I have been researching the decision-making topic for years now. Not as a scientist but rather as a practitioner. My optimization function 🤓 is to improve my practical daily decisions and develop a process that would give me sounder outcomes on average.
I can’t say I am too far along the way in building it, but I have made some progress and even talked about it as a guest speaker at the National University of Singapore.
I have created a Mental Model cheat sheet for myself, and I’m collecting all those models that I find helpful when making decisions.
The Mental Models approach is trendy in the community of investment managers because this is the approach heavily used by Charlie Munger (business partner of Warren Buffet and a brilliant thinker). Farnam Street is probably the best blog/podcast out there that is talking about Mental Models.
Examples of Mental Models could be any mental construct that can help you make a decision better, e.g., First-Principles Thinking, Probabilistic Thinking, Incentives, Feedback Loops, Compounding, Loss-Aversion Bias, and many-many more.
I prefer to split those Mental Models into 3 categories - Lenses 🔍**, Biases** 🧠**, and Tools** 🛠️**.**
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What I call a Lens is the kind of Mental Model that allows you to look at the problem from various perspectives and see the situation differently and make better decisions.
Think of it this way - whenever you are analyzing the problem, using a Lens means that you make yourself think about this problem in the context of this specific Lens.
Examples of this could be Cynefin Framework, Laws of Thermodynamics, Pareto Principle (20% of effort brings 80% of result), Maslow’s Hierarchy of Needs, SWOT analysis, or the Theory of Constraints (TOC). You can take any of those and use them to look at your problem and understand if there are any similarities and appropriate actions that can be borrowed from these concepts.
This is probably the most exciting topic for me personally. This includes all the different judgment errors made by our brain and every property of our mind that makes us make irrational decisions. And there are hundreds of them, though I would say that probably a couple of dozen are the most important ones.
I will be writing a lot about these on this channel. One of my favorite examples of this is Confirmation Bias - our tendency to look for the facts that confirm our beliefs. Other examples are Loss Aversion, Sunk Cost Fallacy, Gambler Fallacy, etc.
Sometimes Biases are included as part of the Mental Models, but I prefer them separately because they serve a different purpose - before making a decision, you need to make sure you (and other people involved) are not falling victim to biases.
The final category is Tools - a different kind of mental model that can help you make the decision. Usually, those are calculative kinds of tools like Game Theory, Expected Value, A/B Testing, Probabilistic Approach, etc. But sometimes, they don’t have anything to do with the numbers but force you to think in a particular way that helps you make the right call - e.g., Thinking By Inversion, Second-Order Thinking, SWOT Analysis, and Two-track analysis.
So, whenever you are ready, you apply the Tools one-by-one to help you construct the right decision.
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