Which mental models help you think better?

Their wordsYou go to Farnam Street, you go to Poor Charlie’s Almanack, and you can learn all the different mental models. But which ones matter more? Which ones do you apply more often? Which ones matter in which circumstances? That’s actually the hard part.

Their wordsI think mental models are interesting, but I don’t think explicitly in terms of mental-model checklists. I know Charlie Munger does, but that’s just not how I think. Instead, I tend to focus on the few lessons I’ve learned over and over in life that I think are incredibly important and seem to apply almost universally.

Their wordsMental models are imperfect, but useful. There is no single mental model from physics or engineering, for example, that provides a flawless explanation of the entire universe, but the best mental models from those disciplines have allowed us to build bridges and roads, develop new technologies, and even travel to outer space.

Their wordsThe best mental models are the ideas with the most utility. They are broadly useful in daily life. Understanding these concepts will help you make wiser choices and take better actions. This is why developing a broad base of mental models is critical for anyone interested in thinking clearly, rationally, and effectively.

Their wordsThere are thousands of mental models, but the best ones apply broadly to life and are useful in a wide range of situations.

Their wordsOf all the mental models humankind has generated throughout history, there are just a few dozen that you need to master to have a firm grasp of how the world works.

Their wordsAround 2003 I came across Charlie Munger’s 1995 speech, The Psychology of Human Misjudgment, which introduced me to how behavioral economics can be applied in business and investing. More profoundly, though, it opened my mind to the power of seeking out and applying mental models across a wide array of disciplines.

Their wordsThere is a much smaller set of concepts, however, that come up repeatedly in day-to-day decision making, problem solving, and truth seeking.

Their wordsI find mental models are useful to try to make sense of things and to help generate ideas. To actually be useful, however, you have to apply them in the right context at the right time. And for that to happen naturally, you have to know them well and practice using them.

Their wordsMost of the mental models on this list are here because they are useful outside of their specific discipline. For example, use of the mental model “peak oil” isn’t restricted to an energy context.

Their wordsThe best ideas often arise when going cross-dicipline.

Their wordsAnd it doesn’t help you just to know them enough just so you can prattle them back on an exam and get an A. You have to learn these things in such a way that they’re in a mental latticework in your head and you automatically use them for the rest of your life.

Their wordsMan-with-a-hammer tendency does not exempt smart people like Blanchard and Skinner. And it won’t exempt you if you don’t watch out.

Their wordsIf he reduces the number of skills he practices and, therefore, the number of skills he retains, he will naturally drift into error from man with a hammer tendency. His learning capacity will also shrink as he creates gaps in the latticework of theory he needs as a framework for understanding new experience.

Their wordsIn general, learning is most easily assimilated and used when, life long, people consistently hang their experience, actual and vicarious, on a lattice- work of theory answering the question: Why?

Their wordsyou 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.

Their wordsyou’ve got to have multiple models—because if you just have one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does.

Their wordsIt’s like the old saying, “To the man with only a hammer, every problem looks like a nail.” And of course, that’s the way the chiropractor goes about practicing medicine. But that’s a perfectly disastrous way to think and a perfectly disastrous way to operate in the world. So you’ve got to have multiple models.

Their words80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person. And, of those, only a mere handful really carry very heavy freight.

Their wordsInversion often forces you to uncover hidden beliefs about the problem you are trying to solve.

Their wordsDespite our best intentions, thinking forward increases the odds that you’ll cause harm (iatrogenics). Thinking backward, call it subtractive avoidance or inversion, is less likely to cause harm.

Their wordsSpend less time trying to be brilliant and more time trying to avoid obvious stupidity. The kicker? Avoiding stupidity is easier than seeking brilliance.

Their wordsThose of you who have mastered algebra know that inversion frequently will solve problems which nothing else will solve. And in life, unless you’re more gifted than Einstein, inversion will help you solve problems that you can’t solve in other ways.

Their wordsFirst, I had long looked for insight by inversion in the intense manner counseled by the great algebraist, Jacobi: “Invert, always invert.” I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes.

