31 Powerful Mental Models That Dictate Your Life
- March 1, 2020
Table of content
- What are Mental Models?
- Mental Models For Changing Habits. Changing Lives. Rules For Life.
- Subscribe To My Newsletter – A Curious Worldview!
- Mental Models – Building Blocks Of Society
- 1 - Antifragility
- 2 – Cumulative Error
- 3 – Matthew Principle
- 4 – Cultural Parasitism
- 5 – Belief Bias
- 6 – Network Effect
- 7 – Peter Principle
- Mental Models – Casting Judgement
- 8 – Halo Effect
- 9 – Hanlon’s Razor
- 10 – Nirvana Fallacy
- 11 – Concept Creep
- 12 – Dunning-Kruger Effect
- 13 – Subselves
- Mental Models – Thinking Like An Economist
- 14 – Pareto Principle
- 15 – Opportunity Cost
- 16 – Utility
- 17 – The Law Of Diminishing Returns
- 18 – Compounding
- Mental Models – Thinking About Risk
- 19 – The Black Swan
- 20 – Fat Tailed Distributions
- 21 – Simpson’s Paradox
- 22 – The Lindy Effect
- 23 – Randomness
- Mental Models – Decision Making
- 24 – Occam’s Razor
- 24 – Survivorship Bias
- 26 – Hindsight Bias
- Mental Models – Movers and Shapers
- 27 – Activation Energy
- 28 - Skin In The Game
- 29 – Streetlight Effect
- 30 – Tocqueville Paradox
What are Mental Models?
Mental models are frameworks or concepts that help us understand and navigate the world around us. They are based on our experiences, knowledge, and beliefs, and they serve as a way to simplify and organize the vast amount of information that we encounter.
For example, a mental model of cause and effect helps us understand how actions can lead to specific outcomes. Another example is the mental model of “supply and demand” which helps us understand how the price of a product is determined by the balance of the quantity that is supplied by the manufacturers and the quantity that is demanded by the consumers.
Why are mental models so powerful?
Mental models can also be used to make predictions and decisions. By applying a mental model to a new situation, we can quickly identify potential risks and opportunities and make informed choices.
It is important to note that mental models are not always accurate, and it is important to question them and update them as new information becomes available. Having a diverse set of mental models can also help to counteract the biases and limitations of a single model.
Mental Models For Changing Habits. Changing Lives. Rules For Life.
In between my consumption of Farnham Street, Nassim Taleb’s, ‘The Incerto’ and this Twitter megathred…
I have, in recent weeks, been able to collect some fascinating mental models that play background quarterback to your life.
They are the inner voice you cannot hear, but you listen to none the less.
You recognise these concepts and understand them so well because you are already living them out.
Ironically, by acknowledging these mental models existence it might change the way you use them. But acknowledging them you must should you be interested in sharpening yourself, or externally casting judgement.
They are in no particular order by way of relevance or significance.
Accept these mental models for exposing biases you might fall prey to everyday.
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1 - Antifragility
Kayne West paraphrased the German great and handlebar moustache extraordinaire, Friedrich Nietzsche when he said…
“That, that don’t kill me, can only make me stronger”
Antifragility gains from disorder.
Most things fall into the category of being either fragile, or robust. Things that are fragile break from disorder (a plane of glass breaks when hit), while things robust (a slab of concrete) withstand disorder. But something robust does not improve from disorder.
And that is where Antifragility exists. It gains from disorder.
Antifraglity loves disorder.
This term, coined by Nassim Taleb, can be best explained through the prism of human muscles.
My bicep is Antifragile
Every time it is stressed (doing a bicep curl). The muscle strengthens. Muscles gain from disorder.
“What doesn’t kill me, makes me stronger”, Friedrich Nietzsche.
It is important to recognise the stress threshold. If I try bicep curling a car, I will rip my biceps and tear my back. Too much stress can make anything fragile.
The key is to identify the threshold of disorder within your domain, and get as close to reaching it as possible making sure you never tow the line.
The amazing thing about Antifragility is, that as you continue to stress your threshold, the bar is continually set higher and higher, making you stronger and stronger.
The Beauty of Antifragility and application across life
Antifragility is such a magnificent mental model because of how applicable and active it is in the social realm.
Children: Allowing a child to play and stress test his/her environment causes them to experience failure, uncertainty and unfairness. Children are Antifragile. As long as their stress threshold is not tested (playing with snakes, hitting eachother with baseball bats, etc) than the child will adapt according to real world conditions.
Project Manager: A Project Manager who has experienced multiple failures across an array of different projects is more likely to handle with grace an issue than a fresh faced Project Manager might. The experience with failure made our more experienced Project Manager more Antifragile.
