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This is a two-part article –
- MENTAL MODELS
- LOGICAL FALLACIES AND BIASES
For the past 3-4 years, I have been fascinated with the concept of decision-making and learning quicker, in a more structured way. How are some people able to be writers, entrepreneurs, philanthropists, and tech specialists making quick decisions on multiple fronts? Yes, motivation and a lifetime of discipline are important but one other that kept popping up a lot in my reading was a framework of thinking called mental models.
Have you ever wondered how Warren Buffet is able to make decisions about investing in varying industries and making a profit? The answer is mental models. Elon Musk, Tim Ferris, Charlie Munger, Ray Dalio, Gabriel Weinberg, and the list of famous personalities applying mental models goes on.
They realized early on that we are never educated in school on how to read and think. I don’t know any school subject that teaches you to think in a structured manner, challenging yourself and your conclusions.
I personally was introduced to mental models by reading a chance article sent to me by a friend from Farnam Street (read the ‘Additional Resources’ in the next part of this article). Farnam Street by Shane Parrish is a well-known blog on mental tools. After reading the article, I kept browsing through the site and stumbled upon a different article about mental models. I was immediately fascinated by the topic.
Another famous proponent of mental models is Charlie Munger. He made it famous in his 1995 speech called ‘The Psychology of Human Misjudgement’ providing details about behavioural psychology and problem-solving.
I am neither famous nor do I believe I have achieved anything spectacular. I also am not pretending that I make the best decisions.
So why should you read this article? All I am hoping to do is share all the knowledge I have gained about behavioural psychology, mental models, decision-making, and logical fallacies over the past 3 years by reading, listening, and learning.
Essentially, I am hoping to present a latticework of the knowledge I have gained on this topic – all my bookmarks, saved videos, podcasts, and quotes. And I personally believe, knowing something is better than not knowing it at all.
I will be successful even if 1 person gains 1% from this article.
You get further in life by avoiding repeated stupidity than you do by striving for maximum intelligence.
Charlie Munger
WHAT ARE MENTAL MODELS?
I love the way Gabriel Weinberg explains mental models in his book Super Thinking [check out the book on Amazon] –
Every industry has its own mental models that allow practitioners to create “mental pictures” of a problem. These aren’t one-off snapshots, but techniques that can be reapplied time and again – that’s the model part. Put differently, they’re recurring concepts that explain the world.
I personally define them as tools in your toolkit of beliefs and ideas that help you make decisions. They help you make informed decisions about things you should be doing AND things you should avoid.
Everyone has mental models in place for their particular field or specialization.
An example would be if you are a chef who will think about balancing the spiciness of food with something sweet. Another example, a data engineer would think in processes, how the data flows, and making the data flow more efficient to get quicker answers. You automatically develop these mental models as you practice your field of expertise.
You, also, already know other models that you learned in school or college.
Gravity is a mental model. You already know that whenever you’re thinking of a free-falling object on Earth, a gravitational force is always applicable. These models have already been taught to us since we are children and we have applied these models as part of our coursework. As such, you can easily apply these models again and again.
Mental models are very much similar to these.
What makes mental models important to study is their multi-disciplinary use. Mental models are cross-functional in different fields and that is why they are so helpful. You can apply models that you have studied in economics while working as a consultant making decisions for a retail store supply chain.
As historian Yuval Noah Harari puts it, “Scientists generally agree that no theory is 100 per cent correct. Thus, the real test of knowledge is not the truth, but utility.” Understanding mental models will help you make wiser choices and take better actions.
HOW DO YOU BUILD MENTAL MODELS?
These models are built over a period of a lifetime. You will learn new models as you learn about new fields, industries, and topics, and talk to people from different fields of expertise.
James Clear, author of Atomic Habits, states, “[Building mental models] means reading widely from the best books, studying the fundamentals of seemingly unrelated fields, and learning from people with wildly different life experiences.”
Some methods I used to build some of these mental models – reading books, listening to podcasts, networking with friends from varying industries, joining communities, watching documentaries/videos which educate you in different arts, joining online forums, and reading memos.
The world is multidisciplinary.
