Be Smarter with These Mental Models

☞ What are mental models?

Ever wondered how you can make smarter decisions without drowning in a sea of information? The answer is simpler than you might think: mental models.

So, what are these mental models? Well, they’re like your personal cheat codes for understanding the world. They help you break down complex ideas into bite-sized, easy-to-grasp pieces. Imagine them as your trusty tools for decoding the puzzle of life.

Think of mental models as the lenses through which you view the world. For instance, the mental model of velocity reminds us that both speed and direction matter.

Reciprocity tells us that being kind and taking the first step can be a game-changer. Margin of Safety helps us prepare for the unexpected, and Relativity shows us that we all have blind spots.

Now, there are thousands of these models out there, but we’ll focus on the hundred or so that are genuinely handy in your day-to-day life. Learning about these models is your ticket to making fewer blunders and more informed choices.

How to be smarter

In life and business, the key to success is having as few blind spots as possible.

Think about it—mistakes usually happen when we’re in the dark about something. If you had all the facts and knew the outcome of every decision, you’d never go wrong.

Mental models aren’t flawless crystal balls, but they’re incredibly practical. The real test of a model is its usefulness. Does it help you see things from a new perspective? Does it shed light on a blind spot you didn’t even know you had?

To become a better thinker, you need to collect a toolbox of mental models. Most of us become experts in a specific area, and that’s how we tend to see the world. An engineer sees systems, a biologist sees evolution, and a businessperson sees value.

But if you can embrace multiple viewpoints, like both systems and evolution, you’ll make smarter decisions and dodge more pitfalls. It’s like solving a problem from all angles, in 3D.

Remember, if you’re only looking at a problem from one angle, you’re bound to miss something crucial. Blind spots can really trip you up.

To put it another way, when a botanist looks at a forest, they see the ecosystem. An environmentalist spots the impact of climate change. A forestry engineer focuses on tree growth, and a businessperson sees land value.

None of these views are wrong, but none of them paint the complete picture either. When you rely on only one perspective, you overlook the broader implications.

Back in the 1990s, Charlie Munger gave a famous speech on practical wisdom and mental models, saying something like:

“Remember, you can’t really grasp anything if you’re just memorizing isolated facts. You need a framework of ideas. Your experiences, both direct and learned from others, should hang on that framework. Students who merely memorize and regurgitate tend to struggle in school and in life. So, you need models in your head. You need to organize your experiences on this framework of models.”

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☞ Mental models

Core mental models

1. The Map is Not the Territory

Think of it like this: when you look at a map, it’s not the same as being in the real place. Maps are like mini-versions of reality. Even the best maps aren’t perfect.

They simplify the world. If a map was a perfect copy of the territory, it wouldn’t be useful because it would be too big and complicated.

And sometimes, the map might show something that doesn’t even exist anymore. So, when you’re facing a problem or decision, remember that the map isn’t the whole story.

2. Circle of Competence

Imagine your brain is like a toolbox, and you have different tools for different jobs. Now, some people make the mistake of using the wrong tool because they want to show off or look smart.

That’s like using a screwdriver to hammer in a nail—it won’t work well.

But when you’re honest with yourself about what you’re good at and what you’re not, it’s like using the right tool for the job. It helps you make better decisions because you’re not pretending to be an expert when you’re not.

3. First Principles Thinking

This is like a superhero move for your brain. It’s all about breaking big problems into tiny pieces. Imagine you have a puzzle, and instead of trying to put the whole thing together at once, you look at each piece and figure out how it fits.

This way, you understand the puzzle better and can even create your own puzzle pieces if needed.

4. Thought Experiment

Think of this as your personal time machine. It’s a way to travel into the past or future using your imagination. Scientists and thinkers use thought experiments to ask “What if?” questions.

They help us learn from our mistakes without actually making them. It’s like trying out different paths in a video game before you choose the best one.

5. Second-Order Thinking

First-order thinking is like looking at the here and now, while second-order thinking is like seeing the bigger picture.

Instead of just thinking about what’s right in front of you, you think about what happens next and after that.

It’s like playing chess; you need to think a few moves ahead, not just the next one. This helps you avoid big problems down the road.

6. Probabilistic Thinking

Imagine you’re playing a game, and you’re trying to guess the outcome. Probabilistic thinking is like having a cheat sheet that helps you make educated guesses.

It’s like saying, “I think there’s a 70% chance this will happen and a 30% chance that will happen.”

It’s a smart way to make decisions because you’re not just guessing; you’re using math and logic.

7. Inversion

Sometimes, it’s easier to solve a problem by looking at it backward. Instead of starting at the beginning, you start at the end and work your way back.

