10 Most Powerful Mental Models we should know to Make Intelligent Decisions
1. Incentive-caused bias
- All humans respond to incentives
- As Munger says, show me the incentives I will show you the outcome.
- When you see something strange happening, look for the incentives.
- All humans respond to incentives
- As Munger says, show me the incentives I will show you the outcome.
- When you see something strange happening, look for the incentives.
2. Inversion
- When you are solving a difficult problem, approach the situation from the opposite end of the natural starting point.
- Flip the problem around and think backward.
- When you are solving a difficult problem, approach the situation from the opposite end of the natural starting point.
- Flip the problem around and think backward.
3. Feedback Loops
- Feedback loops are types of behavioral feedback that result in repetition (or avoidance) of behavior
- For example- when weβre praised for something, we feel a sense of accomplishment or pride and we want to keep doing that thing again and again.
- Feedback loops are types of behavioral feedback that result in repetition (or avoidance) of behavior
- For example- when weβre praised for something, we feel a sense of accomplishment or pride and we want to keep doing that thing again and again.
4. Margin of Safety
- This one is a lifesaver.
- In simple terms keep some room for an error.
- Think of it as a reservoir to absorb errors or poor luck.
- This one is a lifesaver.
- In simple terms keep some room for an error.
- Think of it as a reservoir to absorb errors or poor luck.
5. Compounding
- Einstein called compounding a wonder of the world.
- It is an exponential effect
- By understanding compounding, people get really rich.
- Those who understand it benefit from it and those who don't pay for it.
Example- Investing Vs Consumer loan
- Einstein called compounding a wonder of the world.
- It is an exponential effect
- By understanding compounding, people get really rich.
- Those who understand it benefit from it and those who don't pay for it.
Example- Investing Vs Consumer loan
6. Opportunity Costs
- We live in a world of trade-offs where the concept of opportunity cost governs everything.
- There is no such thing as a free lunch,
- To become great at something we have to accept being weak at something.
- We live in a world of trade-offs where the concept of opportunity cost governs everything.
- There is no such thing as a free lunch,
- To become great at something we have to accept being weak at something.
7. Bribery
- Bribery is a fundamental concept in human systems
- When given the opportunity, it is easier to pay a specific agent to look the other way than to follow the rules.
- Bribery is a fundamental concept in human systems
- When given the opportunity, it is easier to pay a specific agent to look the other way than to follow the rules.
8. Denial
- A very powerful mental model.
- Denying reality is a human coping mechanism, a survival mechanism, or a purposeful tactic.
- Understanding this gives anyone an unfair advantage and helps him to get better control of himself.
- A very powerful mental model.
- Denying reality is a human coping mechanism, a survival mechanism, or a purposeful tactic.
- Understanding this gives anyone an unfair advantage and helps him to get better control of himself.
9. Social Proof
- This instinct creates a strong sense of cooperation and culture that would not be possible otherwise.
- It also leads us to do foolish things if our group is also doing them.
- This instinct creates a strong sense of cooperation and culture that would not be possible otherwise.
- It also leads us to do foolish things if our group is also doing them.
10. Hindsight Bias
- A very strong bias that challenges even the brightest among us
- Our narrative instinct leads us to reason that a similar outcome will happen as we have seen before.
- That's why the Smartest people keep a journal and keep questing their beliefs.
- A very strong bias that challenges even the brightest among us
- Our narrative instinct leads us to reason that a similar outcome will happen as we have seen before.
- That's why the Smartest people keep a journal and keep questing their beliefs.
Mental models are how we understand the world & simplify complexity
This guide explores everything you need to know about mental models
By the time youβre done, youβll think better, make fewer mistakes, and get better results.
Buy Now π
gumroad.com
This guide explores everything you need to know about mental models
By the time youβre done, youβll think better, make fewer mistakes, and get better results.
Buy Now π
gumroad.com
Thank you for reading. If you like the thread, please share it with others, and for more such content follow
@LearnMach_1
@LearnMach_1
Loading suggestions...