Their wordsWhat Carson did was to approach the study of how to create X by turning the question backward, that is, by studying how to create non-X. The great algebraist, Jacobi, had exactly the same approach as Carson and was known for his constant repetition of one phrase: “Invert, always invert.” It is in the nature of things, as Jacobi knew, that many hard problems are best solved only when they are addressed backward.

Their wordsThe size of that circle is not important. What is important is knowing when you are approaching the perimeter.

Their wordsWithin your circle of competence, you operate with an advantage. As you approach the perimeter (the limitations of your knowledge), your advantage starts to reduce. As you cross the perimeter, not only does your advantage vanish, but it transfers to other people.

Their wordsAs we cross the perimeter from what we know to what we don’t, confidence does not diminish as fast as competence. The biggest risk when operating outside of your circle of competence is what you don’t see.

Their wordsIt did not hurt Mrs. B to have such a narrow area of competence. In fact, one could argue the opposite. Her rigid devotion to that area allowed her to focus.

Their wordsTo improve the odds of success in life and business, understand the perimeter of your circle of competence and operate well inside. Over time, work to expand that circle, but don’t fool yourself about where the perimeter is, and never be afraid to say, “I don’t know.”

Their wordsIn this world, we have two kinds of knowledge. One is Planck knowledge—the people who really know. They’ve paid the dues, they have the aptitude. Then, we’ve got chauffeur knowledge—they have learned to prattle the talk and they have a big head of hair. They may have fine timbre in the voice. They really make a hell of an impression. But in the end, they’ve got chauffeur knowledge.

Their wordsEvery person is going to have a circle of competence. And it’s going to be very hard to advance that circle.

Their wordsIf you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence.

Their wordsThere will be negative second-order effects of almost every widely distributed technology.

Their wordsSecond-order thinking is more deliberate. It is thinking in terms of interactions and time, understanding that despite our intentions our interventions often cause harm. Second order thinkers ask themselves the question “And then what?”

Their wordsA lot of extraordinary things in life are the result of things that are first-order negative, second order positive. So just because things look like they have no immediate payoff, doesn’t mean that’s the case.

Their wordsSecond-order thinking takes a lot of work. It’s not easy to think in terms of systems, interactions, and time.

Their wordsWhen a man’s steps are consecutively taken toward disaster, with each step being very small, the brain’s Contrast-Misreaction Tendency will often let the man go too far toward disaster to be able to avoid it. This happens because each step presents so small a contrast from his present position.

Their wordsyou want to find what is repeatable and what you could do again and those are the things you should just pay the most attention to

Their wordsif you can can do something that changes your odds of an outcome it's not luck by definition luck to me the biggest are where and when you were born you can't control it

Their wordsI learned how to balance risks better right so I learned that if um how I could reduce my risks without reducing my returns by being able to literally structure my bets in a more Diversified way

Their wordsin quote-unquote real life, right? Which is starting businesses or you know, writing books, right? Or composing music or playing basketball or playing poker, right? Or basically doing anything interesting we're in a probabilistic domain, right?

Their wordsthere is a more subtle error and harder harder to fix but that the best prediction the best guess is always less extreme than your impression intuitive prediction is as we say not progressive it doesn't recognize regression to the mean

Their wordsProbabilistic thinking is essentially trying to estimate, using some tools of math and logic, the likelihood of any specific outcome coming to pass. It is one of the best tools we have to improve the accuracy of our decisions.

Their wordsThe future is far from determined and we can better navigate it by understanding the likelihood of events that could impact us.

Their wordsBayesian thinking allows us to use all relevant prior information in making decisions.

Their wordsFar more probability estimates are wrong on the “over-optimistic” side than the “under-optimistic” side.

Their wordsSuccessfully thinking in shades of probability means roughly identifying what matters, coming up with a sense of the odds, doing a check on our assumptions, and then making a decision.

Their wordsOne standard antidote to foolish optimism is trained, habitual use of the simple probability math of Fermat and Pascal, taught in my youth to high school sophomores.

Their wordsIf you don’t get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one-legged man in an ass-kicking contest. You’re giving a huge advantage to everybody else.

Their wordsAnd the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t.

Their wordsAnd it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times. You’re much more likely to do well if you start out to do something feasible instead of something that isn’t feasible.

