Updated: Sep 10
Everyone should know and practice them to understand the life realities.
In my earlier post, I explained mental models are derivatives of thought (a pattern in reality) that may show up again and again. Once you learn, understand, and recognize one, it starts to pop-up everywhere. It’s important to learn more and more to become wise. You can use them to combat negative reality and or as leverage for positive reality.
Here are them that have impacted my thinking the most:
1. Compounding (Exponential Growth)
Very few in this world understands that exponential growth is both rare and incredibly powerful. We aren’t built to think in terms of exponential growth. When it occurs, we’re often taken by surprise. Consider growth of Google.
“Compound interest is the 8th wonder of the world.” - Albert Einstein
“The greatest shortcoming of the human race is our inability to understand the exponential function.” - Albert Allen Bartlett
“All the benefits in life come from compound interest — money, relationships, habits — anything of importance.” - Naval Ravikant
This mental model starts from consistency mindset and ultimately make makes you a winner.
2. Scarcity (Urgency & Exclusivity)
Core of human behaviour derives from scarcity principle observed in everyday life. For example:
Buy now to get X amount of discount, offer will end today.
To gain maximum advantage, buy premium subscription.
“Men are driven by two principal impulses, either by love or by fear.” - Niccolò Machiavelli
“Three great forces rule the world: Stupidity, fear and greed.” - Albert Einstein
“It is not greed that drives the world, but envy.” - Warren Buffett
Use of this mental model helps you to avoid dire financial mistakes in life.
It’s a common saying that ‘incentives run the world’, a tendency used to manipulate or exploit people to achieve certain advantage. Common examples are:
University Professors are judged on their research output, not their teaching ability.
Salespeople get commission on selling credit cards rather focus on credit score.
“Shoot for the moon. Even if you miss it you will land among the stars.”- Norman Vincent Peale
“There is an increasing gap between academic research and business application. Sometimes the incentives for success in the academic world are not consistent with what it takes to run a company.” - Dave Ulrich
“Show me the incentive and I'll show you the outcome.” - Charlie Munger
Using this mental model involves backwards reasoning. Better to notice this in advance, before you start training for a race that won’t matter.
4. Commitment and Consistency
The most common trait found in humans is to have preference of following an action already did before rather thinking about it again. It has two sides, one as a negative side where people fall easily also called Prejudice and Automatic Thinking. Its positive side is called Power of small steps, Leverage and Experience.
Common Examples are:
You purchase something from shop, you are more likely to go gain next time in same shop.
If you have bad experience about someone or something, you may eventually avoid it.
“There’s a profound difference between interest and commitment. Interest reads a book; commitment applies the book 50 times.” - M.J. DeMarco
“The most dangerous phrase in our language is we've always done it this way.” - Grace Hopper
5. Game Theory or Nash Equilibrium
One of the interesting concepts in psychology is Game Theory or Nash equilibrium explaining two continuum:
Stable strategies, knowing what everyone else is doing, you don’t want to do something different.
An unstable strategy is, knowing what everyone else is doing, you want to change how you’ll play.
Prisoner’s Dilemma is an example of a Nash equilibrium. Betrays and you’ll get out of jail free, but your partner in crime will rot in prison. Keep quiet and you’ll both get a light sentence. The problem is that the good outcome (keeping quiet) is unstable. Regardless of what your opponent chooses, your best bet is to betrays.
“If you think your boss is stupid, remember. you would not have a job if he was any smarter.” - John M. Gottman
“The only thing greater than the power of the mind is the courage of the heart.” - John Nash
6. Five-Fold Why or Root Cause Analysis
Root Cause Analysis used widely in Corporate and Engineering. It's actually kind of asking Why? repeatedly to break the complexity of face value of information and dissect into further small components. It is commonly used in articulating the problem statement to suggest solution which can hit the core. The concept copied from Toyota. Common Example is Newton’s Discovery of gravity.
“Thinking is difficult, that's why most people judge.” - Carl Jung
“He who has a why to live for can bear almost any how.” - Friedrich Nietzsche
“We cannot solve our problems with the same level of thinking that created them.” - Albert Einstein
My personal favourite and is actually faster than Five-fold Why. It used to revert face value of given information about reality. Pessimistic mindset is actually inversion principle. Other common names of this principle are Reverse Engineering, De-compile, contradiction, turnaround, opposition, contrast, or reversal.
“Invert, always invert.” - Carl Jacobi
“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” - William Arthur Ward
“Optimistic contrarians are the rarest breed.” - Naval Ravikant
8. Law of Triviality
Human beings generally spend time more on discussing what they know better or easier rather focus on what is important. This happened in a parliament where discussion on building a Bike shed took about 45 minutes while discussion on Nuclear Plant was about 2.5 minutes. Also called ‘Bike shed Effect’.
“Delay is the deadliest form of denial.” - Cyril Northcote Parkinson
“Work expands so as to fill the time available for its completion.” - Cyril Northcote Parkinson
“It is not enough to be busy. So are the ants. The question is: What are we busy about?” - Henry David Thoreau
9. Map Is Not the Territory
What you read, listen or watch is far different from the reality. Means the information you are consuming are just perceptions and limited perspective and there is a high chance that many other variables are either missed deliberately or inadvertently.
“Once you see the world from a producer perspective, your perceptions sharpen like a fine- tuned radio frequency, from static to clear stereo sound. Suddenly, opportunities have clarity, ideas surface, and scams are exposed.” - MJ Demarco
“Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.” - Marcus Aurelius
10. Occam’s Razor
The rule is based on William of Occam which says any simple explanation should be preferred over complex explanation about anything. If someone complicates things it means they don’t understand completely. Another justification is complex things break easily over simple things.
“Seeing the small is called clarity.” - Lao Tzu
“Simplicity is the keynote of all true elegance.” - Coco Chanel
“It is the mark of a charlatan to explain a simple concept in a complex way.” - Naval Ravikant
Being shown a new mental model isn’t enough. To get real value out of them, you need to understand them deeply and apply in real life context. And, if you see or hear an abstraction which come up again and again, and you don’t understand it well, there must be a reason its a hidden mental model waiting to be unlocked.
Thanks for reading…
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