It’s like solving a puzzle by figuring out the last piece first. This helps you see things from a different angle and find solutions you might have missed.

8. Occam’s Razor

This one’s simple: the simplest explanation is often the best one. When you have a choice between a complicated answer and a simple one, go with the simple one.

It’s like choosing the shortest route on a map instead of a maze.

9. Hanlon’s Razor

Imagine you’re stuck in traffic, and you could think, “Someone did this on purpose to annoy me!” Or you could think, “Maybe there was just an accident, and it’s not about me.”

Hanlon’s Razor reminds us not to jump to conclusions and assume people are being mean when they might just be making mistakes. It helps us stay chill in a complicated world.

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Physics & Chemistry mental models

1. Relativity

Picture this: You’re on an airplane. You don’t feel like you’re moving, but someone watching from the ground knows you are.

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That’s like how we sometimes see things differently depending on our perspective. It’s like wearing different glasses and seeing different things.

2. Reciprocity

If you push a wall, it pushes back with the same force. It’s like a little push-and-pull dance. In the world of people, we tend to return kindness when someone is kind to us.

It’s like a friendly game of “you scratch my back, I scratch yours.”

3. Thermodynamics

This one is like an unbreakable rule: energy doesn’t just appear out of nowhere, and it can’t disappear either. It’s like a jar of marbles.

You can’t make new marbles or throw them away; you can only move them around. It’s like that in our world too.

4. Inertia

When you’re moving, you like to keep moving in the same direction unless something stops you. Think of it like a sled going downhill. It wants to keep going unless someone puts on the brakes.

People and groups can be the same way. They keep doing what they’re doing until something makes them change.

5. Friction and Viscosity

Friction is like trying to push something heavy on the ground; it’s tough because the ground is pushing back.

Viscosity is like trying to swim in thick syrup; it’s hard because the syrup slows you down. Just like that, our world sometimes makes things harder for us too.

6. Velocity

Velocity isn’t just about how fast something is going; it’s also about where it’s headed. Imagine taking two steps forward and two steps back – you’re not going anywhere even if you’re quick.

In life, it’s not just about speed but also about going in the right direction.

7. Leverage

Think of it as using a super-long lever to lift something heavy with very little effort. It’s like magic! In our world, we can use a little power to make a big impact too.

It’s like being a superhero with a tiny effort that brings big results.

8. Activation Energy

To start a fire, you need more than just wood and oxygen; you need that little spark to kickstart the flames. It’s like needing a push to get things going. In life, some things need a nudge to begin.

9. Catalysts

A catalyst is like a spark that keeps a reaction going, but it doesn’t get used up itself. It’s like having a magical wand that makes things happen.

In our world, some things keep going because of these catalysts.

10. Alloying

When you mix different elements, you get something new that’s even better. It’s like baking cookies – the ingredients by themselves are okay, but together, they create something amazing.

It’s not just about adding; it’s about the magic that happens when things combine.

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Biology mental models

1. Survival of the Fittest

Imagine you have a group of animals in the wild. Some animals are naturally better suited to their environment.

They have traits that help them survive and have babies. Over time, these traits become more common because those animals have more offspring. That’s like nature picking the winners.

2. The Race to Stay Alive

Think of nature like a big race. Species need to adapt to their surroundings to survive. But they can’t change themselves in their lifetime; it takes many generations.

When one species gets an advantage, others have to catch up or lose the race. It’s like a game of “keeping up with the Joneses.”

3. Ecosystems

Picture a forest or a coral reef. It’s like a big community of plants and animals living together. They all have to find their own way to survive.

Just like in human communities, there are different roles and behaviors in these natural neighborhoods.

4. Niches

Think of a niche as a job or a role. Each species finds a role that they’re best at. It’s like one animal becomes the best tree climber, while another is the best at digging.

But when too many species want the same job, it’s like there’s not enough work to go around, and some may have to leave.

5.The Instinct to Stay Alive

Imagine you’re programmed to do everything you can to survive. This instinct is in the DNA of all living things. It’s like a strong survival mode that can make creatures do whatever it takes to stay alive.

6. Replication

Think of DNA as the instruction manual for making a living thing. It’s like having a recipe book for life. When creatures have babies, they’re following these instructions, but there are different ways to make copies, like photocopying or cutting and pasting.

7. Cooperation and Competition

Just like in sports, sometimes you work together, and sometimes you compete. In the animal kingdom, you see both cooperation and competition.

For example, ants cooperate within their colony, but they compete with other ant colonies. It’s like a mix of teamwork and rivalry in nature.

