Introduction to mental models

I am standing on the shoulders of giants when writing this post, which is a similar pattern with many of my posts. Some of the most inspirational individuals I’ve listened to, read or heard about have given incredible insights which have been the basis of my thinking on this topic. The most important are: Daniel Kahnman & Amos Tversky, Charlie Munger, Shane Parish (CEO at Farnam Street), James Clear (author of ‘Atomic Habits’) & Gabriel Weinberg (CEO & Founder of DuckDuckGo)*. What do these incredible people have in common? They have all thought deeply about how mental models drive the way we make decisions, and ultimately live our lives.

In terms of who shone the light onto the concepts of mental models, and brought them into public consciousness, that award probably goes to Charlie Munger. Munger is the lesser known half of the investment behemoth that is Berkshire Hathaway, his more famous partner being Warren Buffett. Munger started publicly talking about mental models, or to use his terminology ‘latticework of mental models’ in the early 1990s, one famous example is his ‘A Lesson on Elementary Worldly Wisdom’ a talk at USC Business School in 1994 (you can see a full transcript here). Arguably Kahnman & Tversky were earlier than Munger in terms of articulating the psychological side of mental models, however they wouldn’t become world famous until much later, with the work of Richard Thaler and rise in popularity of Behavioural Economics (more on that shortly).

So, what exactly is a mental model? The whole world around us is too complex for our brains to quickly access all information available to come up with the best possible option every time. Mental models are how our brains achieve simplicity in our complex environment. If you’ve read about Behavioural Economics, you’ll have undoubtedly heard of ‘heuristics’ and the work of Daniel Kahnman, Amos Tversky & Richard Thaler. For more information on all three of these great figures, and Behavioural Economics more widely, check out this blog post I released based on my perspective reading ‘Misbehaving’ by Richard Thaler – https://jablifestyle.net/2017/06/11/book-review-misbehaving/. Therefore, to me, a mental model is a generalised rule or heuristic based on previous experience or held beliefs. To be more specific, it is a perspective on how your mind thinks something works.

Why do we need mental models?

Simply put, because the world is too complex, and there is too much information in our world for our brain to process it all. Therefore, to save itself time and effort, the brain has mental models it subconsciously calls upon to approximate a view / perspective / decision on a situation without having to fully access each situation individually. From an evolutionary perspective mental models are incredibly useful, if your brain ‘recognises’ a situation which is similar to one you were in previously where you almost got eaten by a predator, developing the ‘run in these situations’ mental model is extremely beneficial to your survival. Worst case scenario is you look silly in front of your friends because you ran away from a bush swaying in the wind. However, in the modern world, these same mental models and snap decisions or reactions can lead to outcomes with much greater downsides. Another way to think about mental models is a bias, being aware of your biases and of those of other people can improve the decisions you make and help others to make. The aim of this piece is to shine a light on some of the best and most common mental models to be aware of, both positive and negative, so that you are more likely to consciously be aware of the decisions you are making, and hopefully make better decisions.

There isn’t a single mental model that works perfectly in all situations, the so-called ‘silver bullet’ doesn’t exist. However, as Charlie Munger himself said in 1994, “80 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.” Equally, depending on your career you might have some very good mental models, but equally some significant blind spots. As Shane Parish at Farnam Street Blog says: “…a typical Engineer will think in systems. A psychologist will think in terms of incentives. A biologist will think in terms of evolution. By putting these disciplines together in our head, we can walk around a problem in a three-dimensional way. If we’re only looking at the problem one way, we’ve got a blind spot. And blind spots can kill you.”

By building a library of different types of mental models, you build your decision-making arsenal to reduce the chance of making bad decisions and big losses in life. Munger, Thaler and others have focused Mental Models on financial markets and money, however their application is much broader, from your love life to social engagements, buying a house to career success, the great thing about mental models is their flexibility and applicability across all different fields.

An everyday example is that of confirmation bias. The confirmation bias mental model is “the tendency to search for, interpret, favour, and recall information in a way that confirms one’s pre-existing beliefs or hypotheses, while giving disproportionately less consideration to alternative possibilities.” I.e. we tend to favour and search out evidence that confirms our existing belief or viewpoint, regardless of if it’s truth or source. By actively being conscious of the existence of confirmation bias you will spend a little longer validating your sources of data and also longer identifying a wider source of data to ensure what you think is right or true is actually so.

What Mental Models do I care about?

