Mental Models

Author

Kevin Wagonfoot (Charlie Munger)

Fast + Slow Thinking

  • When information is scarce, you jump to conclusions

  • Slow thinking is critical and problem solving

Loss + Risk Aversion

  • People tend to prefer avoiding loss instead of acquiring similar gains

  • Risk means you’re operating with incomplete information

Confirmation Bias

  • Human tendency to look for facts and evidence to support your existing beliefs

  • People put a lot less effort into picking apart evidence that confirms what they already believe

Paradox of Choice

  • Having too many choices can be a bad thing

  • Making choices take time and mental energy, often it is better to limit options

Hanlon’s Razor

  • Always try to stay above an instant emotional response, especially before you know the other person’s true intentions

  • Never attribute to malice that which is adequately explained by stupidity

Ad Hominem

  • Practice of insulting an opponent personally instead of arguing their position

  • I always cheer up immensely if an attack is particularly wounding because I think, well, if they attack one personally, it means they have not a single political argument left.

Entropy

  • Without investing energy things will tend to become more disordered over time

  • You can’t unscramble egg

Theory of Influence

  • Six principles

  • Reciprocity, scaricity, authority, consistency, liking, and social proof

Occam’s Razor

  • The simplest solution is probably the correct one

  • The explanation requiring the fewest assumptions is most likely to be correct

Murphy’s and Hofstadter’s Law

  • Murphy’s Law: anything that can go wrong will go wrong

  • Hofstadter’s Law: It always takes longer than you expect, even when you take into account this law

Counterfactual Thinking

  • Every time you say to yourself “if only i had done…” or “what if…” you are engaging in thinking that is counter to the facts

  • Because the arrow of time only points in one direction it is impossible to realize these different choices

Parkinson’s Law

  • Without careful planning tasks will expand in scope and complexity until they are too difficult to accomplish

  • Work expands so as to fill the time available for its completion.

Lateral Thinking

  • Look for new ways to approach a problem to find novel solutions

  • Do not seek to follow in the footsteps of the men of old; seek what they sought

Inversion

  • Instead of setting goals from what you want, try to do the opposite and set anti-goals for what you are trying to avoid

  • A lot of success in life and business comes from knowing what you want to avoid

Addition Through Subtraction

  • Being creative is involved in repackaging or reimagining a great idea, simplifying it or applying it to a different purpose

  • The soul grows by subtraction, not addition

Anecdotal Reasoning

  • Anecdotal evidence is the story someone tells that provides information or a conclusion

  • The problem with anecdotal evidence is that it takes a single point of view into account

Correlation vs. Causation

  • Correlation is a mutual relationship between two or more things

  • Causation is a relationship of dependence between two or more things

  • Correlation does not equal causation

Tactics vs. Strategy

  • Strategy describes the goal and how to reach it

  • Tactics are the specific actions to take on the way to the goal

Third Story

  • Putting yourself in the shoes of a neutral, third-party, such as a mediator and telling a story that all parties can agree upon

  • When you voice your disagreement, begin by talking about what you have in common with the person you are arguing with

Zero Sum Game Theory

  • When one player wins, his opponent loses an equal amount

  • In a zero-sum game, the problem is entirely one of distribution, not at all one of production

Framing, Anchoring, and Ordering

  • Framing is the way in which something is defined

  • Anchoring deals with setting a reference point for comparison

  • Ordering describes how the order that different choices are listed informs a customer’s perception of value

Nash Equilibrium

  • Assuming that all the players know the rational move that every other player will make, and they will also make a rational move, the game will reach a state of equilibrium

Dunning-Kruger Effect

  • Those who have low ability do not have the understanding to see they are lacking ability

  • Conversely, those who performed the best underestimate their ability, assuming that everyone is able to perform at a similar level

  • Those who know do not speak, those who speak do not know

Spacing Effect

  • Spacing out repetitions over time produces better recall than doing the same number of repetitions over a shorter duration

  • Studying is like rowing a boat upstream, not moving forward is to fall behind

Deliberate Practice

  • Method to acheive top performance in a given field

  • 10,000 hours rule

Gamifaction

  • Adding a level of competition to something that is already being done in order to improve the outcome

Opportunity Cost

  • Opportunity cost is the tradeoff you make when you make a choice

  • the idea that once you spend your money on something, you can’t spend it again on something else

Pygmalion Effect

  • Higher expectations lead to better performance

  • Leaders should make sure people can emerge and grow

Peter Principle

  • Satirical concept that individuals within a large organization will continue to be promoted until they reach a job level they are unable to effectively perform

Circle of Competence

  • Focus on areas of knowledge and ignore areas you don’t understand

  • The important thing is not how big the circle is, the important thing is staying inside the circle