8. Following the Leader

Imagine you’re in a group, and there’s someone in charge. People often look up to the leader for guidance, especially in stressful or uncertain situations.

It’s like following a captain on a ship – the leader sets the course.

9. Incentives

Everyone likes rewards. In biology, creatures do what works and gets them rewards. It’s like if you got a gold star for doing your homework. Animals are also motivated by rewards to survive and thrive.

10. Being Efficient

Picture a world where you have to conserve energy because resources are limited. Just like turning off the lights to save electricity.

In nature, creatures try to use as little energy as possible to stay ahead.

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Systems mental models

1. Loops

Imagine a chain reaction where one thing leads to another, and it keeps going in a circle. For example, if you water a plant more, it grows better, which makes you want to water it even more.

These loops can either keep things stable (like our body temperature) or spin out of control.

2. Equilibrium

Think of a seesaw or a tightrope walker. They constantly adjust to stay balanced. In systems, they try to stay steady, but they often swing a little too far in one direction before coming back to balance.

It’s like a pilot who’s not always flying straight but keeps correcting the course.

3. Bottlenecks

Imagine a highway where all the cars have to pass through a narrow tunnel. It’s like a bottleneck; things get stuck and slow down.

In any system, a bottleneck can be a tiny part that slows everything down. But it can also be an opportunity to find a new way to get things moving.

4. Scale

Picture a small toy and a giant version of the same thing. The big one might not work the same way as the small one.

In systems, things change when you make them bigger or smaller. It’s like how a company operates differently from a small shop.

5. Margin of Safety

Imagine building a bridge that can hold 9,600 pounds, and you drive a 9,500-pound bus over it. It’s like living on the edge.

In systems, having a little extra room for safety is smart. It’s like making sure the bridge can hold a bit more than it needs to.

6. Churn

Think about a game where some players leave, and new ones join. It’s like musical chairs. In systems like businesses, you might lose and gain customers regularly.

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It’s like a constant game of keeping up with the changes.

7. Algorithms

Imagine following a recipe to bake a cake – step by step, like a list of “if this, then that.” Algorithms are like the instructions that tell you what to do to get a specific result.

They’re not just for computers; they’re in our DNA too.

8. The Tipping Point

Think of a scale that tips when you add just one more tiny thing. It’s like a system is on the edge, and when you reach a certain point, it suddenly changes completely.

For example, water turns into steam when heated to a specific temperature. “Critical mass” is the tipping point in systems.

9. The Sum is Greater than the Parts

Imagine a team of musicians creating beautiful music together. The music they make is like something new, not just a mix of each person’s notes.

It’s the same in systems – sometimes, when things work together, they create something more than what each part does alone.

10. You Can’t Simplify Everything

Think of trying to make a cake with just one ingredient, like flour. It’s impossible; you need multiple things to get the result.

Some things in systems are just too complex or have a minimum level you can’t go below. You can’t make a baby by combining several women or reduce a whole car to just one part.

11. Law of Diminishing Returns

Imagine helping a family in need by giving them money. If they were poor, more money could help them a lot.

But at some point, giving them more won’t make a big difference; it’s like they reach a limit where extra money doesn’t help much. This is true for many things, where adding more doesn’t always give more value.

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Numeracy mental models

1. Distributions

Think of data as people’s heights in a group. Most people are average height, and only a few are very tall or very short. This creates a bell-shaped curve.

But not everything follows this pattern; some things are quite different, like the popularity of books or songs.

2. Compounding

Imagine you have money in a savings account. Every year, you earn interest not just on your initial money but also on the interest you’ve already earned.

It’s like your money multiplies itself over time, creating more and more wealth. This happens with investments, knowledge, and relationships too.

3. Sampling

To understand a big group of similar things, we don’t have to study every single one. We can study a smaller part, a sample, which should represent the whole group.

If we have more samples, we can get a more accurate picture. Small samples can lead to misleading conclusions.

4. Randomness

Sometimes, things happen without a clear pattern or reason. It’s like a roll of the dice or picking a card from a shuffled deck; there’s no way to predict the outcome.

We often make mistakes by thinking we see patterns when things are actually random.

5. Regression to the Mean

Imagine a basketball player who has a great game. The next game, they might not be as amazing – they’ll likely perform closer to their usual level. It’s like a return to the average.

This happens in many areas; extreme events tend to balance out over time.

6. Multiplying by Zero

Picture a great recipe where one bad ingredient can spoil the whole dish. This also happens in life.

Sometimes, one big problem can overshadow all the good things. Fixing that problem can be more important than improving other areas.

