How To Make The Best Decisions In Any Scenario

Something that many people don’t understand is their mindset. Mindsets are just your way of thinking about the world. Your mindset is built on principles called mental models. Most people don’t know that they have a mindset, or what it is. Others understand the concept of a mindset, but can’t seem to change it, even if they want to. This is because if you want to change your mindset, you can’t just wave a wand and shout, “Accio good mindset!” You have to start with your mental models.

Mental models make up how you think about certain scenarios. Many people have a limited number of mental models, which means they are going to end up using the same mental model for different scenarios. I may not be an expert on mental models, but I can tell you that different scenarios require different mental models, and using the same mental model over and over again is a recipe for disaster.

Some of the smartest people in the world are only smart because of their mental models. Few of them, however, have accumulated so many mental models so as to be prepared for any situation. This takes time, experience, and a lot of work, in most cases.

Charlie Munger is a 95 year-old investor, businessman, and philanthropist. Munger is more commonly known as the Vice Chairman of Berkshire Hathaway, Inc. He is also an expert on mental models through pure experience, the author of Poor Charlie’s Almanack, a book on mental models and mindsets, and an inspiration to the section of humanity that wants to be better, to be the best version of themselves. Munger has spent a lifetime developing a system of mental models. When asked what his secret to success was, he simply replied, “I’m rational.”

Munger may be older than your average Elon Musk, but that just means that he knows a lot about everything. This includes how to improve your mental models, and what some really great mental models to have are. He is on the Internet a lot, and has plenty of resources to read. Some of his most important lessons for humanity include:

Top 10 rules for success:

1. Always keep learning — The world is constantly changing. You have to keep learning to understand what is going on around you.

2. Deserve what you want — You can’t just wish for something good to happen. You have to take steps towards achieving it, you have to actually work hard at something for opportunities to come.

3. Know the edge of your own competency — If you don’t know the edge of it, then how is it a competency? You have to understand what it is that you don’t know, and build from there.

4. Be a survivor — You can’t spend time on negative emotions, like sadness. You have to keep moving, keep learning, and keep working hard. That’s the only way to succeed in life.

5. Practice the right approach — You have to have mental models, but those aren’t worth anything if you don’t practice them, or you are just going to lose them.

6. Understand what you are doing — You have to know what you are doing to do it, but understanding how it works and knowing how to do it are two completely different things. Just because I can code an ERC20 token doesn’t mean I understand the meaning behind the code. However, you don’t need to know everything to the nth detail. Remember, done > perfect.

7. Invest in trust — Trusting other people allows them to trust you, and practicing this trust over and over again creates a web of trust, of connections that you can then utilize. This web of trust becomes very useful and efficient when you are connected with people that know a lot about what they are doing and will help you with anything.

8. Know all of the big ideas — “A man who doesn’t know what happened before he was born goes through life like a child.” — Marcus Tullius Cicero. Generalizing Cicero, we get that you have to know all of the big ideas, in all fields, before being really competent, being able to understand what is going on at any given moment.

9. Swim as competently as you can — Work as hard as you can. This relates to pretty much everything above. You have to work as hard as you can to succeed in anything.

10. Don’t submerge into self pity — Self-pity and emotions like it are of no value. There’s no point in dwelling on these things, because all they are going to do is waste your time.

These rules are pretty simple, but they aren’t widely known because most people will quickly dismiss them with an “I know” or a “Yes, I do this already.” However, people say this without really evaluating what they are being told because of the simplicity of these ideas. This means that nobody thinks about simple ideas that can drastically improve their mindsets. In fact, most people don’t actually have these mental models and/or use them, which really means:

Most people have only a few mental models that they rely on in everyday life, and these are basically comprised of what you learn in kindergarten and what you’ve learned working wherever you are. If you don’t know what a mental model is or how to use them, you’re navigating through life with kindergarten knowledge.

Sure, it might not seem that bad, but if you really think about, all you have is what you learned in school and working, and if you can only apply that with a limited set of mental models, you aren’t exactly fast-tracking anything.

You can’t only achieve success by knowing what to do, you also need to know what not to do.

How to guarantee misery for yourself

1. Letting addiction take over — This one seems obvious, but like Munger’s rules for success, this is what makes people skip over it. Munger even has a personal example for this, “The four closest friends of my youth were highly intelligent, ethical, humorous types, favoured in person and background,” he said. “Two are long dead, with alcohol a contributing factor, and a third is a living alcoholic, if you call that living.”