Their wordsAnd then you have a choice which is do you blame the people who are exhibiting the terrible behavior or do you blame the people who created the incentives? Right? And and and he he believes and I agree on this. I I think 100% you blame the people who created the incentives.

Their wordsFor example, my personal learning has been that the principal-agent problem drives so much in this world. It’s an incentives problem.

Their wordsYou also have to allow for the self-serving bias of everybody else, because most people are not gonna remove it all that successfully, the only condition being what it is. If you don’t allow for self-serving bias in your conduct, again, you’re a fool.

Their wordsThis maxim is a wise guide to a great and simple precaution in life: Never, ever, think about something else when you should be thinking about the power of incentives.

Their wordsA man has an acculturated nature making him a pretty decent fellow, and yet, driven both consciously and subconsciously by incentives, he drifts into immoral behavior in order to get what he wants, a result he facilitates by rationalizing his bad behavior, like the salesmen at Xerox who harmed customers in order to maximize their sales commissions.

Their wordsWidespread incentive-caused bias requires that one should often distrust, or take with a grain of salt, the advice of one’s professional advisor, even if he is an engineer. The general antidotes here are: (1) especially fear professional advice when it is especially good for the advisor; (2) learn and use the basic elements of your advisor’s trade as you deal with your advisor; and (3) double check, disbelieve, or replace much of what you’re told, to the degree that seems appropriate after objective thought.

Their wordsOften people in industry I feel like sort of have short circuit reasoning. Like don't maybe don't quite reason something through from first principles but just like oh I heard this from a conference talk I'm just going to go with that

Their wordsThe best scientists I know often ask the simplest questions. First of all, there’s probably some confidence there, but also they’re never going to lie to themselves that they understand something that they don’t understand.

Their wordsA scientist gathers together only what he or she knows to be true—the first principles—and uses those as the puzzle pieces with which to construct a conclusion.

Their wordsThe chef reasons from first principles, and for the chef, the first principles are raw edible ingredients. Those are her puzzle pieces, her building blocks, and she works her way upwards from there, using her experience, her instincts, and her taste buds.

Their wordsBut what all of these cooks have in common is their starting point is something that already exists. Even the innovative cook is still making an iteration of a burger, a pizza, and a cake.

Their wordsThe chef creates while the cook, in some form or another, copies.

Their wordsConventional wisdom is slow to move, and there’s significant lag time between when something becomes reality and when conventional wisdom is revised to reflect that reality. And by the time it does, reality has moved on to something else. But chefs don’t pay attention to that, reasoning instead using their eyes and ears and experience. By ignoring conventional wisdom in favor of simply looking at the present for what it really is and staying up-to-date with the facts of the world as they change in real-time—in spite of what conventional wisdom has to say—the chef can act on information the rest of us haven’t been given permission to act on yet.

Their wordsConventional wisdom worships the status quo and always assumes that everything is the way it is for a good reason—and history is one long record of status quo dogma being proven wrong again and again, every time some chef comes around and changes things.

Their wordsAnd if the tenets of that church don’t truly resonate with you or reflect the current reality of the world—if it turns out that you’ve been working off of the wrong recipe—then whatever conclusions have been built on top of it will be just as wrong. As demonstrated by the flood geologists, a reasoning chain is only as strong as its weakest link.

Their wordsDogma, unlike first principles reasoning, isn’t customized to the believer or her environment and isn’t meant to be critiqued and adjusted as things change.

Their wordsAnd physics teaches you to reason from first principles rather than by analogy.

Their wordsIt turned out that the materials cost of a rocket was around 2 percent of the typical price—which is a crazy ratio for a large mechanical product.

Their wordsThe problem is that at a lot of big companies, process becomes a substitute for thinking.

Their wordsA map is not the territory it represents, but, if correct, it has a similar structure to the territory, which accounts for its usefulness.

Their wordsIf we reflect upon our languages, we find that at best they must be considered only as maps. A word is not the object it represents

Their wordsIt works best as a mental model for making initial conclusions before the full scope of information can be obtained.

Their wordsIt is important to note that, like any mental model, Occam’s razor is not foolproof. Use it with care, lest you cut yourself.

Their wordsA conclusion can’t rely just on its simplicity. It must be backed by empirical evidence.

