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Mental Models

Updated: Oct 11, 2020

By Sumay and Aila McPhail

Hello, my sister and I have been working on summarizing Charlie Mungers Mental Models. We think that our hard work has paid off to give a wider audience the understanding of these very important lessons. We will keep on adding to our list as we uncover more Mental Models to guide us through life. We hope you enjoy it.

Model limitations - Our Map is not the Territory

Maps and models are simplifications of reality. Remember that our understanding of reality is far from perfect and that we should listen to others because they may know things that we don’t know (i.e. their map is not our map...people should cooperate because more maps is better than one).Beware of unknown unknowns.

We all have Mental Models/Maps based on our own experience. They are our cognitive maps of reality. They drive the decisions we make. They are also wrong, and without conscious effort our mental models are unlikely to improve upon our often skewed and unrepresentative experiences of our past. We call these Biased Models.

Biased Models stem from our unique emotional lessons that made us happy, sad, envious, angry, lustful, resentful, and any other emotion strong enough to burn the experience into our neurons. Our default decisions are heavily influenced by the culture and household we grew up in. As a result, we all have Biased Models... maps that do not reflect the territory of human systems.

For this reason, we need to enhance our maps with timeless MMs from great thinkers of all disciplines. We call these Universal Models of human systems. As we uncover them we will add them to the list.

Circle of Competence

Know when you don’t know or you will make a fool of yourself. We need to know what we don’t know. You should constantly be on the lookout for blind spots. Seek out experts.

Where experts studying the same thing disagree interesting questions can pop up.

A closely related concept is the intersection of humble confidence. These two apparent antonyms are fully compatible if we embrace a simple truth: Everything we do is far from perfect.

We never see perfection, and so we can only guess at what perfect decisions look like. Parents can get a glimpse of this concept by comparing their experienced actions to that of a child. Experts can see this also when comparing their decisions within their circle of competence to that of a novice beginner.

We can all be confident while remaining humble by carefully acting within our circle of competence while remaining humble to the vast areas of our ignorance.

Second-Order Effects

Second order effects are consequences of our actions. Say you’re in a chess game and you make a move. Your move is the first order effect. Your opponents reaction to your move is a second order effect.

You can anticipate their move by identifying moves that will give them an advantage. In chess, there is always just one second order effect because your opponent can only make one move, but real life consequences to actions are often numerous and difficult to identify beforehand. Consequences don’t stop at the second order. In chess, your next move is the third order effect...illustrating that your actions often effect your future actions.

Good decisions require thinking about the consequences of our actions. What second order effect is going to come back at you. Or fourth or sixth or eighth or tenth or twelfth…

Probability over Determinism

We all should recognize that all human systems live in the world of uncertainty. There are no absolutes.

Nothing is certain. Remove deterministic words like “must”, “can’t” and “certainly” from your vocabulary and mental thought process. Understand and internalize common distributions found in human systems. We discuss these in our related piece, “Mental Models of Human Systems”.

Principles Vs Precedent

Principles are the rules that govern a system or problem. Solutions based on the rules governing a system might be quite different from solutions based on past experience. The opposite of first principles thinking might be learning by example.

This is limiting because we are restricted to actions that others have done before.

Take the Mighty Ducks movie from 1996 as an example. They win their final game using a formation called the “Flying V”...which confused the opposing team because the formation was something they hadn’t seen before.

Legal moves that differ from past experience might confuse your opponent or surprise friends.

Principal analogies to sports are common because the rules are easily understood. However, the real value of first principle thinking comes from real life. Understanding the rules that govern complex human systems like friendships and economies is the first step.

For example, we would argue that the book “How to Win Friends and Influence People” provides a reasonable approximation for the rules that govern relationships.

Principles tell us why. Precedent only tells us what happened. When operating under a precedent model you have no idea why something worked or didn’t only.

Principles allow us to uncover creative strategies that tie directly to the building blocks that govern a system.

Principles provide a theory for explaining how a system works. This makes it possible to change strategy in concert with changing circumstances instead of waiting until old strategies based on precedent fail.

Principles provide maps of systems so we can see ahead. Precedent relies on driving forward while looking through the rear-view mirror.

Thought Experiments

Any rational analysis of cause and effect is a Thought Experiment.

Thought experiments allow us to imagine impossible or unprecedented situations. Often times we lack the data to run empirical simulations.