Mental Models

A mental model is a way of looking at the world.  It is YOUR LENS through which you view the world around you.  YOUR LENS
is uniquely yours and has been shaped by your experiences, beliefs, education, rules and learning.  It could be visual (you may frame up a 2×2 matrix and put things in each box), an analogy (“Life is a soccer game”) or beliefs (“I cannot do X.  I’m not that type”).  That is why different people give different meanings to the same situation.  It is very important to understand your mental models for self-awareness and change.

Similarly, the more mental models you learn, the better you can analyze a situation.  It is like having a set of lenses that you choose to view the world through, depending on the situation.

The following is a compilation of mental models from various sources on the internet – Charlie Munger, Shane Parrish, ……  I have have taken the list and chunked them to be useful to a business person.   You can always go to the original sources (in some cases) and read up more.  Examine, think and use them to make better decisions in business and in life.

Human Psychology

Biases emanating from the Availability Heuristic:
– Ease of Recall
– Retrievability

Biases emanating from the Representativeness Heuristic
– Bias from insensitivity to base rates
– Bias from insensitivity to sample size
– Misconceptions of chance
– Regression to the mean
– Bias from conjunction fallacy

Biases emanating from the Confirmation Heuristic
– Confirmation bias
– Bias from anchoring
– Conjunctive and disjunctive-events bias
– Bias from over-confidence 
– Hindsight Bias

– Bias from incentives and reinforcement
– Bias from self-interest
– Bias from association
– Bias from liking/loving
– Bias from disliking/hating
– Commitment and Consistency Bias
– Bias from excessive fairness
– Bias from envy and jealousy
– Reciprocation bias
– Over-influence from authority
– Deprival Super-Reaction Bias
– Bias from contrast
– Bias from stress-influence
– Bias from emotional arousal
– Bias from physical or psychological pain
– Fundamental Attribution Error
– Bias from the status quo
– Do something tendency
– Do nothing tendency
– Over-influence from precision/models
– Uncertainty avoidance
– Not invented here bias
– Short-term bias
– Tendency to avoid extremes
– Man with a Hammer Tendency
– Bias from social proof
– Over-influence from framing effects
– Lollapalooza

– Price Sensitivity
– Scale
– Distribution
– Cost
– Brand
– Improving Returns
– Porters 5 Forces
– Decision Trees
– Diminishing Returns
– Double Entry Accounting

– Mr. Market
– Circle of competence

– Complex adaptive systems
– Systems Thinking

– Utility
– Diminishing Utility
– Supply and Demand
– Scarcity
– Elasticity
– Economies of Scale
– Opportunity Cost
– Marginal Cost
– Comparative Advantage

– Price Discrimination
– Positive and Negative Externalities
– Sunk Costs
– Moral Hazard
– Game Theory
– Prisoners’ Dilemma
– Tragedy of the Commons 
– Bottlenecks
– Time value of Money

– Feedback loops
– Redundancy
– Margin of Safety
– Tight coupling
– Breakpoints

– Bayes Theorem
– Power Law
– Law of large numbers
– Compounding

Probability Theory
– Permutations
– Combinations
– Variability
– Standard Deviation and normal distribution
– Regression to the mean
– Inversion
– Multiplicative Systems

– Outliers and self fulfilling prophecy
– Correlation versus Causation
– Mean, Median, Mode
– Distribution

– Thermodynamics
– Kinetics
– Autocatalysis

– Newton’s Laws
– Momentum
– Quantum Mechanics
– Critical Mass
– Equilibrium

– Natural Selection

More Models:
– Asymmetric Information
– Occam’s Razor
– Deduction and Induction
– Basic Decision Making

– Scientific Method
– Process versus Outcome
– And then what?
– The Agency Problem
– 7 Deadly Sins
– Network Effect
– Gresham’s Law 
– The Red Queen Effect

Life is like chess If you believe life is like chess, you may see it as strategic, following set rules, and with winners and losers. You may feel that to win you should
learn the rules better and practice. You might feel you can see the whole game right in front of you. You may have the goal of winning.
Life is like surfing If you believe life is like surfing, you may see life as more fun, with no winners or losers, with no set rules. You might expect that huge forces beyond your control
influence you, like an ocean wave, but that you can use them to have more fun or joy.
I have something to learn from everybody Adopting this model tends to reduce my arguments and, perhaps counterintuitively, increase my ability to influence the person I disagree with. Even when I am right and
the other person is wrong, conversations based on “I’m right. You’re wrong” tend to persuade people less than ones based on “I have something to learn from everyone.” I suspect making my dominant emotion curiosity influences theirs to
become so too.
I can’t do X, I’m just not the type The simple belief you can’t do something makes you unable to do it. Creating your own justification that you control in such absolute terms may stop you from
If he can do X, so can I!! This is a simple belief that is positive.  You could use this one instead of the previous negative one.

What other mental models do you use that could be useful to a person in business?  Please enter them in the Comments section below…