How to make informed decisions using mental models
A Life / / December 19, 2019
We will draw conclusions on the basis of habitual judgments, rather than evaluate each situation independently. It restricts and prevents to achieve the goals. To treat the problem from different points of view, we need a set of mental models.
Charlie Munger
Lawyer, economist, investor, partner Warren Buffett's Berkshire Hathaway.
Simplify complex
We usually do not think about the fact that every event - is the amount of billions of variables. If you could influence the variables responsible for the result, you could increase the chances of a positive outcome. But how do you know what kind of variables?
There is no point in trying to influence all the fine details, and it is not possible, our brain is not made for this. This is where the useful mental models. With them, you can separate the wheat from the chaff.
One example of mental models - Pareto law. It states that 20% of efforts gives 80% of the results, while the remaining 80% of the effort - only 20% of the results. Act helps weed out unimportant and focus on key points.
Munger and Buffett used this law, when deciding where to invest. They evaluate companies in search of those that will provide a disproportionately high income.
Get rid of prejudices
Simultaneously to the advantages and disadvantages of the human mind is the ability to determine cause and effect. On the one hand, that in itself it acts as a mental model, allowing us to quickly organize all the obvious way for us. On the other - just because of the quickness of this causation is often erroneous.
We can not look at the world objectively, we all have prejudices. Mental models help to spot them.
Knowing your prejudices, you will think twice before they make a decision. So you will significantly reduce the likelihood of errors and losses.
See the world through the prism of multiple disciplines
"We need to accumulate a lot of mental models. Using one or two, you will inevitably begin to adjust to them the reality, - says Charlie Munger. - And the model should be from different disciplines, because all the world's wisdom can not concentrate in one area. "
Usually we see the world through the prism of their profession or trade. But it is much more diverse than the view that the sum due to our habits, employment and education.
This does not mean you have to at the same time to become an expert in economics, physics, Psychology and other sciences. But we need to understand the basic principles of all disciplines and to use them in making decisions. The brain needs to work tools. Mental models just become such instruments.