10 Mental Models You Can Use For Smart Decision Making
It’s impossible to know everything. You just don’t have enough time to process all the information in the world. That’s where mental models come in. Over time, you want to build these little “rules of thumb” that you can use to make smart decisions.
Mental models give you a mental edge because they help you make decisions without needing to know every little thing about the subject of your decision. They’re little programs you can use to assess things much more quickly.
There are an infinite amount of mental models to choose from. You can, and should, make up some of your own. Let’s take a look at some of the models that have personally helped me transform my entire life over the past six years.
The Savvy Gambler Model
“Improving decision quality is about increasing our chances of good outcomes, not guaranteeing them.” — Annie Duke
You want to expose yourself to scenarios where the payoff is potentially huge and the downside is limited. Some people call this antifragility.
There’s a great book called Little Bets that elaborates on this concept too. In general, the more you iterate, tinker, and create little experiments overall, the likelier you are to get one of them to pay off.
Take writing for example. You can’t sell negative books. You know that at worst you lose out on the investment you made into creating the book. At best, you have a runaway bestseller that creates additional career opportunities.
Or take my articles for example. I’ll write ~30 articles in a month. In any given month, 90 percent of the articles will have mediocre performance, but the 10 percent that does well does really, really well — so much so that they get more views than the other 90 percent of articles combined (times ten).
What are some examples of these antifragile scenarios?
- Internet businesses — You can start many online businesses with low capital requirements. Take affiliate marketing where you only need a website and can promote digital products you didn’t even make yourself. There are six and seven-figure businesses that can be started for as little as five dollars per month.
- Scientific discoveries — Thomas Edison said it best: “I have not failed. I’ve just found 10,000 ways that won’t work.” Many major scientific discoveries happened accidentally while the scientist was trying to solve a different problem (funny example: Viagra started from someone trying to make hypertension medication).
- Getting to know more people — There’s a saying, you should treat the janitor as well as you do a CEO of a company. You never know who has the impact to change your life, so you should treat people well, if not for ethics, but out of pure self-interest.
The Addition by Subtraction Model
“All I want to know is where I’m going to die so I never go there.” — Charlie Munger
Don’t try to be smart. You just don’t know what you don’t know. Instead, focus on not being dumb. Avoid doing things that have high chances of ruining your life.
Many people end up with lives they don’t enjoy because they routinely make the same mistakes over and over again. These mistakes create fatigue and keep you from wanting to try harder in the future.
- As Munger puts it “sloth and unreliability,” otherwise known as laziness.
- Abusing large amounts of drugs, alcohol, porn, T.V., or any other addictive substances
- Getting into large amounts of consumer debt
- Keeping toxic people in your life
You can achieve more success in your life by subtraction than you can by addition.
A corollary of this is the idea of having a “circle of competence.” Don’t try to be good at everything. Use those experiments I mentioned earlier to build knowledge in certain areas and avoid falling prey to FOMO in others.
Munger and his business partner Warren Buffet used this philosophy to build the wildly successful investment company, Berkshire Hathaway. They will analyze thousands of businesses to invest in and say no to 99 percent of them. When they see a business that looks like a winner and has solid management, they’ll place heavy bets on them.
Mark Cuban famously said:
“To be successful in business, you only have to be right once.”
The theme is developing here. Experiment a lot, avoid costly mistakes, and double, triple, and quadruple down on winning strategies.
The Shortcut to Success Model
“Focus on your strengths, not your weaknesses.
Focus on your character, not your reputation.
Focus on your blessings, not your misfortunes.” — Roy T. Bennett
If you want a quick path to building your circle of competence, focus on your strengths, and build on them instead of trying to fix your weaknesses.
I have a guide below, and multiple books (affiliate link), that will walk you through exercises to discover potential strengths. After you identify them, build on them, and don’t get too distracted.
I’m not good at all that much. I’m absent-minded, disorganized, and have a hard time paying attention to detail. But I’m really really good at a narrow range of skills — mostly based on communication:
- Public speaking (and the derivative of talking on video)
- Reading and quickly absorbing insights
- Synthesizing information
- Basic no-code tech skills
I chose to work on skills that have a high potential payoff — these skills are all valuable in today’s information economy. Many people work much harder than me, but I get better outcomes because I choose to work on the right skills.
Most people who get into this online business realm try to do way too much. People ask me how I became a successful writer. I spent 80 percent of my time practicing writing and maybe the other 20 percent on skills like marketing and delegating organizational tasks. Because of this, I can make more money in an hour than I used to make in six-month stretches (not exaggerating).
Don’t focus on being mediocre. Use your natural talents and strengths to become exceptional.
