Stocking up on a new set of tools
mental models: gotta catch 'em all
Tell me where I'm going to die so I can make sure to never go there
Charlie Munger
One of the most powerful sets of tools you can have for tackling complex problems and making decisions is mental models. A mental model is exactly as it sounds: a model of something you hold in your mind. Julian Shapiro explains mental models as a way to observe a system and make a decision. It could be how you think about education, it could be your idea of success, or it could be a framework for deconstructing an idea.
As a decision-making tool, they were popularized by Charlie Munger, the other ½ of Berkshire Hathaway. Through numerous speeches he gave in the past 30 years, he referenced mental models that helped him live a better life and make better investment decisions. Over the course of years, people have identified and discussed hundreds of mental models, many first mentioned by Charlie at some point. The ideas aren’t necessarily new, but their application to life and business are. They really took off in the last ~6 years to the point where they became a bit of a meme.
But don't worry, this isn't Pokémon, you don't need to know them all. All it takes is one or two new ways of seeing the world to unlock a new path in your life. You should take a pragmatic approach and make decisions and learn from them.
As the students push through the final weeks of the challenge, I wanted to give them some helpful mental models they could use in both the challenge and their day-to-day lives. Here are a few high-impact ones that you can use personally.
1. Incentives: The driving force behind behaviour
The way we introduced mental models to students was as a tool to help you do things that make sense, but there's something tricky about that phrasing. For a lot of us, we see people doing things that [we believe] make no sense. But if you ask them why they are doing it, they will probably have a reason1. What ends up happening is we apply our own goals to their situation; we assume they are trying to do the same things as us and so their actions don't make sense. Instead, take a look at incentives.
There is always a reason people or companies do things. If you find yourself confused about why someone is doing something, look at their incentives for doing so. It's not always something tangible or money related; it could be in pursuit of self-preservation which ends up looking like fear.
The incentives aren't always obvious, so ask yourself "what does this person get out of doing this?" Why is this company is running a charity awareness campaign? Or why is this person promoting this specific opportunity? (ahem crypto for the last 3 years)
2. Regret Minimization: Make the choice future you will appreciate
When making an important decision, it can be hard to imagine what the consequences are by forecasting the impact of your choice into the future. We get caught up in the immediate, short-term effects of our decision.
Try imagining yourself in several years or even at the end of your life. Look backwards at this decision and ask yourself: what will I regret not having done?
The reason this is helpful is that it removes some of the fear out of the current situation and helps you understand the long-term impact and even the inflection point you might be faced with at the moment.
Here’s a simple experiment I want you to do right now: what's something you will look back on 6-12 months from now and wish you had started?
3. Inversion: Avoiding the wrong choices
For most of us, we look at addition as the path to success. What are the things we can add that will ladder up to success? Inversion is more like using subtraction. Instead of looking at success, look at guaranteed failure and do what you can to eliminate that from happening.
Here is a great blog post about Charlie Munger's speech "How to guarantee a life of misery", where he talks about the power of inversion.
What Carson said was that he couldn’t tell the graduating class how to be happy, but he could tell them from personal experience how to guarantee misery. Carson’s prescriptions for sure misery included:
1) Ingesting chemicals in an effort to alter mood or perception;
2) Envy; and
3) Resentment.
I can still recall Carson’s absolute conviction as he told how he had tried these things on occasion after occasion and had become miserable every time.
As you start to think about what you want in life, begin with removing the things that guarantee what you don’t want:
Make a list of all the things that are unhealthy. Remove them from your life.
Make a list of things that lead to a bad sleep. Eliminate those too.
What things make you unhappy? Stop doing them.
It sounds absurdly simple but it’s effective. As I plan my days I think about what leads me to have a bad day and make sure I avoid those as much as possible.
4. Working Backwards: Know where you're going and build a path to get there
Sometimes we put one foot in front of the other, day in and day out, without thinking about where this path is going to take us. Not only that, but we haven't even considered where we are trying to get to! How can you know if you're on the right track if you don't have a destination?
We talked about this at the start of the year and it's worth repeating:
"Working backwards is a way to force yourself to think long term. It forces you to figure out not just what your next move is, but what your ultimate goal is. Because if you don’t know what the goal is, your next move doesn’t matter."
Start with where you want to get to, then figure out what do you need to do to get there.
5. Zero multipliers: The weakest link makes it all worthless
Do you remember the show "the weakest link"?
It was a team trivia game with the premise that if you are voted the weakest link on the team, it means you're dragging them down and you get cut.
When you’re in an additive environment, weak links don't add anything to the team and so there isn’t a huge risk to keeping them on. Weak links become dead weight.
But what if you work in a multiplicative environment? In these scenarios, you run the risk of having a zero multiplier. And for those of us who remember basic math: anything multiplied by zero is zero. No matter how grand your efforts are elsewhere, when it's multiplied by zero it becomes worthless.
For example, if you are smart, driven, creative, and a great problem solver, you are probably set up well for success in the future. But if you don't know how to interact with other people? That's a zero multiplier.
Most complex systems are multiplicative and so we should pay special attention to what zero multipliers might exist and eliminate them. Inversion anyone?
Combine for maximum power
We don't use these tools in isolation. Charlie Munger liked to say we should have a lattice of overlapping mental models from which to apply to situations, and that's the key. By having multiple ways to view the world, you’ll be able to get new perspectives on a problem and uncover new ways of doing things.
You might have noticed that most of the models I picked actually stack upon each other.
You start by picking your goal based on what you think you might regret least. Then you work backwards to create a plan. To find things that belong on that plan we start by inverting and avoiding failure. Then make sure we're aware of any zero multipliers that will just disrupt everything along the path and make sure we keep those in good shape. Ta-da! 🎉
We should all continue to build up our repertoire of mental models, but not to the point where we mistake collecting mental models for the goal.
What's your favourite mental model? Are there any I missed that you really like?
Extra reading on mental models
Peter Kaufman on The Multidisciplinary Approach to Thinking: This is the transcript of a talk given by investor Peter Kaufman on the power of using multiple mental models. The transcript should only take you 10 or so minutes to read but it’s hugely impactful. This is my #1 recommendation on the topic.
Poor Charlie's Almanack – If you’re in the market for a coffee-table-sized book on the life of Charlie Munger and a detailed look at how he thinks and makes decisions, you’re in luck. It’s a great read and one that I have highlighted and bookmarked. I have to admit I’m more of a Munger fan than Buffett though.
Farnam Street – A blog and online community dedicated to better decision-making. Shane and the team at FS have tons of content on mental models and how to apply them to everyday life. If you read a couple of posts a week you can greatly improve your life. If not, I’ll give you your money back. Try this post on multiplicative systems.
✌🏼
I'm not saying it's going to be a good reason
Where can we learn more about zero multipliers?