Mental Models

Use Mental Models to Make Decisions

Everyone benefits from the ability to make great decisions. This is obvious. But, it’s much harder to actually wield the decision making sword. One of the best ways to think is using mental models. These models are simple representations of complex situations that are used to make decisions fast and effectively.  

This page outlines as many mental models as I could think of, all of which are organized in the table of contents below. 

Table of Contents:

  1. Decision Making
    1. The Time / Move Matrix
    2. First Principles
    3. SMART Goals
    4. Backwards Induction
    5. Consistency
    6. Falsification
    7. Circle of Competence
    8. Occam’s Razor
    9. Hanlon’s Razor
    10. Second-order Thinking
    11. Commander’s Intent
    12. Best Next Alternative
  2. Productivity
    1. The Four D’s
    2. Bucketing
  3. Biology
    1. Reciprocation
    2. Red Queen Effect
    3. Fight or Flight
  4. Business
    1. Customer Model
    2. Product Model
    3. Barrier to Competition
    4. The Mercenary Rule
  5. Economics
    1. Division of Labor
    2. Lais Sez Faire
    3. Equity Vs. Debt
    4. Supply & Demand
    5. Comparative Advantage
    6. Opportunity Costs
    7. Mr. Market
    8. Speculating vs. Investing
    9. Iron Law of the Market
  6. Philosophy
    1. The Socratic Method
    2. The Prisoner’s Dilemma
  7. Numbers and Stats
    1. Regression to the Mean
    2. Power Laws
    3. Normal Distribution
    4. Law of Large Numbers
    5. Compounding
  8.  Physics
    1. First Law of Thermodynamics
    2. Second Law of Thermodynamics
    3. Third Law of Thermodynamics
    4. Newton’s First Law
    5. Newton’s Second Law
    6. Newton’s Third Law
    7. Relativity
  9. Psychology
    1. Commitment and Consistency Bias
    2. Confirmation Bias
    3. Hindsight Bias
    4. Availability Heuristic
    5. Social Proof
    6. Influence from Authority
    7. The Pygmalion Effect
    8. Fundamental Attribution Error
    9. Spacing
    10. Chunking
    11. Operant Conditioning
    12. Classical Conditioning
    13. The Law of Small Numbers
    14. Anchors
    15. System 1 and System 2
    16. The Illusian of Validity
    17. The Illusian of Understanding
    18. Cognitive Switching Effect
    19. Loss Aversion
  10. Engineering
    1. Input / Output
    2. Young’s Elasticity Modulus
    3. Stress and Strain
    4. Trade-offs
  11. Systems
    1. Law of Diminishing Returns
    2. Pareto Principle
    3. Feedback Loops
    4. Tragedy of the Commons
    5. Fragility – Robustness – Antifragility
    6. Redundancy
    7. Network Effects
    8. Virality
    9. Black Swan
    10. Spring Loaded
    11. Fully Prepared for the Past
    12. Big-Bang Theory of Systems
    13. Medium-Period Variables
    14. Generalized Uncertainty Principle
    15. Anergy-State
    16. Principle of Le Chatelier
    17. Murphy’s Law
    18. The Primal Scenario
    19. The Peter Principle
    20. Bottlenecks
    21. Functionary’s Fault
    22. Functionary’s Pride
    23. Hirelings Hypnosis

 

Here are a few of my favorite mental models. The following are effective whether you’re trying to decide on how to prioritize tasks around your home, save precious time, or even operating a multinational organization. Essentially, they’re good for everyone.

The Four D’s

There are millions of companies, advertisements, and people competing for your valuable time and attention. In order to combat all of the confusion, you need to prioritize. The 4 D’s allow you to effectively and immediately prioritize between tasks and opportunity.

For example, whether it be something serious like what to prioritize at work or as mundane as picking up your child from school, when confronted with tasks, you have four options. Let’s apply this to the decision every parent is faced with: 

Drop – Immediately say “No” (Which I hope you wouldn’t do to your children)

Defer – Wait or Delay (Send your child to “after-school” programs)

Delegate – Pass along the project (Honey, can you pick up the kids today? Or,  place this responsibility on the bus system)

Do – Own the project (I’m on my way kids!)

This model allows you to immediately understand the two fundamentals of prioritization –  responsibility and timing: who (or nobody) is doing this, and when will it be finished? This is a critical step for any well-oiled decision maker. Use the Four D’s to make decisions effectively and fast.

Time / Move Matrix

Do you make the most costly and common decision making error? Probably. Here’s an example of the error. In 1996 General Electric began producing an electric car called the EV1. While the product was beloved, it never took off and in 1999 was discontinued. Nowadays, there is a pretty large electric auto manufacturer called Tesla Motors, you’ve probably heard of them. With the success of Tesla, it’s now obvious that General Electric’s concept was correct, just a few years premature.

Before every decision, you must check yourself with:

“Is this the right time?”

While this question may seem obvious, most people ignore it. Take a look at the following:

Decision-Making Time Matrix

Wrong Time Right Time
Wrong Move  Wrong  Wrong
Right Move  Wrong  Right!

Out of the four potential outcomes, only one is correct: making the right move at the right time.  

In order to ¾ fatal outcomes, you need to get into a practice of asking yourself this question before making any decision. However, once you remember to ask this question it’s not impossibly hard to figure out (solicit unbiased feedback). Save time and avoid mistakes with this model.

First Principles

The best model for all engineering related questions is named “First Principles”. Essentially, it means boiling down the situation or project into its physical components and beginning with those as the foundation. This bottom-up method contrasts the common approach of analogous thinking, or taking the existing solutions and iterating upon them. For example, the “Uber for X” model so popularized in the last few years.

A First Principles thinker, Elon Musk gives an example of applying the model to his company, Tesla. Elon has determined that the essential aspects of automobile manufacturing are the base costs of the metal on the London Material Exchange (where you make those sorts of purchases). Rather than comparing and being competitive through there.

I’ve found that model works well in most general situations, too. This is because it focuses on what’s absolutely essential. If you can boil anything down to its fundamental characteristics then you should be able to understand how it works, pretty well too.

SMART Goals

It’s common knowledge that goals are used by productive people. But there is a wide gap between a poorly set goal and a “SMART” goal. A poor goal is something like: “I want to be a millionaire”. There is no substance to it. How will you do this? Over what time period? Are there sub-goals? Is this achievable?

A better model is called: SMART.

S stands for specific. Make sure to have specific goals.

M means measurable. Goals that are undefined and untracked more difficult to follow.

A’s are agreeable. This means that everyone has come to a consensus on the decision.

R is realistic. The desired outcome is attainable.

T stands for time. It’s important to time your goals in order to provide context for your strategy.

For our Million Dollar example, a SMART goal would say “My goal is to save X amount of money in Y time.” This goal follows the SMART model -> it is specific, measurable (how close am I), realistic (a million isn’t real for most), agreeable (to the goal owners), and anchored to a time period.

These are a few of my favorite models, but many more exist. If you want to keep learning, I recommend heading to Farnam Street – they have a great article on Mental Models.

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