If you read the Shane Parish, Gabriel Weinberg or James Clear articles or books, you’ll see they cover a full plethora of domains, from human nature to physics, from war to mathematics, even from sports to the internet

Given my personal interest areas, as well as the areas of focus for this blog, I will be focusing on making better decisions in the following areas:

• Human Nature
• Modelling & Explaining
• Experimenting
• Reasoning & Negotiating
• Managing & Influencing
• Productivity
• Business & Management

In the rest of this piece will outline some of my favourite mental models broken down into the following:

• Mental models you are using all the time without realising it
• Famous mental models in Behavioural Economics, which are useful in everyday life
• The ones I have only recently fully understood & believe are very important

For each model I will start with a definition and then give you an example of the model in real life to try and bring them to life, wherever possible I will also provide a link to where you can find additional information. Wherever possible, and aligned to the themes and aims of this blog, I will look to provide an example which is focused on how to use the model to make better decisions to improve your life / be more productive.

The mental models you are probably using all the time without realising

It wasn’t until I started doing more detailed research into mental models, that I realised that there were a number I was using on a daily or weekly basis without realising they were mental models. I believe the main reason for this is that I had been taught about them or had picked them up organically and they weren’t framed in the same way.

Here is a selection of mental models which I realised I use on a daily / weekly basis without even knowing or realising they were mental models:

Cost-benefit Analysis

• Definition: “A systematic approach to estimating the strengths and weaknesses of alternatives that satisfy transactions, activities or functional requirements for a business.”
• Example: When creating pros and cons lists, think about the size and impact of these pros (benefits) and cons (costs), don’t just count the total in each column and declare that the winner

Thought Experiment

• Definition: “considers some hypothesis, theory, or principle for the purpose of thinking through its consequences.”
• Example: Before making the decision to take on a new task or activity do a thought experiment to think about the full impact on what it will involve, do you have the capacity to not only complete the task, but also the prep and follow-up work which might be involved.

Crowdsourcing

• Definition: “The process of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, especially an online community, rather than from employees or suppliers.”
• Example: Is your team not meeting its productivity aspirations? Ask them to be involved in the decision, set-up a design thinking style workshop, and together source the opportunities.

Order of Magnitude

• Definition: “An order-of-magnitude estimate of a variable whose precise value is unknown is an estimate rounded to the nearest power of ten.”
• Example: Always try to quantify things, even if it’s challenging. By putting an approximate value on things you can bring them into your sphere of control and more easily compare options.

Regression to the Mean

• Definition: “The phenomenon that if a variable is extreme on its first measurement, it will tend to be closer to the average on its second measurement.”
• Example: Successfully beaten the stock market over the last two years? You could be a star stock picker, or it could be luck, more likely it’s luck. But it works both ways, if you are down on your luck, according to the regression better times are around the corner.

Business Case

• Definition: “Captures the reasoning for initiating a project or task. It is often presented in a well-structured written document, but may also sometimes come in the form of a short verbal argument or presentation.”
• Example: So common in the world of business, but so under-utilised in life outside of work. Next time you want to buy an expensive piece of furniture, don’t make the decision on the fly, build a business case, present it, that way you’ll feel proud of your decision instead of feeling guilty about your rash decision.

Decision Trees

• Definition: “A decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility.”
• Example: Trying to understand how the impact of one decision will impact future decisions you need to make, try using a decision tree. Decisions trees help you identify risks and unintended consequences you could never have seen with traditional thinking.

Slippery Slope

• Definition: “Asserting that if we allow A to happen, then Z will eventually happen too, therefore A should not happen.”
• Example: Have your card declined at the supermarket, so many people will jump to the conclusion that they’ve been a victim of identity theft, that is slippery slope in real life. More likely you put your pin digits in the wrong order or one of the buttons didn’t press properly. When bad or worrying things happen take a deep breath and think about the most logical reason and next step, don’t jump to the worst-case scenario.

Zero-sum vs Non-zero-sum

• Definition: “A zero-sum game is a mathematical representation of a situation in which each participant’s gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of the other participant(s)…In contrast, non-zero-sum describes a situation in which the interacting parties’ aggregate gains and losses can be less than or more than zero.”
• Example: Always look for opportunities to play non-zero-sum games, you want both yourself and the other plays to win. In the consultancy world, this is typically in the form of pay us £X today and we will save you £X + 50% in the future, a win-win.

IQ vs EQ

• Definition: “IQ is a total score derived from one of several standardized tests designed to assess human intelligence.” “EQ is the capacity of individuals to recognize their own, and other people’s emotions, to discriminate between different feelings and label them appropriately, and to use emotional information to guide thinking and behaviour.”
• Example: Whilst IQ is often perceived as a greater factor in someone’s success there is a growing view that it’s those who can show high EQ who are more successful in life. Make time and be conscious of improving your EQ.

