Reading Time: < 1 minThe next mental model is one that I already use from time to time, but I thought was worth unpacking a bit more. Occam’s Razor is simply stated as “entities should not be multiplied unnecessarily“, but that can be a little hard to apply. I prefer the more useful version of: “when you have two […]
Mental Models
Law of Small Numbers
Reading Time: < 1 minThe next mental model to unpack is the Law of Small Numbers. The basic idea here is that the smaller a sample size you have, the more variation in patterns you will see. As a result, don’t trust estimates unless they’re based on a large sample size. I enjoy messing with this law early in […]
Inversion
Reading Time: < 1 minThe next mental model that I’m looking at is the idea of inversion. The idea is very simple, yet counterintuitive — to find the answer you’re looking for, start by listing possible solutions that you know won’t work. I see this two different ways. First, is just listing the downsides to two different situations. If […]
Incentives
Reading Time: < 1 minSome of the mental models that I’ve been sharing can be a bit difficult to understand, but that’s not the case here. People can be motivated by incentives, and choosing the right reward can bring huge benefits. Charlie Munger has a great example of this with FedEx: As he explains, the integrity of the FedEx […]
Hanlon’s Razor
Reading Time: < 1 minIf something bad happens to you, there are a few ways you can process what happened: It was a random error (software crash, failed brakes, etc). Someone made an unintentional mistake. Someone did this to me on purpose. There’s nothing you can do about the first item, but many instances of the third (“someone did […]
First Principles Thinking
Reading Time: 2 minFirst Principles Thinking is a mental model that encourages you to boil down questions and ideas to their most basic form, and then go from there. An example from Elon Musk (shared by Catherine Clifford on CNBC) explains his take on it: Musk used the cost of batteries as an example. “People would say, ‘Historically […]
Division of Labor
Reading Time: 2 minToday’s mental model is on the idea of “Division of Labor”. In short, it’s about having a group of people work together who each focus on the areas where they are best, versus having everyone in your group try to excel at everything. One good example of this is a band. While there is some […]
Creative Destruction
Reading Time: 2 minCreative destruction is the mental model that markets often churn through companies, with new ideas and processes replacing the old ones. Some companies are able to keep up with these changes, and some cannot. According to Andrew McVagh, the power of creative destruction is to know that it’s coming and not be scared of it. […]
Circle of Competence
Reading Time: < 1 minThe next mental model I’m digging into is the idea of your “circle of competence”. This is something I’ve talked about a few times on here, most recently with my post asking “where is your perimeter?“, and finding the edges of your circle. As Warren Buffett puts it: “You have to stick within what I […]
Checklists
Reading Time: < 1 minOf all of the mental models on the list, this one might be the most familiar and one that you’ve used the most often. How often have you used checklists in your life? More importantly, how often have you ignored using a checklist (like running to the grocery store “for a few things”) and ended […]