can leave too little room for reflection. In my journey to discovering what I call a "Purpose Path," I encountered several people — students, business executives, parishioners and their families — who felt they were living a life based on somebody else's values.

Our lives are defined by the decisions we make, and when we fall into the trap of following the most popular behavior because of its social clout, we end up living an inauthentic life.

Fortunately, it doesn't have to be that way, as Munger would likely agree. While social proof clearly permeates every aspect of our lives, we can make better decisions by being aware of the extent to which it influences us.

Munger's words are also a reminder that, in a world with so much noise, it's important to be guided by your highest values, and to allow those values to inform you of your life choices. This will challenge your thinking and encourage you to get off the "autopilot" of following others' behaviors and instead determine how you want to leave a mark on the world.

Nicholas Pearce is a clinical professor of management and organizations at Northwestern University's Kellogg School of Management. He is also the CEO of The Vocati Group and author of the new book "The Purpose Path: A Guide to Pursuing Your Authentic Life's Work." Pearce earned a B.S. in chemical engineering and management from MIT.

Like this story? Subscribe to CNBC Make It on YouTube!

Don't miss:

3 psychological habits Buffett's partner Charlie Munger warns can hurt your career
3 psychological habits Buffett's partner Charlie Munger warns can hurt your career