Growth Mindset vs Fixed Mindset

• Definition: “Those with a ‘fixed mindset’ believe that abilities are mostly innate and interpret failure as the lack of necessary basic abilities, while those with a ‘growth mindset’ believe that they can acquire any given ability provided they invest effort or study.”
• Example: You have a fixed mindset when you watch a footballer on TV and think “he was born an incredible footballer”, you have a growth mindset if you watch the same footballer and think “I could do that, if I put in enough hard work and dedication” (along with a fair amount of luck).

Unknown Unknowns

• Definition: “Known unknowns refers to ‘risks you are aware of, such as cancelled flights….’ Unknown unknowns are risks that ‘come from situations that are so out of this world that they never occur to you.”
• Example: We are living in a significant unknown unknown right now in the form of the COVID-19 pandemic.

Murphy’s Law

• Definition: “Anything that can go wrong, will.”
• Example: The existence of Murphy’s Law means that you need to do more careful planning, specifically contingency planning. Consider what will go wrong and put a plan in place to mitigate the likelihood of it going wrong, or at least respond at pace when it does.

Parkinson’s Law

• Definition: “Work expands so as to fill the time available for its completion.”
• Example: I experience this on a weekly basis. The key to responding to Parkinson’s Law is to time-box activities and decisions, otherwise you’ll expand unnecessary effort and brain power.

Gate’s Law

• Definition: “Most people overestimate what they can do in one year and underestimate what they can do in ten years.”
• Example: This is something we see so regularly. Being able to run a marathon may seem impossible, but with daily exercise and a planning regime you can get fit enough to run a marathon in under 4 hrs with 3 – 4 months practice.

Lateral Thinking

• Definition: “Solving problems through an indirect and creative approach, using reasoning that is not immediately obvious and involving ideas that may not be obtainable by using only traditional step-by-step logic.”
• Example: If I am stuck on a problem or a way forward, nothing helps me more than going to do something completely different and then coming back to the original problem. By doing something else your mind thinks along a different plain, which can help you think of creative approaches to the problem.

Famous Behavioural Economics Models

Here is a selection of mental models which I have been explicitly told about / learnt about in a different framing, typically through Behavioural Economics:

Opportunity Cost

• Definition: “The value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives. Assuming the best choice is made, it is the ‘cost’ incurred by not enjoying the benefit that would have been had by taking the second-best available choice.”
• Example: I find thinking of my time and brain power in these terms very helpful. Both my time and brain power are a limited resource, therefore by focusing on something I am not to focus on something else. I find thinking about that as an active decision – which it is – helps nudge me to focus on the most important thing first and not waste brain power and time on the less important things.

Sunk Cost

• Definition: “A cost that has already been incurred and cannot be recovered.”
• Example: A most famous example of sunk cost is the famous idiom ‘throwing good money after bad.’ If you’ve made a bad decision with your time or money before, do your best not to let that affect your judgement on future decisions. That money / time has already gone, it can’t be recovered, don’t make the problem worse because you feel like you’ve already ‘committed’ to a certain course of action.

Selection Bias

• Definition: “The selection of individuals, groups or data for analysis in such a way that proper randomization is not achieved, thereby ensuring that the sample obtained is not representative of the population intended to be analysed.”
• Example: Most of us haven’t progressed much since we were 7 years old and picked our friends first for our football team, instead of picking the best players. When building a team for a project, don’t pick the people you get on best with, pick the people whose strengths will combine to achieve the best outcome. Think outside of the box to ensure your sample (your pool of resources to select from) is as wide as possible.

Availability Bias

• Definition: “People tend to heavily weigh their judgments toward more recent information, making new opinions biased toward that latest news.”
• Example:  Related to confirmation bias, actively seek out additional information – from different sources and different time frames – this will help you make more holistic (and better) decisions.

Loss Aversion

• Definition: “People’s tendency to strongly prefer avoiding losses to acquiring gains.”
• Example: You can use loss aversion to help you in so many ways. A common one is weight loss, give your friend £100 and say they get to keep it if you lose XX pounds in 1 month. You’ll work much harder not to lose the money, than if you promised yourself you could spend £100 on new clothes if you lost the weight.