One thing I constantly observe is people tend to learn things particularly well if relevant to their field. I personally feel the word specializing is overrated. As it is put by Robert Heinlein – specialization is for insects.
A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects
– Time Enough for Love by Robert A. Heinlein
What I am getting at is that definitely specialize in your profession but don’t corner yourself into a particular field when it comes to learning new things. You need to explore and keep an open mind about all the topics and try to learn about them.
In the past 3 years, my podcast, books, and YouTube recommendations include the following topics –
Finance, Economics, Behavioral Psychology, Video Editing, Graphic Designing, Cooking, Cinematography, Ethical Hacking, Mythology (Indian, Greek, Roman), Religion (Hindu, Buddhism), Stoicism, Fitness, DIY, Script Writing, Editing, Photography, Entrepreneurship, Web Designing, Game Design, Politics, American History, War Strategy, CGI, Music Theory, Hospitality, Spirituality, Meditation, and many more.
As you keep learning new things, you will find yourself linking topics and narratives from varying fields together and seeing them grow in an organized manner.
I personally find keeping a list of quotes, topics, bookmarks, and Google notes helps a lot in building and reflecting on mental models that you have already built.
HOW DO YOU MAKE BETTER DECISIONS?
So you have started developing mental models, how do you make smarter decisions? It is not as straightforward. Obviously.
You create a latticework (imagine a network) of mental models and thinking strategies from varying fields and industries that can help you with decision-making.
It is not wise to apply the same mental model to every situation and find the right solution. You can never rely blindly on applying mental models.
Mental models are a toolbox with different tools. But you cannot use a hammer where a screwdriver is required. It requires years of discipline and practices to apply these models particularly well. I personally feel I have finished 0.5% of the journey.
An expert in any field will have an advantage over a rookie. But neither the veteran nor the rookie can be sure what the next flip will look like. The veteran will just have a better guess.
– Howard Marks, Oak Tree Capital
A lot of models are applicable from one field to another. Going back to my data engineer example, why is making the efficient flow of information and better processes not applicable for policy building for lawmakers? It will definitely help lawmakers to think about processes and see where the inefficiencies lie for their citizens.
Another example could be the concept of critical mass – a physicist would say critical mass is the smallest amount of nuclear material required to trigger a chain reaction, and an entrepreneur would say the minimum number of people required for a business to succeed.
But knowing these models doesn’t mean anything. Theoretical and practical knowledge are different concepts. Only when you apply your knowledge, again and again, will you be able to think in ‘models’. Only knowledge that is utilized sticks in your mind.
Mastery doesn’t come from infographics. What you know doesn’t mean shit. What do you do consistently?
– Tony Robbins
Some methods I have found important –
- Asking yourself thought-provoking questions that will help you apply these mental models (I have listed a list of questions from my notes in part two of this article)
- Being aware of your mental biases and logical fallacies (I have listed my favourites biases and logical fallacies in part two of this article)
- Challenging opinions that are presented to you and thinking from an unbiased perspective
- Organizing your thoughts and models and reflecting on them regularly
So let’s begin.
MENTAL MODELS
GENERAL MENTAL MODELS
These are some general thinking concepts that you can apply across your day-to-day life. These are applicable to most problems and make it easier for you to think about problems.
In mainstream speak, these are your thinking strategies. These are not picked from any ‘stream or specialization’ and hence, I have put them in general thinking concepts.
CIRCLE OF COMPETENCE
It is necessary to know your key strengths and weaknesses. This will help you work on your weaknesses and amplify your strengths. If you know what you know and what you don’t, you will have an edge over others.
Here you can access my series of articles on Circle of Competence. If you’re an investor check this article on how Warren Buffett and Charlie Munger uses Circle of Competence to make investing decisions.
FIRST PRINCIPLE THINKING
All the complicated concepts in the world are built from base materials or ideas. If you’re struggling to think about a certain complex concept, strip it down to its most basic form and you’ll be able to find a solution.
An example would be the macro diet when you’re trying to lose weight; you essentially strip down your food to its most basic component (carbs, fat, proteins) and try to hit your calorie requirement in a much healthier way.
