Mental Models — Guiding Principle to think better and make better decisions

4 most effective mental models you should add to your arsenal to remove all biases, mental fog, and make better decisions.

Have you been hearing this BUZZWORD mental model lately?

And trying to figure out what exactly it means.

Then, you’ve come to the right place, my majesty!

Because for the past few months, I’ve been researching and reading a lot about mental models. This article will help you understand what mental models are and how they can help you make better decisions.

So, let’s get started by understanding what mental models mean.

Mental models are not just frameworks or concepts.

These are the guiding principles that help us better understand the world and make conscious decisions WITHOUT any biases or beliefs.

They help us shape how we think and how we connect different things to arrive at a decision.

These mental models have been created after taking all the applied principles of different subjects like science, economics, game theory, etc.

To help you navigate through difficult situations.

For instance, have you heard the term dynamic pricing?

Ok, in simple terms…

Have you ever seen the prices of a product fluctuating on Amazon?

That’s dynamic pricing, and it’s based on a mental model taken from economics supply and demand.

There are thousands of such mental models that help you think better, but Charlie Munger says, “80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person. And, of those, only a mere handful really carry very heavy freight.”

So, today we’ll be talking about 4 of the most important mental models that Charlie Munger uses on a daily basis…

1) First Principle thinking

Understanding the fundamentals and building your knowledge/argument up from there.

In simplest terms, first principle thinking means taking a complicated problem and break it into parts such that the problem can’t be further parts.

What remains is the absolute truth or basics.

Let me give you an example.

First, envision this: you’re participating in MasterChef kitchen.

And you wanna make a cookie, but you don’t wanna take someone else’s recipe, rather you want to create something unique.

You think about the basic ingredients like flour, sugar, and eggs — those are your first principles.

Then you come up with a totally new cookie recipe using these basic ingredients differently.

That’s how first principle thinking works!

2) Inversion

To better understand the model I’d quote Charlie Munger’s saying, who often uses this mental model, “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

And what he’s trying to say is: It’s easier to describe what a terrible choice looks like than to characterize a moral decision.

But once you define a poor decision, you can then use this as the foundation and reason from there what would be an excellent decision.

3) Pareto Principle

Aka 80/20 rule, which says that for many phenomena, 80% of effects come from 20% of inputs.

In reality, you could use this principle to focus your work for 20% of the needle-moving tasks and can delegate the rest of the 80% of tasks.

4) The hard-choice principle

This mental model really helps you find a great way to know the impact of your decision.

Let me illustrate this principle with an image:

These were the most important mental models that billionaire Charlie Munger adviced everyone to learn.

Cheers,

Have a great day!