How to Make Informed Decisions Using Mental Models

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

We draw conclusions based on habitual judgments, rather than assessing each situation on our own. This limits and interferes with achieving goals. In order to view problems from different points of view, you need a set of mental models.

Simplify the complex

We usually don't think about the fact that each event is the sum of billions of variables. If you could influence the variables responsible for the outcome, you could increase the chances of a positive outcome. But how do you know what these variables are?

There is no point in trying to influence all the smallest details, and it’s impossible, our brain was not created for this. This is where mental models come in handy. With the help of them, you can separate the grains from the chaff.

One example of mental models is Pareto's law. It states that 20% of the effort gives 80% of the result, and the remaining 80% of the effort is only 20% of the result. The law helps you weed out the unimportant and focus on the key points.

Munger and Buffett apply this law when deciding what to invest in. They evaluate companies for those that will generate disproportionately high returns.

Get rid of prejudices

At the same time, one of the strengths and weaknesses of the human mind is the ability to determine cause and effect. On the one hand, this in itself works like a mental model, allowing us to quickly organize everything in a way that we understand. On the other hand, just because of this speed, the causal relationship is often erroneous.

We cannot look at the world objectively, we all have prejudices. Mental models help you notice them.

Knowing your prejudices will help you think twice before making a decision. This will significantly reduce the likelihood of errors and losses.

See the world through the lens of multiple disciplines

“We need to accumulate many mental models. By using one or two, you will inevitably begin to adjust reality to them, says Charles Munger. "And the models should be from different disciplines, because all the world's wisdom cannot be concentrated in one area."

We usually look at the world through the prism of our specialty or profession. But it is much more varied than the idea that develops thanks to our habits, activities and education.

This does not mean that you need to simultaneously become an expert in economics, physics, psychology and other sciences. But you need to understand the basic principles of all disciplines and use them when making decisions. The brain needs a set of tools to work. Mental models will become just such tools.