Surfing: A surfer who has experienced many unpredictable swells, is going to fair much better in stressful conditions than a more experienced surfer who only ever experienced one swell.
Antifragility gains from disorder, it gets better when stress tested.
2 – Cumulative Error
The snowball effect.
Once an error at the top is made, and goes unnoticed, it will only serve to be further propagated by its continual reprint.
In our era of interconnectedness and constant, immediate attention, the cumulative error is responsible for so much of the ‘fake news’.
3 – Matthew Principle
This principle simply explains the old saying, ‘the rich get richer’. The principle is quite intuitive and easy to understand.
Opportunities breed opportunities. Success breeds success.
This principle is not confined simply to money markets. It applies to any competitive domain. But the core principle is that advantage begets advantage. Winning once, exposes you to more opportunities that you, or anyone else had, before that initial win. This effect then compounds as such that a great majority of a domain is occupied by a winning minority (Pareto Principle).
4 – Cultural Parasitism
A parasite thrives to the detriment of the host.
Least barrier to resistance ideology is the parasite of Cultural Parasitism, corrupting the host’s mind to transfer and spread the ideology.
Therefore ideologies that survive (religion) are configured to be easily transferable rather than configured to be true.
5 – Belief Bias
Individuals are more likely to rely upon prior knowledge and personal beliefs.
We are more likely to accept conclusions as true because they are ‘believable’ rather than accept them because they are logically valid.
All beliefs systems, primarily those faith based, utilise an individuals belief bias through ‘long bow’ arguments. It offers an explanation for why two different people, an Atheist and a Christian, can be presented with the same facts and come away with two completely contrary conclusions.
6 – Network Effect
Each additional user that joins the network adds a marginal value to every existing user within the network.
Facebook is only as good as its network. The value of Facebook is not in its algorithm, or its software, or its memes.
Facebook’s value is the extensiveness of its network.
Think back to when only half your friends were on Facebook. Each time one additional friend joined, the value of Facebook for you increased.
This is the network effect. It is a powerful concept that is a ubiquitous goal for all technology startups.
Think of when the telephone came about. The telephone is a classic case of the network effect.
Not much use having a phone if you are the only one.
What if five people had them?
How about ten?
What if everyone you knew had them?
All of sudden, the telephone is invaluable. And that is the power of the network effect.
7 – Peter Principle
This principle affirms my ceaseless criticism of bureaucracies. In slow dyeing hierarchies such as big business or government, people will be promoted until their competence threshold is met. At the point of this threshold they will not be good enough to justify further promotion. They will remain where they are in mediocrity. As a result, the bureaucracies that move and shape our world are filled with individuals who are not good at their jobs.
The false bias of assumed characteristics.
When someone identifies an agreeable characteristic in someone. Say, they recycle 100% of their waste.
They are likely to go on to assume additional agreeable characteristics in that person. Such as, they must also be very progressive, they must also decent, etc.
‘We should not attribute to malice, that which can be more easily explained by stupidity’ A steady dose of Hanlon’s Razor in our day to day might mitigate much of the noise that dominates our life.
Condemning something simply because it compares unfavourably with the ideal of the alternative, even though that ideal is in reality, unattainable.
The most readily available example of the Nirvana Fallacy is in the capitalism – socialism debate.
Each side will insist their ideal is superior, and not because of their idea’s individual merit, but because of the unrealistic ideal of the alternative.
This applies most readily to the concepts of sexism and racism.
Concept Creep occurs when a concept is stretched to include milder, subtler, or less extreme phenomena than those to which they referred at an earlier time.
The pool of possible actions said to be racist in 2020 is significantly larger than the equivalent pool of 2010 and predictably smaller, than the pool of 2030.
The Dunning-Kruger effect essentially explains our cognitive bias in assessing our competence as being better than it is.
Particularly when tackling something new.
We are all more incompetent than we think, and as Dunning and Kruger observed in 1999…
Your initial incompetence, and inability to understand just how incompetent you are, makes you more incompetent.
Whether you like to admit it or not, and whether you consciously notice it or not.
There is an office ‘you’, a boyfriend ‘you’, a mate ‘you’, a son ‘you’ a stranger ‘you’ and so on.
We use different behavioural processes in different situations. Meaning we are not a singular character, but rather, multiple characters.
The difference between these ‘you’ types are of course, extremely subtle. After all, we are not psychopathic. At least, most of us aren’t.
Otherwise known as the 80/20 rule. This quasi natural law and rule of distribution in competitive domains packs a hefty and powerful mental model.
With +/- %5 variability, the Pareto Principle can be applied to both natural phenomena and human activities.
