You Might Be Missing Out If You Don’t Know About Psychological Biases and Mental Models
Coming from an engineering background, I didn’t have any idea about psychology. I knew some things vaguely. I had seen some people were effective than others but I didn’t know why.
I had never read about it or thought about it properly.
It was the interest in investing in financial markets that led me to read about it. Why? Because I had initial failures. I wanted to figure out what was going wrong and that led me to read about behavioral finance.
I understood that success in financial markets doesn’t depend so much on how intelligent you are, but on how well you manage emotions and decide. The quality of decisions decides your outcome.
So, I started on a journey to deep dive, read and learn value investing. I read hundreds of value investing blog posts, many books and articles.
One fine evening while I was reading a blog post, I came across this paper from Mr. Charlie Munger.
It was so good that I kept reading it past midnight and it completely blew me away. It was an eye-opener for me. That was for the first time, I came to know about psychological biases and my introduction to psychology.
I looked at my life so far and I found so much that I could relate to.
I could make more sense about why some people behave the way they do, or why do we make irrational decisions? or what motivates people and businesses? And so much more.
This led me to read more books. It didn’t occur to me before that we need not know all, but only a few key ideas from each discipline to make excellent decisions. We don’t approach our learning that way, and it was an eye opener for me.
I not only read books on investing but also read widely across multiple disciplines — be it history, geography, biology, philosophy, economics, biology, self-improvement, biographies — almost anything.
There was so much to learn. In that process, I came across mental models. More I read, I came to know there was so much more I didn’t know.
When I discovered more and more things, I felt why did I not read about these things earlier. I wondered why no one told me. I also felt how immature I was, and I felt like my life would have been different had I known them.
I felt like my education had just begun.
Over the next 3–4 years, I read a lot and it took me to a continuous learning journey. I suppose it can do the same thing for you. You can refer to some books and online resources I found useful at the end of this article.
In this article, I will share with you how it helped me and how it can help you too.
How has this helped me in actual life and can help you too?
I understood various biases, mental models, and psychology behind many things, but it was hard for me to show how it changed my life.
You know, when you are in a situation when you need to decide, you go by your intuition. You don’t have the time or inclination to really think through all the models and principles etc and decide. Real life doesn’t work that way.
Did I make better decisions? Did I improve my life in anyway? Am I better now that I read about these? or it was just for my intellectual stimulation you know just to say, hey look I read all about it and I am wiser!
I expected more results when I read all about it. I felt guilty of spending so much time without much outcome to show. However, thinking deeply, I think the benefits that I got from it are much different than what I expected.
1. Improved intuition with some simple ideas. You can think better, decide accurately and faster
When you think about buying cars, you research about it, looking for different models, different styles, etc. Suddenly you notice those cars everywhere. It is just your focus. Your focus is on it, nothing else changed.
Reading about mental models and key ideas from different disciplines did a similar thing for me — but vaguely.
I can’t remember 100’s mental models from different disciplines. I enjoyed reading about them. But you know life is complex and when a situation is in front of you, you can’t really think so well and decide. At least I can’t. We go by intuition. We decide faster.
But I seldom do some of the common mistakes I would have done before. Let me give a couple of examples.
Ex — Scarcity bias. Our tendency to jump to the decision in favor of something which is scarce. I never buy stuff that says, only 3 more hours to go or only 1 item in stock.
Or loss aversion — our tendency to weigh negative feelings when you lose money much more than positive feelings when you gain the same amount. I try to control the emotion.
Same thing with others — Using first principle where I can, avoiding social proof bias — to do things without thinking about it because others around you do those things, and avoiding incentive bias- the biggest one for me.
Such simple to ingrain ideas have stayed with me. I use them with little thinking. and I think it will do the same for you.
One way to best use this is writing about it in your own words, talking about it, thinking about it. When you consciously apply it a few times in your day-to-day life, then it becomes part of your intuition.
2. It improves persuasion skills
When I started public speaking, I started telling stories. The initial ones were bad, but as I progressed, I could convey them in a manner that captured attention of the audience. They were convincing.
Subconsciously when I wrote the speech scripts, I started using some psychological models. I structured them differently. Some people who heard my stories commented how well I convince.
When you tell stories, talk to someone or write an email, many times we try to convince. Reading about mental models helped me to do those things effectively.
I feel this is lifelong learning. Human behavior and psychology are such complex topics, but we can indeed learn to improve skills.
3. You can protect yourself from manipulation
Now that you atleast know about many mental models and psychological biases, we can identify easily if someone could manipulate you. Many of the marketing tricks no longer excite you, and you will laugh about it.
Do you know about a mental model called ‘colombo technique’?
You know when after the discussion with your boss and when you are about to leave the room and when you open the door, your boss asks “I forgot to check one thing, and a simple casual question comes up… which often leads to the main answer that he was looking for”.
I have experienced it and it is funny after I read about it. You will act more rationally and thoughtfully more models you have in your head.
4. It could also make you more humble and help you grow
I know now that so many biases are in play. I know now that even though I may be sure of something, that may not be true. I might have a bias, and I may overlook it. So I take time to think and decide.
The multidisciplinary reading showed me that there is so much that I don’t know. It made me more humble and saved me from making big mistakes.
That also led me to use checklists to make better decisions when I can.
A simple checklist may work wonders as it takes our assumptions out and looks at things in an unbiased way. I have seen an investor making final decisions based on carefully crafted checklist using 50–60 mental models. The chances of missing out becomes less.
In everyday life we get busy, we make choices and decide hundreds of times a day, and we need to do that in split seconds. We decide on the fly. You don’t think -let me just run through my checklist once and then decide -no; it doesn’t work that way. We need to develop intuition. And it comes only by practice. But when there are high stakes and important to decide accurately, checklists help so much.
You know, humility is a noble quality. Being humble lets you learn more and improve. Learning about these, and even reading in general, could lift you up so much.
You know, learning doesn’t go waste. It’s there somewhere in your brain. Whether you know about it or not, some day, some time, you may use certain things that probably you never knew existed.
Call it intuition, intelligence or maturity, or combination of those, you act in a certain way which otherwise you wouldn’t have been able to. You don’t have to overboard reading about all the mental models and get bored, but reading them and thinking deeply about them may help in future.
Some books and resources that helped me, which I think can be beneficial for you are below (No affiliation with any of these). All the best.
- Influence by Robert Cialdini
- Fooled by Randomness by Nassim Nicholas Taleb
- How do we decide by Jonah Lehrer
- The art of thinking clearly by Rolf Dobelli
- How to win friends and Influence people by Dale Carnegie
- Thinking Fast and slow by Daniel Kahneman
- The checklist Manifesto by Atul Gawande
- Mental Models : here, here and here.