Elon Musk has done an incredible job of explaining how he applied this idea in Tesla in this viral video –
INVERSION THINKING
As the name suggests it’s an approach to invert your thinking process. Starting from the end and building your thinking top-down.
As Gabriel Weinberg explains in his book, Super Thinking, the way you look at things is the way you think about it. For some problems, you should try inverting your thought process.
For example, if you’re planning to invest in the stock market, what will your goal be? Make money. But next time you think about investing in the stock market, think about your goal to not lose money. See if your decision changes in any sense. My prediction is you’ll try picking a more risk-averse stock option.
Essentially, you’re spending less time on being brilliant and more time on not being stupid.
Every man is a damn fool for at least five minutes every day; wisdom consists in not exceeding the limit
– Elbert Hubbard
OCCAM’S RAZOR
The definition used by scientists is as follows, “when you have two competing theories that make exactly the same predictions, the simpler one is better”.
As the name suggests, it is essentially ‘shaving off’ assumptions when solving problems and going with the simplest one. If you hear hoofbeats, it is usually a horse and not a zebra. It helps with conjunction fallacy. And that’s where lies an issue.
You need to be careful while applying Occam’s Razor.
As I said before, you shouldn’t always feel your decision is correct because you applied a mental model. If you’re stranded in African Savannah, the probability of zebra and horses could be equivalent when you hear hoofbeats. Be careful about confirmation bias.
PARETO’S PRINCIPLE
Pareto was an Italian socialist and economist who came up with this principle. This theory is widely known in management courses as the ‘80-20’ law.
It states that where two related data sets exist, 80% of the output is produced by 20% of the input.
Companies laying off their low-performing employees on an annual basis follow this principle. 80% of work is done by 20% of the employees.
It can be applied to anything in life – you spend 80% of the time on 20% of your task list. This helps you see what is the 80% of work that you’re wasting your time on that only completes only 20% of your work; be efficient.
PARKINSON’S LAW
Parkinson was a British historian who stated: “work expands so as to fill the time available for its completion”.
I see this on a regular basis. If I give myself 30 days to write this article, I will take 30 days. If I give myself 2 days, I will finish it in 2 days.
Next time you’re thinking of starting a project and assigning yourself a deadline, keep this principle in mind.
CROSS-FUNCTIONAL MENTAL MODELS
RELATIVITY
This model comes from Einstein. I mean not literally but from his theory of relativity.
In a social setting, relativity means that if you’re part of the system, you won’t truly see it. This is where the common phrase, ‘look from outside the box’ comes into being (at least that’s what I think).
In order to actually see how the system works, you need to be outside the system to observe it in a non-bias way. Some of the questions I have listed in part two can help you do this.
ADAPTABILITY
You’ve probably heard the idea of survival of the fittest. Adaptability means adapting to ever-changing scenarios to evolve with them. Pretty straight-forward.
But in today’s day and age just being adaptable wouldn’t work. You need to be antifragile [check the book on Amazon].
When put under stress, don’t just adapt but grow!
CORRELATION AND CAUSATION
In today’s media and fake news setting, this one is an important tool. With all the opinions and theories thrown at you, it is important to reason if the theory they are presenting with the data is actually showing correlation or causation.
If it’s a correlation (5G rollout started in January in the UK, and Coronavirus became a pandemic in January) OR causation (5G towers causes Coronavirus) – knowing the difference would mean you either social distance yourself OR go out and burn 5G towers!
INERTIA
An object in motion will remain in motion unless acted upon by an external force.
Think about the snowball effect made famous by Dave Ramsay [check Total Money Makeover on Amazon here] – once you start working on reducing your smaller debt, you can keep rolling and tackle bigger deaths.
You have to use that initial momentum to help you move forward.
ACTIVATION ENERGY
In Chemistry it means the minimum energy required to start a reaction. In your life, it could be any activity or moment that could trigger a change in life. Find the ‘thing’ that activates you to make a change. Use it to your advantage.
FEEDBACK LOOPS
Feedback loops are key in software development and supply chain. You should also be thinking about feedback loops when building your own processes or thinking about problems. Feedback loops won’t be applicable on a daily basis but they are key in improving yourself and the processes in place.