The man who coined the concept, Vilfredo Pareto, noticed that In 1800’s Italy 80% of the land was owned by 20% of the population.
It then turned out, that an 80/20 distribution doesn’t stop there.
In todays world…
- 80% of the wealth is held by 20% of the people.
- 80% of the crimes are committed by 20% of the criminals.
- 80% of the alcohol is drunk by 20% of the people.
- 80% of the value is achieved by 20% of the effort.
- 80% of software customers use only 20% of the softwares features.
- 80% of your sales come from 20% of your salesmen.
- 80% of the peas are harvested by 20% of the pods
- 80% of the worlds food grows in 20% of the countries.
- 80% of you will only read 20% of this article.
As you can see, the Pareto Principle infers that across almost any feasible domain, 80% of the value is determined by 20% of the inputs.
Opportunity Cost is a powerful economic concept. It measures the value of any alternative to an action.
Think of Opportunity Cost along the lines of ‘FOMO’ (Fear Of Missing Out).
It is a major factor for pricing in the true value of an action you may take. Whatever alternative potential you forgo in order to take a certain action is measured as the opportunity cost.
Imagine you have the decision to make between going to the bar with your mates for dinner, or staying home and looking after your two children.
The opportunity cost of you going to the bar is the value of the alternative.
One night less with your children and the cost of a babysitter.
The opportunity cost of staying home with the children is the value of the alternative.
The cost of the pub, and a good time with your mates, which are rarer and rarer these days.
Utility is another powerful economic concept that influences greatly how economists think. It is a measure of somethings value or worth, typically independent of numerical foundation.
How can you ascribe value to something abstract?
If I am trying to determine how much value I get out of eating a piece of chocolate, I might say the my utility for one chocolate is higher than another.
Utility is an important measurement for determining Opportunity Cost.
In anything from which you yield value, there is a point where the next additional input, will actually have no or negative impact on the overall output.
This law is most readily applicable to supply chains, and businesses. But I will use the example to explain a social phenomenon.
I hypothesise that thousands of Tinder users across the world, have actually hit Diminishing Returns in their relationship with the app.
When your time spent swiping and chatting becomes more tiresome and meeting the men/women becomes unsatisfying, you have hit Diminishing Returns.
At this stage, each additional swipe and message actually detracts from your overall output from the app.
Supposedly, Einstein called compounding the eighth wonder of the world.
The power is outrageous. Compounding is significant because of its exponential properties.
Compounding occurs outside of money markets as well. The most wonderful effects of compounding influence ideas and relationships.
Simply, compounding money in a bank account refers to receiving interest rates payouts on a regular basis, which includes interest on previous gains from interest plus your initial capital. Again and again for eternity.
Compounding is why when ’Fry’ put $5 in his bank in the year 2,000, he managed to withdraw $1,000,000,000 in the year 3,000. This was because of the magic of compounding.
Refers to unpredictable and extreme events. They are by definition unforeseen and typically reap a disproportionately large downside.
It is the responsibility of every individual to do their best at pricing in the Black Swan into their lives. Making themselves more robust to risk.
The 2008 GFC was a Black Swan event.
9/11 was a Black Swan event.
The 2004 Indonesian Tsunami was a Black Swan event.
The Coronavirus is a Black Swan event.
Even, to a degree, Leicester City winning the 2006 Premier League is a Black Swan event.
Black Swan events are extremely high risk, low probability (fat tailed) events.
Fat Tailed distributions are high risk. Notice that you can experience up to four standard deviations in the green or the red on the above (red line) distribution.
The point of highlighting Fat Tailed distribution is in acknowledging that although the chances are low, Fat Tailed distributions expose you to knock out losses.
Much of the social world is said to be fat tailed, rather than is misleadingly assumed, normally distributed.
Your marriage is fat tailed.
At +/- four standard deviations from the mean. You are exposed to the slight chance of life ruining divorce, at -4.00SD, which is a knock out blow. But equally, you are exposed to life long fulfilment, +4.00SD. There is a symmetry between the upside and the downside.
Both outcomes that are not achievable at two standard deviations on a normal distribution.
Always test your correlation with a strong dose of salt.
You can infer much from highly correlated data. Many policies and decisions are justified because of this. But once that highly correlated data is combined your inference can be flipped completely on its head.
Trends that appear when a dataset is separated into groups – reverse – when the data are aggregated.
The Lindy effect emphasises the saying, ‘… an oldy, but a goody!’
The older something is, the more likely that makes it to be around in the future.
Star Wars IV was released in 1977 and as of today, 43 years on, is still an all timer. The Lindy effect tells us this means we can predict with confidence that Star Wars IV will at least maintain popularity and relevance for another 43 years.