2. Feeling resentful — “Life is hard enough to swallow without squeezing in the bitter rind of resentment.” — Munger. If you find it impossible to just quit feeling resentful, try the Disraeli compromise.

The Disraeli Compromise:

As Benjamin Disraeli rose to become the Prime Minister of the United Kingdom, he learned to give up vengeance. However, he retained an outlet for resentment by writing the names of all the people who wronged him on a piece of paper and placing it in a drawer.

Then, from time to time, he reviewed these names and took pleasure in noting the way the world had taken his enemies down without his assistance.

3. Being unreliable — Whether it is to others or yourself, being unreliable and not following through on plans or agreements does not get you far in life. You aren’t trusted by other people, and instead of losing a promotion or something like that to someone who really deserves it, you will end up being outrun by people mediocre relative to you.

4. Letting life knock you down — If you refuse to get back up after something bad happens, you will have a miserable life. There’s so much adversity in the world that even the luckiest and wisest person will eventually be confronted with something that they cannot control that will knock them down. You have to bounce back, regardless of the situation.

5. Refusing to learn from past mistakes/other people’s mistakes — The results of not learning from previous mistakes can easily be seen in day-to-day life, with even drunk driving. To avoid being unhappy, you have to become as educated as you reasonably can. For example, Sir Isaac Newton, an extremely influential physicist, only became well known because he mastered the work of others. As he says, “If I have seen a little further than other men, it is because I stood on the shoulders of giants.”

These rules for success and what-not-to-dos are really helpful in everyday life. I actually made myself a “Disraeli drawer”! So far, it works like a charm.

Charlie’s checklist

Smart people may have more mental models than people like us, but if that’s so, then why are they also wrong a lot?

Well, knowing some mental models may help you, but it’s applying them that is tough. Certain scenarios might require one mental model, others multiple working in conjunction with each other. Think about it like this: Scenarios have characteristics, things that make them unique. You can apply a mental model to a certain characteristic. Some mental models can even be applied to multiple characteristics.

Many scenarios have multiple characteristics, so they require multiple mental models working together.

If you don’t have the necessary mental models, you end up using the same mental model for different characteristics, which does not work.

These smart people are wrong a lot because they have the mental models to do well in most scenarios, but they simply don’t know how to apply multiple mental models to one scenario, or use multiple mental models at the same time.

Fortunately, one really smart person who knows a lot about mental models has devised a few checklists for making decisions in any scenario using multiple mental models (I don’t think I need to tell you his name).

Two-Track Analysis (General Decision-Making):

  1. Understand the forces at play — You have to know what you know and what you don’t know. Know the edge of your own competence.(Ahem, top ten rules.) Millions of factors go into decision-making, but if you are operating within your circle of competence, it shouldn’t be that hard to figure out the forces at play.
  2. Understand how your subconscious might be leading you astray — There are many causes of human misjudgment, including over-confidence. These are the subtle ways that your mind might be leading you astray at a subconscious level. Your subconscious mind is larger than your conscious mind and yet we rarely pay attention to how we might be tricking ourselves.

Usually, when we have extreme success or failure there are four or five factors working in the same direction. The same goes for psychology. The more human misjudgment factors there are working against us, the more likely we are to make an ill-informed decision.

Simple Problem Solving Notions:

  1. Simplify — It’s best to simplify problems by deciding on the no-brainer questions first.
  2. Numerical fluency — As it turns out, math is everything. Galileo once said that scientific reality was often revealed by math. This can be applied to practical life as well.
  3. Invert — Inverting the problem may not always solve it, but it certain helps simplify it. Think of it as the “avoiding stupidity” filter. Inverting basically just means going through the problem backwards. It isn’t enough to think through a problem only forwards, for example, the rustic who wanted to know where he would die so he could never go there.
  4. Study the basics — You have to understand the basics of the fields that you will be interacting with every day. You have to know all of the big ideas(cough, top ten rules, cough)
  5. Watch out for the lollapalooza effect — This means multiple ideas or biases working with one another, as this increases how successful you could be and how greatly you could fall.

Charlie Munger is a huge influence on my mental models and how I think about things now. He is extremely smart, knows a lot about mental models, and still has a lot left to teach you. His mental models and decision making processes have been developed over 95 years and are still growing. Why not learn about them now instead of going through all that time to develop the same mental models?

Interested in learning more about Charlie Munger? Farnam Street has an entire compendium on him! https://fs.blog/charlie-munger/

14-year-old blockchain developer and machine learning enthusiast.