LAW OF DIMINISHING RETURNS
Theoretically, the law states that ‘the satisfaction derived from every additional unit of consumption – the marginal utility – goes on decreasing.’
In simple terms that I understand, the value of return in real-life will eventually decrease as you keep consuming the product.
An example would be, you’re craving pizza. You eat pizza on Monday, then Tuesday, and then Wednesday. As the week increments, you’ll eventually be tired of eating pizza (i.e. the value you derive from eating pizza will be diminished).
MARGIN OF SAFETY
The Margin of Safety is the engineers’ way of saving their asses when there is a marginal error. You should do the same in everything in life – save your ass from marginal errors. Things never go as planned and hence, always plan for the unplanned.
COMPOUNDING
This is my favourite concept. People usually tend to underestimate the power of mathematical compounding. Compounding is a well-known concept in finance.
Warren Buffet supposedly once said picking up a cent in an elevator, “This will be my next million”.
I find compounding applicable to the concept of learning as well. The more you learn new things, they seem to compound – you find more resources, talk to people in similar fields, read and listen to associated ideas, and the ideas keep on compounding.
RANDOMNESS
I personally struggle a lot with this mental model.
Randomness means that a random sequence of events, symbols or steps often has no order and does not follow an intelligible pattern or combination.
However, the human brain always perceives events in patterns to understand it better. Causation is important.
It is actually how babas and gurus thrive. Something good happening to you three weeks after you have visited a guru of sorts doesn’t mean the guru made it happen. They are random events without any pattern and should be perceived similarly.
PAVLOVIAN CONDITIONING
Pavlov’s theory refers to a learning procedure in which a biologically potent stimulus (e.g. food) is paired with a previously neutral stimulus (e.g. a bell).
You might have heard about Pavlov’s Dog. OR the more famous Jim’s experiment on Dwight, where he provides a candy every time the bell chimes.
How can this be useful in regular life? Think about your mobile notifications.
We have now been conditioned to pick up the phone at the instance we hear a notification. Some people, they have a need to check their phone even if there isn’t a notification.
HYPERBOLIC DISCOUNTING
In economics, this concept is a time-tested model of delay discounting.
It refers to the tendency for people to increasingly choose a smaller-sooner reward over a larger-later reward as the delay occurs sooner rather than later in time. People tend to select short-term gain over long-term; instant gratification over delayed gratification.
Do you spend time drinking at a bar for instant happiness or actively work towards internal happiness by working out and eating healthy daily? The answer is not so straightforward for everyone.
OPPORTUNITY COST
In a strictly economic sense, it means ‘the loss of potential gain from other alternatives when one alternative is chosen’.
Every decision you take has an associated opportunity cost.
You are always sacrificing something when you’re making a decision. The important part is to appropriately utilize your energy on things that you deem a priority.
SEEING THE FRONT
As per Farnam Street, ‘one of the most valuable military tactics is the habit of “personally seeing the front” before making decisions – not always relying on advisors, maps, and reports, all of which can be either faulty or biased’.
I find this useful in a lot of scenarios, especially in today’s media setting. I am never eager to agree or disagree with ground reports provided by groups unless personally experienced. Yes, they can give you a perspective but never forget the news houses have a profit to make. This model is useful for CEO/executives as well.
VON RESTORFF EFFECT
Also known as the “isolation effect”, predicts that when multiple similar objects are present, the one that differs from the rest is most likely to be remembered. In business, it would mean to ‘stand out from others’.
People say your CV usually gets picked if it’s different.
PYGMALION EFFECT
This is a phenomenon whereby others’ expectations of a target person affect the target person’s performance. The reason why your coach expects so much of you? You can apply this effect with your employees, just don’t pressure them much.
These were some of the mental models that I find really useful. Again, knowing mental models is just 1% of work. You need to constantly build your toolkit of mental models and apply them in real life.
This takes years and years of practice and discipline.
This was part one of the article. Read Logical Fallacies for the second part.
- MENTAL MODELS
- LOGICAL FALLACIES AND BIASES
Do you have your own mental models? I would love to read more about them.
The first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience both vicarious and direct on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.
– Charlie Munger