7. Equivalence

Algebra allows us to show that different things can be equal. It’s like discovering that 2 + 2 and 1 + 3 are both 4. This concept helped us make amazing technological advancements. It’s about finding hidden connections.

8. Surface Area

Imagine a sponge soaking up water. The more holes and surface it has, the faster it works. In life, more surface area means more interaction with your surroundings.

Sometimes, you want to increase it, like in your lungs to absorb oxygen, but other times, you want to decrease it, like reducing your online exposure.

9. Global and Local Maxima

Think of a mountain range. The highest point is the global maximum. But within a smaller part of the range, there might be smaller peaks, the local maxima.

These help us see where things are at their best, and whether there’s room to improve. Sometimes, you have to go down to reach a higher peak.

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Microeconomics mental models

1. Opportunity Costs

Think of life as a menu with limited options. When you choose one dish, you’re giving up the chance to taste others.

Opportunity cost is what you’re missing out on by choosing one thing over another. In simple terms, “there’s no such thing as a free lunch.”

2. Creative Destruction

Imagine entrepreneurs as game-changers always trying to outdo each other with better ideas. It’s like a constant competition where old ideas get replaced by new, better ones.

This process, called creative destruction, drives innovation.

3. Comparative Advantage

Two people, firms, or countries can trade and both come out ahead, even if one is better at everything. It’s like a win-win situation.

When you trade, you focus on what you do best, and that’s the core of comparative advantage.

4. Specialization

Picture a factory where each worker specializes in doing one part of the job. This makes production more efficient.

But it also means each worker does the same task repeatedly, which can be a trade-off.

5. Seizing the Middle

In chess, controlling the middle gives you more options and influence over the game. In business, it’s like grabbing the central position to maximize your reach and strategic moves.

6. Trademarks, Patents, and Copyrights

These protect creative work, motivating people to create more. It’s like having a lock on your invention, making sure others can’t just take it for free.

Without these protections, there’s less incentive to innovate.

7. Double-Entry Bookkeeping

Imagine a system where every dollar that comes in is matched with a dollar that goes out. It’s like having a built-in error checker for your finances.

This system ensures accurate records and more responsible business behavior.

8. Utility

Think of how much you value a slice of pizza. The first slice might be amazing, but by the sixth, you might not enjoy it as much.

This diminishing return is like how you enjoy things less as you have more of them.

9. Bribery

Sometimes, it’s easier to pay someone to look the other way rather than follow the rules. It’s like a shortcut to avoid consequences. This happens in various systems.

10. Arbitrage

Imagine you can buy something cheap in one place and sell it for more in another. It’s like finding hidden profit opportunities.

But these opportunities often disappear when others catch on.

11. Supply and Demand

Think of a seesaw where the supply and demand sides compete. When they are equally balanced, it’s like reaching an agreement between what’s available and what people want.

But it’s a dynamic balance, always changing.

12. Scarcity

Picture a game where everyone competes for the same limited resources. They have to make choices within constraints.

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Game theory helps us understand how competitors decide in such situations.

13. Mr. Market

Imagine the stock market as a person with mood swings. Sometimes it’s happy, and sometimes it’s grumpy.

As an investor, you aim to make good deals when the market is in a bad mood and sell when it’s cheerful. This is in contrast to the idea of an always stable market.

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Military & War mental models

1. Seeing the Front

In the military, it’s crucial for leaders to get firsthand experience of the battlefield. It’s like a general not relying solely on maps and reports but going to the actual front lines.

This practice not only provides accurate information but also improves decision-making, a useful approach for leaders in any organization.

2. Asymmetric Warfare

Imagine a small, resource-limited group facing a much stronger opponent in a war. They can’t win through conventional means, so they resort to tactics like terrorism, creating fear that exceeds their destructive power.

Asymmetric warfare is a way of “playing by different rules” to gain an advantage in an uneven conflict.

3. Two-Front War

Picture a country fighting on two different fronts, like Germany in World War II. They had to divide their troops, making them less effective on each front.

In practical life, opening a “two-front war” can mean dealing with multiple challenges simultaneously, which can weaken your ability to address any one of them. It’s also important to avoid it if possible.

4. Counterinsurgency

When insurgents use asymmetric tactics, opposing forces develop counterinsurgency strategies.

General David Petraeus, for example, used innovative approaches without additional forces to gain an advantage. Counterinsurgency is about neutralizing the tactics of insurgents or disruptive forces.

5. Mutually Assured Destruction

Imagine two powerful opponents in a situation where neither wants to risk total annihilation. This concept extends to global nuclear standoffs, but it’s relevant to business, too.

Companies often avoid destructive price wars, knowing that taking competition to extremes can be mutually harmful.