Hindsight Bias

• Definition: “The inclination, after an event has occurred, to see the event as having been predictable, despite there having been little or no objective basis for predicting it.”
• Example: As the famous phrase goes ‘hindsight is twenty-twenty.’ Don’t beat yourself up for things you didn’t know when you were making your decision, just because you know them now. Equally, take time to think about your decisions after the fact and make sure if you are repeating the same mistakes in hindsight you change your decision flow in the future to stop making predictable mistakes.

The ones I have only recently fully understood & believe are very important

Hanlon’s Razor

• Definition: “never attribute to malice that which is adequately explained by carelessness.”
• Example: That person who you think is making your life miserable by ignoring your email and advice is statistically not doing it to annoy you, they are probably getting 200 emails a day and their boss breathing down their neck to make a decision.

Occam’s Razor

• Definition: “Among competing hypotheses, the one with the fewest assumptions should be selected.”
• Example: How many hours have you spent worrying that you’ve done something wrong because a friend isn’t responding to your message. Don’t worry, it’s much more likely they aren’t responding because (a) their battery died or (b) they are extremely busy, not (c) you accidentally mortally offended them without realising and they are ignoring you. Save your hours worrying and do something productive with your brain power instead.

Cognitive Biases

• Definition: “Tendencies to think in certain ways that can lead to systematic deviations from a standard of rationality or good judgments.”
• Example: Social media is terrible for this. We tend to follow and engage people who are like us, that is a sure-fire way of making poor decisions because of cognitive bias. Actively seek out alternative viewpoints to help you make better judgments.

Peter Principle

• Definition: “The selection of a candidate for a position is based on the candidate’s performance in their current role, rather than on abilities relevant to the intended role. Thus, employees only stop being promoted once they can no longer perform effectively, and ‘managers rise to the level of their incompetence.’” (Cochan’s Rule)
• Example: Another extremely common one we see in business life, people getting promoted based on their current work, not how good they will be in the role you are promoting them to. To stop this happening, during promotion reviews ensure you are evaluating the individual against the criteria of the next level, not the current one. Only promote people who have proven they are operating well at the next level for a period of time (6 months +).

Framing

• Definition: “With the same information being used as a base, the ‘frame’ surrounding the issue can change the reader’s perception without having to alter the actual facts.”
• Example: What you compare things against and the way you write comparisons has a massive impact on how you and others perceive them. That new pair of shoes you really want are advertised at ‘10% off’ but if you don’t currently have the money to afford them, re-frame the proposition that these shoes are still ‘90% of their extortionate price’.

Pareto principle

• Definition: “for many events, roughly 80% of the effects come from 20% of the causes.”
• Example: If you can achieve 80% of the result for only 20% of the effort, you can afford to spend extra time identifying what the most important 20% is before you jump in feet first. I use this approach for working out regularly. If I only have 15mins to do a workout instead of the normal 40 – 50mins, I focus on what will give me the biggest bang for my buck.

Survivorship Bias

• Definition: “The logical error of concentrating on the people or things that ‘survived’ some process and inadvertently overlooking those that did not because of their lack of visibility.”
• Example: The common view of tech entrepreneurs is the perfect example of this. In reality the average age of an entrepreneur is 40 years old, but because the media focuses on the rare young successes (think Zuckerberg, Matt Mullenweg & Jack Dorset) most people think this age is 10+years younger.

Ad Hominem

• Definition: “Attacking your opponent’s character or personal traits in an attempt to undermine their argument.”
• Example: You cannot go onto social media without seeing the ad hominem fallacy in full flow. When making a point or countering someone, don’t reduce your argument to attacking the individual, it is low and means you automatically lose the argument.

Clarke’s Third Law

• Definition: “Any sufficiently advanced technology is indistinguishable from magic.”
• Example: My absolute favourite example of this is the Cargo Cult. I won’t say more, just read it and thank me later, I can’t think of a better example to show Clarke’s Third law.

*A bit of a side note….

I originally had Scott Galloway on this list. I originally found out about Scott when I read an incredible article called ‘Happiness and the Gorilla’ which was available at this URL https://www.l2inc.com/daily-insights/no-mercy-no-malice/happiness-the-gorilla, however in recent times has been removed as he has moved it into his book. One of the biggest criticisms of books is that ‘this would have been a great online article’ and this was the perfect example, I’m sad to see that Scott Galloway removed something of value that was previously available to all.

Additional Reading

• The best comprehensive explanation and breakdown of Mental Models can be found here: https://fs.blog/mental-models/
• Inspiration in terms of layout and structure of this article: https://medium.com/@yegg/mental-models-i-find-repeatedly-useful-936f1cc405d
• Fantastic article on mental models: https://jamesclear.com/mental-models

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