Their wordsOccam’s razor is not intended to be a substitute for critical thinking. It is merely a tool to help make that thinking more efficient.

Their wordsHanlon’s razor is a mental safeguard against the temptation to label behavior as malicious when incompetence is the most common response.

Their wordsThis isn’t to say that genuine malice doesn’t exist. Of course, it does. But in most interactions, stupidity is a far more common explanation than malevolence.

Their wordsWhen we assume stupidity rather than malice, we respond differently. Instead of getting defensive or lashing out, we approach the situation with empathy and clarity.

Their wordsThe more we dislike someone or something, the more likely we are to attribute their actions to malice.

Their wordsInability or neglect is far more likely to be the cause than malice.

Their wordsThe default is to assume no malice and forgive everything. But if malice is confirmed, be ruthless.

Their wordswhen you try to prove how right you are you ignore all the evidence to the contrary

Their wordsI went from thinking you know I'm right to asking myself how do I know I'm right in other words how do I triangulate it gave me the humility I needed to balance with my audacity and so then it gave me an open-mindedness

Their wordsI think the greatest tragedy of mankind and the greatest tragedy of most people is to hold opinions in their head that are wrong that they're attached to and that they don't stress test it's so easy to take those ideas and properly put them out there in an idea meritocratic way and have them stress tests which raises the probabilities of being right

Their wordsthere is the way in which people form impressions very quickly to form an impression and then you spend most of your time confirming it instead of collecting evidence and so if accidentally your impression was in the wrong direction we are going to confirm it and you don't give yourself a chance to correct it

Their wordsit's beautiful because when people are coming close to a decision it becomes difficult to raise doubts or to raise questions people who are flowing the group down when the group's is nearing a decision a perceivers really you know person I mean you know this you want to get rid of them and the pre-mortem legitimizes that sort of descent and that sort of doubts not only legitimizes that too much rewards it

Their wordsI would advise people make a lot of decisions to keep track their decisions and of how they turned out so that later you can come and and evaluate your procedures and and see whether there is anything that is in common with those decision that turned out well and then not so well

Their wordswe have no way of calibrating ourselves so that makes us wildly overconfident about what we know and reluctant to accept that we may be wrong

Their wordsone basic rule is slow down especially if you if you have the immediate conviction slow down

Their wordsI’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people do who are supporting it.” I think only when I reach that stage am I qualified to speak.

Their wordsobjectivity maintenance routines are totally required in life if you’re going to be a correct thinker.

Their wordsChecklist routines avoid a lot of errors. You should have all this elementary wisdom and then you should go through and have a checklist in order to use it. There is no other procedure that will work as well.

Their wordsIt is also essential for a thinking man to assemble his skills into a checklist that he routinely uses. Any other mode of operation will cause him to miss much that is important.

Their wordsIt is easy to see that a quickly reached conclusion, triggered by Doubt-Avoidance Tendency, when combined with a tendency to resist any change in that conclusion, will naturally cause a lot of errors in cognition for modern man.

Their wordsOne very practical consequence of Liking/ Loving Tendency is that it acts as a conditioning device that makes the liker or lover tend (1) to ignore faults of, and comply with wishes of, the object of his affection, (2) to favor people, products, and actions merely associated with the object of his affection (as we shall see when we get to “Influence-from-Mere-Association Tendency,” and (3) to distort other facts to facilitate love.

Their wordsFor some such reason, man’s evolution left him with Social-Proof Tendency, an automatic tendency to think and act as he sees others around him thinking and acting.

Their wordsLearn how to ignore the examples from others when they are wrong, because few skills are more worth having.

Their wordsThe quantity of man’s pleasure from a ten- dollar gain does not exactly match the quantity of his displeasure from a ten-dollar loss. That is, the loss seems to hurt much more than the gain seems to help.

Their wordsThe best antidote to folly from an excess of self-regard is to force yourself to be more objective when you are thinking about yourself, your family and friends, your property, and the value of your past and future activity. This isn’t easy to do well and won’t work perfectly, but it will work much better than simply letting psychological nature take its normal course.

Their wordsThis tendency was not in any of the psychology texts I once examined, at least in any coherent fashion, yet it dominates life. It accounts for the extreme result in the Milgram experiment and the extreme success of some cults that have stumbled through practice evolution into bringing pressure from many psychological tendencies to bear at the same time on conversion targets.