However, in unpredictable scenarios, mutually assured destruction can lead to extreme consequences in case of any errors or mistakes.

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Human Nature & Judgment mental models

1. Trust

In the modern world, trust is the bedrock of all human interactions. We rely on trust when we engage with various individuals, from family members to strangers in different roles.

Trust is essential for efficient and cooperative systems.

2. Bias from Incentives

Humans are highly responsive to incentives, which can influence their thinking and behavior. When people have a personal stake or incentive, they might distort their judgment or reasoning to favor their interests.

This is evident in salespeople who genuinely believe in their product’s benefits.

3. Pavlovian Association

Just like Pavlov’s dogs salivated at the sound of a bell because of past associations, humans often react emotionally based on past experiences and associations.

This can lead to irrational judgments and emotional responses.

4. Tendency to Feel Envy & Jealousy

Envy is a deeply ingrained human tendency. People often feel envious when others have more, leading to a desire to achieve a similar level of success.

Envy can drive irrational behavior and is a fundamental aspect of human nature.

5. Tendency to Distort Due to Liking/Loving or Disliking/Hating

Humans tend to distort their thinking in favor of individuals, objects, or ideas they like or love, while underrating or broadly categorizing those they dislike.

This distortion can lead to overlooking important nuances.

6. Denial

Denial is a psychological defense mechanism, often used as a coping strategy in difficult or stressful situations.

It allows individuals to ignore or avoid acknowledging a harsh reality to reduce anxiety or protect their self-esteem.

7. Availability Heuristic

The availability heuristic is a cognitive bias that makes humans rely on readily available information, such as recent or vivid events.

We tend to recall this information more easily, leading to biased decision-making.

8. Representativeness Heuristic

The representativeness heuristic influences our tendency to overgeneralize, categorize, and stereotype.

This simplifies thinking but can lead to inaccuracies, such as not accounting for base rates and creating false conjunctions.

9. Social Proof

Humans are social creatures, seeking safety and guidance in numbers. This instinct encourages cooperation but can lead to unwise actions when everyone follows the same path.

10. Narrative Instinct

The narrative instinct is our drive to construct and seek meaning in stories. It is an essential component of culture and shared beliefs, influencing our perceptions of the world.

11. Curiosity Instinct

Curiosity drives humans to explore, learn, and innovate. This instinct has led to many discoveries and advancements throughout history.

12. Language Instinct

The language instinct refers to our innate ability to learn grammatically constructed languages. This instinct enables us to communicate, tell stories, and think in complex ways.

13. First-Conclusion Bias

People tend to latch onto their initial conclusions, similar to a “sperm and egg” approach. This bias can lead to the acceptance of erroneous beliefs and hinder open-mindedness.

14. Tendency to Overgeneralize from Small Samples

Humans have a natural tendency to generalize based on small sample sizes. This can lead to conclusions that are not statistically sound.

15. Relative Satisfaction/Misery Tendencies

Humans often evaluate their happiness and well-being relative to others, which can lead to feelings of misery or satisfaction based on comparisons.

16. Commitment & Consistency Bias

We tend to maintain commitments and stay consistent with our past decisions. This bias is crucial for social trust but can lead to stubbornness or adherence to poor decisions.

17. Hindsight Bias

Hindsight bias occurs when we believe we knew the outcome all along, even when we didn’t. This can hinder learning from past experiences.

18. Sensitivity to Fairness

Justice and fairness are deeply ingrained in human nature. People have a strong sense of what is fair, although the concept can vary across cultures and contexts.

19. Tendency to Overestimate Consistency of Behavior (Fundamental Attribution Error)

The fundamental attribution error occurs when people overattribute behavior to an individual’s innate traits rather than considering situational factors.

This leads to a misunderstanding of behavior consistency.

20. Influence of Stress

Stress can amplify many of these biases, making individuals more susceptible to hasty decisions and immediate reactions.

Stress often triggers a fight-or-flight response, relying on instinct rather than careful reasoning.

21. Survivorship Bias

Survivorship bias occurs when we focus on successful outcomes and overlook failures. This can lead to incorrect lessons and a skewed understanding of reality.

22. Tendency to Want to Do Something

Humans often have a strong urge to take action, even when it’s unnecessary. This bias can lead to impulsive decisions and the need to intervene or demonstrate value.

23. Falsification / Confirmation Bias

Confirmation bias makes us seek and favor information that confirms our existing beliefs. It’s essential to practice the scientific method, which involves hypothesis testing and objective analysis.

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Pavlos Written by:

Hey — It’s Pavlos. Just another human sharing my thoughts on all things money. Nothing more, nothing less.