Mental Models

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We often go through each day without questioning our perception of the world.

We seldom stop to wonder whether the world we perceive matches the real world outside.

However, we live in a world that is vastly older, bigger, and more complex than we are. To think we can fit it all into our heads is a logical absurdity. And that’s why we need… MENTAL MODELS

To quote Charlie Munger, The Vice Chairman of Berkshire Hathaway :

You must know the big ideas in the big disciplines, and use them routinely — all of them, not just a few. Most people are trained in one model — economics, for example — and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.

What Munger is trying to tell us is that, if you view the world with only a single lens, you will be unable to solve complex problems in the best possible way and face many obstacles in your decision making process. Therefore, the best way to solve problems and achieve success in our lives is to sidestep as many mistakes as possible . This is where mental models come into play. By acquiring the significant concepts – the models – from many areas of knowledge we can learn to think and see things around us differently and tackle problems from multiple perspectives.

Acquiring the knowledge of many disciplines may seem a daunting task. Fortunately, you don’t have to become an expert in every field. You merely have to learn the fundamental principles – what Munger calls the big ideas – and learn them so well that they are always with you. There are maybe hundreds of mental models in this world (and perhaps more for you to find out!) , but fortunately about 90+ models can already help us to solve most of the complex problems we are facing.

There are some mental models listed below which I find repeatedly useful, as found in Poor Charlie’s Almanack, The Safal Niveshak website, Farnam Street and many other intellectual hubs.

Psychology

Biases emanating from the Availability Heuristic:

– Ease of Recall

– Retrievability

Others

Base-rate negligence

– Bias from insensitivity to sample size

– Bias from conjunction fallacy

– Confirmation bias

– Bias from anchoring

– Bias from over-confidence

– Hindsight Bias

– Incentives-caused Bias

– Associative coherence

– Bias from liking / disliking

– Commitment and Consistency Bias

– WYSIATI

– Bias from envy and jealousy

– Reciprocation tendency

– Over-influence from authority

– Deprival Super-Reaction Syndrome

– Contrast perception

– Pavlovian Association

– Bias from emotional arousal

– Simple avoidance-of-loss

– Fundamental Attribution Error

– Gambler’s Fallacy

– Do something tendency

– Operant conditioning

– Over-influence from precision/models

– Uncertainty avoidance

– Pluralistic Ignorance

– Short-term bias

– Outside View vs Inside View

– Man with a Hammer Tendency

– Bias from social proof (Herd Behaviour)

– Over-influence from framing effects

– Lollapalooza Effect

– Mental substitution

– Endowment Effect

– Loss Aversion

– Short-term bias

– Mental Accounting

– Planning fallacy

– Narrative Fallacy

– Survivorship Bias

– Cost-Agency Problem

– The Antechamber Of Hope

– Broken Windows Effect 

Business

– Price Sensitivity

– Supply Side Economies Of Scale

– Switching Cost

– Distribution

– Durable Moat

– Porters 5 Forces

  Bucket Theory (churn)

– Diminishing Returns

– Double Entry Accounting

– Arbitrage

– Surfing

Investing

– Mr. Market

– Circle of competence

  Margin Of Safety

– Stop-loss

Ecology

– Complex adaptive systems

– Systems Thinking

– Natural Selection

– Ecosystem

Economics

– Utility

– Diminishing Marginal Utility

– Supply and Demand

– Scarcity

– Opportunity Cost

– Trade-offs

– Price Discrimination

– Sunk Costs

– Moral Hazard

– Game Theory

– Prisoners’ Dilemma

– Tragedy of the Commons

– Time value of Money

Engineering

– Feedback loops

– Redundancy

– Tight coupling

– Breakpoints

Mathematics

– Bayes Theorem

– The Long Tail

– Law of large numbers

– Compounding

– Probability Theory

– Inversion

– Multiplicative Systems & Addition System

– Permutation & Combination

Statistics

– Regression to the mean

– Outliers

– Correlation versus Causation

Chemistry

– Thermodynamics

– Autocatalysis

Physics

– Newton’s Laws

– Momentum

– Critical Mass

– Equilibrium

Analytical Thinking

– Root Cause vs Proximate Cause

– 5Ws

– Scientific Method

– Decision Tree Analysis

– Mindmaps

– Standpoint Analysis

– Brainstorming

– Design Thinking

– Lateral Thinking

– Two-Track Analysis

Other Models

– Momentum

– Information Asymmetry

– KISS (but no simpler)

– Deduction and Induction

– Process versus Outcome

– 7 Deadly Sins

– Network Effect

– Gresham’s Law

– The Red Queen Effect

– Pari-mutuel System

– Subtraction

– Anti-Fragility

– Metaphors 

– The Lucretius Problem

– Matthew Effect

– Pareto Principle

– Black Swan

– Aesop’s Bush Theory

– Boat Theory

– Pass The Baton / Music Chair

– Checklist

– Time, Place & People (TPP)

– Leveraging (借力使力)

– Parkinson’s Law

  

Finally, don’t treat learning as an exhausting task, as learning should be the lifelong responsibility of every homo sapien 🙂