Their wordsThe elementary part of psychology—the psychology of misjudgment, as I call it—is a terribly important thing to learn. There are about 20 little principles. And they interact, so it gets slightly complicated. But the guts of it is unbelievably important. Terribly smart people make totally bonkers mistakes by failing to pay heed to it.

Their wordsDarwin’s result was due in large measure to his working method, which violated all my rules for misery and particularly emphasized a backward twist in that he always gave priority attention to evidence tending to disconfirm whatever cherished and hard-won theory he already had. In contrast, most people early achieve and later intensify a tendency to process new and disconfirming information so that any original conclusion remains intact.

Their wordsThought experiments push us outside our comfort zone by forcing us to confront questions we cannot answer with ease. They demonstrate gaps in our knowledge and help us recognize the limits of what can be known.

Their wordsThought experiments are a structured manifestation of our natural curiosity about the world.

Their wordsWith the aim of illustrating a particular concept (such as free will or mortality), philosophers explore imagined scenarios. The goal is not to uncover a ‘correct’ answer, but to spark new ideas.

Their wordsAlthough empirical evidence is usually necessary for science, thought experiments may be used to develop a hypothesis or to prepare for experimentation.

Their wordsit's hard to appreciate that over the long run the average person who constantly puts themselves in a good position beats the genius who finds themsel in a poor position what looks like Talent is often good positioning

Their wordsone reason the best in the world make consistently good decisions is they rarely find themselves forced into a decision by circumstances they almost always operate from a position of strength

Their wordseventually everyone loses the battle with willpower sometimes it's really hard to do the things we want to do so we can use safeguards to to change our Behavior

Their wordsyour best self can create automatic rules for these situations before you face them your rule can be I don't eat dessert

Their wordslike joining groups whose default behaviors are your desired behaviors if you want to read more join a book club if you want to run more join a running club your chosen environment rather than your willpower alone will help nudge you towards the best choices

Their wordsI developed an exercise that I would write down my criteria for making those decisions so that would be my principles

Their wordsif you define certain behavioral principles that protect you from the worst parts of your own psychology, um that's a winning strategy.

Their wordsI really think that spending time understanding yourself and then translating that into actionable guardrails that you write down and you stick to um, is a really important thing.

Their wordsAlthough activation energy is a scientific concept, we can use it as a practical mental model.

Their wordsThe bigger and more challenging an action is, the more activation energy we require to do it.

Their wordsthe example that I always use is Bill Gates when he started Microsoft took the most audacious entrepreneurial swing that maybe anyone's ever taken of saying every desk in the world needs a computer on this and he's saying this in 1974 whatever it was crazy amount of risk crazy bold Vision at the same time he said that he always wanted Microsoft to have enough cash in the bank to make payroll for one year with no Revenue which is the most conservative pessimistic way to run a business so he's like very risk-taking and very conservative paranoid at the same time very good at getting rich very good at staying Rich at the same time

Their wordsYou want to buy a company at a price that if you're wrong about what you think it's worth and it turns out to be worth 30% less, you paid a deep enough discount to your estimate that you're still okay. A big part of investing is not losing money.

Their wordswhenever I was surprised and I think whenever most people it's surprised it's because of something that never happened in their lifetime before but it happened before so it doesn't happen in their context but it happens so you don't see it so you don't think about it

Their wordsmaking a mistake is not a problem that um not learning from mistakes is a problem

Their wordsan expression pain plus reflection equals progress

Their wordsif I'm evolving, I will have learned so much more that my thoughts today will seem slightly immature and naive.

Their wordswisdom acquisition is a moral duty. It’s not something you do just to advance in life. Wisdom acquisition is a moral duty.

Their wordsYou are not going to get very far in life based on what you already know. You’re going to advance in life by what you’re going to learn after you leave here.

Their wordsI constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than when they got up and boy does that help—particularly when you have a long run ahead of you.

Their wordsMy second prescription for misery is to learn everything you possibly can from your own personal experience, minimizing what you learn vicariously from the good and bad experience of others, living and dead. This prescription is a sure-shot producer of misery and second-rate achievement.