The Lindy effect measures robustness.
If an idea has survived 3,000 years – Stoicism – then we can infer from the Lindy effect, that Stoicism will survive at least another 3,000.
We struggle to accept its dominant existence, and refuse to attribute it our success.
The world is largely comprised by random, non-sequential, non-ordered events.
As Nassim Taleb coined…
We are ‘Fooled By Randomness’ all the time. When we attribute causality to things that are actually outside of our control we will tend to see things as more predictable and therefore allow ourselves a chance to act in accordance.
My dad always told me to, “keep it simple, stupid”.
Occam’s Razor is a classic reasoning tool and principle of logic.
Simply stated, the simplest explanation is usually the right explanation. The explanation that has the least moving parts and variables is most likely to be true.
We hear of the victors. But are deaf to the dense graveyard of losers that came along the way.
Data sets are skewed when only the winners variabilities are measured.
There is a famous WWII story you can read about here.
Or another example…
A CEO might hear about push notifications that worked well for a competitor.
He decides to implement something similar. But for some reason, they receive significant negative feedback.
Why?
They only heard about their competitor’s success stories, and they didn’t hear about the backlash from users who hated receiving unsolicited notifications.
Survivorship Bias skewed the data.
Have ever noticed how insightful people are after the event?
This psychological term describes the phenomena of individuals or groups insisting they understand the eventual outcome of an event. When in reality, they can only know by looking back through hindsight.
The unlikelihood and seeming randomness of the Donald Trump presidential win in 2016 exposes peoples Hindsight Bias on mass.
Everyone has an explanation for why DJT came away with the Presidency in 2016. But only in hindsight it seems to be so obvious that he was going to win. It is only with hindsight that people starting attributing qualities and pre requisites to DJT explaining how clear his path to victory was.
Activation Energy refers to the spark that ignites the flame.
The tinder does not become a fire without the activation energy.
Think in social situations, between a group of people there is often tinder saturating the ground. Someone accidentally lets slip a story of someone else’s infidelity.
The fire ignites.
Or when Jordan Peterson dismantled Kathy Newman in Channel 4’s dishonest interview.
The racist, sexist, Jordan Peterson narrative provided the tinder soaking the floor. All it took was the Jordan Peterson spark, dismantling the whole false narrative which caused the flame of his huge popularity boost.
Skin In The Game is the ultimate BS detector. The concept of Skin In The Game is broadly focused on individual and group accountability.
There should be an accountable symmetry of upside and downside to an individual for every action taken.
An example of Skin In The Game.
‘Putting your money where your mouth is’. You only recommend positions you yourself have a stake in. When you are right, you receive the social and financial upside. When you are wrong, you lose everywhere.
An example of no Skin In The Game.
The financial managers who sold junk loans and contributed majorly to the GFC. They privatised the gains and then socialised the losses. Rather than them repaying for all the damage they caused, the taxpayer ‘bailed’ them out. They were not accountable for their decisions, and had no Skin In The Game.
The streetlight effect manifests influence at scale. People source information from the least resistant path.
More news is consumed via the headlines, then by the body of an article. Less than 10% of Google searches make it past the first page.
At scale, this can skew an entire field, or propagate ‘fake news’. For only the skewed streetlight is visible, rather than the accuracy of the whole road.
The Tocqueville Paradox partly explains Steven Pinker’s controversy.
The paradox explains how, as living standards for a particular community rise, so rise the communities expectations. Standards will then rise again until a point where standards cannot meet expectations. It is at this point the society breaks down and populism festers.
Steven Pinker is the best known arbiter for ‘how good things are’. And, in large part, he is right. But people will insist until the cows come home just how wrong he is.
These arguments stem, in majority, from the shaky grounds of his statistical interpretations. However, I would argue that in addition, a lot of his criticism is sourced in the Tocqueville Paradox.
Cheers for reading through to the end you legend!
Every month (or couple of weeks) I write a short, popular email which highlights the biggest insights I’ve distilled through all the noise of the previous month. This includes extremely cool ideas, exceptional companies, massive stories that weren’t given attention, the music and podcasts that defined that month plus of course the best-written content I came across.
‘The Idea Of’ Youtube Video Of Mental Models
1 Comment
Very succinctly written. You just saved me $30k in student loan debt for my Economics Degree. One minor (but important) critique:
“Therefore ideologies that survive (religion) are configured to be easily transferable rather than configured to be true.”
How can you be certain of Truth without an objective reality. And how can you make an objective reality without it being a religious claim?
Alternatively: how can you make an objective claim to truth without a a priori claim to an objective reality, which is a religious claim.
You know I had to. 😁
Stay true brother!