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Mental Models

We often go through each day without questioning our perception of the world.

We seldom stop to wonder whether the world we perceive matches the real world outside. Most of the time, that’s fine…because our perceptions serve us quite well.

In fact, our perception is good enough to guide us through a very complex world with few problems.

But because it serves us so well, it’s easy to forget how limited perception really is.

We live in a world that is vastly older, bigger, and more complex than we are. To think we can fit it all into our heads is a logical absurdity. And that’s why we need…

Mental Models
Wikipedia defines a mental model as…

An explanation of someone’s thought process about how something works in the real world. It is a representation of the surrounding world, the relationships between its various parts and a person’s intuitive perception about his or her own acts and their consequences. Mental models can help shape behaviour and set an approach to solving problems (akin to a personal algorithm) and doing tasks.

The American computer engineer J. W. Forrester defined mental models as…

The image of the world around us, which we carry in our head, is just a model. Nobody in his head imagines all the world, government or country. He has only selected concepts, and relationships between them, and uses those to represent the real system.

Here is what Charlie Munger on the importance of mental models in our lives…

You must know the big ideas in the big disciplines, and use them routinely — all of them, not just a few. Most people are trained in one model — economics, for example — and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.

Elementary, Worldly Wisdom
In his 1994 speech to business school students, titled Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business”, Charlie Munger said..

What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience — both vicarious and direct — on this latticework of models.

You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.

What are the models? Well, the first rule is that you’ve got to have multiple models — because if you just have one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does. You become the equivalent of a chiropractor who, of course, is the great boob in medicine.

It’s like the old saying, “To the man with only a hammer, every problem looks like a nail.” And of course, that’s the way the chiropractor goes about practicing medicine. But that’s a perfectly disastrous way to think and a perfectly disastrous way to operate in the world.

So you’ve got to have multiple models. And the models have to come from multiple disciplines—because all the wisdom of the world is not to be found in one little academic department. That’s why poetry professors, by and large, are so unwise in a worldly sense. They don’t have enough models in their

So you’ve got to have models across a fair array of disciplines.

You may say, “My God, this is already getting way too tough.” But, fortunately, it isn’t that tough—because 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person. And, of those, only a mere handful really carry very heavy freight.

Be a Learning Machine
Munger never really tells us flat out the exact system he has developed for rational thinking. He has listed some mental models and cognitive biases in his speeches and writings, mentioned bits and pieces of his checklists, and made references to his system of decision-making.

This is because he wants us to figure this out for ourselves.

Partly he doesn’t want to make it too easy to follow in his footsteps, but he also thinks the process of researching and developing our own lists and systems is an inherent part of the learning process.

In short we won’t achieve the same success from tools we are given as we will from tools we make ourselves.

Broadly, here is what Munger has to suggest you when it comes to creating your own latticework of mental models…

  • Have many tools in your mental tool bag: Don’t be the “man with a hammer”.
  • Have a system and follow it, checklist style (Look at a problem rationally, then look for the subconscious influences).
  • Invert: Solve problems by finding ways of causing problems then avoid them.
  • Improve vicariously: Learn from other peoples’ mistakes.
  • Watch for cases where forces work together: Lollapaloozas.
  • Work at it: Becoming rational is a slow, arduous process (End your day a little wiser than you started).
  • Disconfirming Evidence: “Destroy your own best-loved ideas”.
  • Think as far ahead as possible: Consider 2nd and 3rd order consequences.
  • Be persistent: “Slug it out one day at a time”.

Latticework of Mental Models
So, how do you achieve worldly wisdom?

To state the matter concisely, it is an ongoing process of, first, acquiring the significant concepts – the models – from many areas of knowledge and then, second, learning to recognize patterns of similarity among them. The first is a matter of educating yourself; the second is a matter of learning to think and see differently.

Acquiring the knowledge of many disciplines may seem a daunting task. Fortunately, you don’t have to become an expert in every field. You merely have to learn the fundamental principles – what Munger calls the big ideas – and learn them so well that they are always with you.

Here is a list of models arranged by fields of study, which can serve as a good starting point for your to create your own “latticework of mental models”. Of course there are several great sources that are available to the intellectual explorer. I’ve mentioned them in the References below.

A few of the mental models listed below are already linked to existing posts on Safal Niveshak. I will write on the rest as we go along.

Mathematics & Statistics


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  1. […] a prescription for gathering worldly wisdom, Charlie advises that the best way is to learn the big ideas, the mental models, that underlie […]

  2. […] a good reason for that. A huge part of the value of these mental models comes from the process by which you find them. Tools you develop yourself are much more valuable than those that are just […]

  3. […] to behave well, especially in areas of uncertainty (like investing). We suffer from innumerable cognitive biases. Interestingly, how much ever we read about these biases and how they fool our brains often, we […]