The Wealth-Building Model
“Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.” “An asset puts money in my pocket. A liability takes money out of my pocket.” — Robert Kiyosaki
The book Rich Dad Poor Dad gave me the shortcut to create financial success in my life.
In short, increase your assets and reduce your liabilities.
An asset puts money in your pocket and a liability takes money out of it. Simple. A valuable asset takes upfront work to create but continues to make money over time.
- I still get paid from books I wrote years ago
- I build followings on platforms like Medium, Amazon, and YouTube. The bigger your platform, the more you’re exposed to network effects, meaning the bigger your profile is, the easier it is to attract new followers.
- I’ve created marketing channels I set up once, but continue to promote my products without my additional effort, e.g., an email marketing funnel, advertisement setups on Amazon, or pages on my website that I optimize for Google search that contains links to affiliate products.
- I invest my excess income every month and in the long-run, I make money passively
Passive income is the most misused term in this space.
You can’t get truly passive income — sitting on your ass and waiting for money to come. But you can create passive income down the road by using active strategies up-front.
The Wealth-Building on Steroids Model
“Compound interest is the eighth wonder of the world.” — Who cares whether or not Einstein actually said it.
Try this fun experiment. Find an online investment calculator and play with the numbers. You’ll see how you can make a ton of money in the future by making gradual investments over time from interest.
Notice how these mental models overlap.
Most people don’t take advantage of compounding because it takes a long time. Humans are wired to seek instant gratification. You have to fight your natural wiring to get compounding to work.
Compounding isn’t just a concept that works for money. It works with skills just as well, if not better.
Munger puts it well:
“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day — if you live long enough — most people get what they deserve.
I tell new writers to just forget about being successful for a while, a couple of years. Why? So they can bridge the famous taste gap:
“For the first couple years you make stuff, it’s just not that good. It’s trying to be good, it has potential, but it’s not […] It is only by going through a volume of work that you will close that gap, and your work will be as good as your ambitions.”
You don’t improve at an equal rate. It’s more likely you’ll improve slowly until you hit a tipping point. Then you’ll get scary good in the future.
The Uncommon Common Sense Model
“Bad behaviour is intensely habit forming when it is rewarded.” — B.F. Skinner
If you want to spend an hour of your life learning some of the most high-quality information possible, listen to Charlie Munger’s talk called The Psychology of Human Misjudgment.
It goes through 25 biases we have that get in the way of our success, the most prominent one being confirmation bias — to the man with a hammer, everything looks like a nail.
Your life gets a lot easier once you understand that human beings are not rational at all. You make decisions emotionally first and then use “facts” to explain your decisions later.
Why do many intelligent people fail in life? They suffer from confirmation bias even more because they’re highly skilled at creating irrational explanations for their existing beliefs.
What does understanding these biases help you do?
First, it helps you avoid bad decisions because you’re aware of the biases in your own behavior.
Second, you can take advantage of other people’s biases. Once you understand that you can pull people’s emotional levers without their permission, you have a superpower.
Use your persuasion powers for good — create amazing products, share great ideas, and use persuasion to get people to buy into both. Also, use these powers to avoid deception and help others do the same.
Bonus mental model: Notice how I keep using examples learned from a narrow set of people. One of the skills I mentioned in my article about top career skills is the ability to find a few smart people among all the noise and listen to everything they say.
The Knowledge Hacking Model
“The first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.” — Munger for the 97th time
You want to know a lot about something and a little bit about everything. This is called T-Shaped knowledge.
So you have one area you know a ton about and you have a basic understanding of many different fields. You can pull that information from other fields and make yourself unique by inserting it into your main field.
My main field is writing. But look at this one blog post alone. It contains insights gained from a basic understanding of things like economics, human behavior, marketing, evolutionary psychology, arithmetic, finance, risk management, and more.
Henry Ford once said:
Let me remind you that I have a row of electric push-buttons on my desk, and by pushing the right button, I can summon to my aid men who can answer ANY question I desire to ask concerning the business to which I am devoting most of my efforts.
Learning from a wide array of subjects helps you build a mental army of advisors than you can use to build the type of life you want. The beauty of it all?
You don’t need to be an expert.
What you know isn’t always the most important variable. Sometimes, often, what you don’t know is the most important variable. How you make decisions and react to what you know often matters more than what you know.
Remember, you’re dumb. Don’t try to be smart. Figure out how to navigate life itself.
The Behavior Influencing Model
“Show me the incentives and I will show you the outcome.” — Munger Ad Infinitum
Munger focuses on the idea of incentives quite a bit. In his talk, he mentions the fact that even though he feels like he’s one of the most competent people at understanding the power of incentives, something happens that blows his mind and cements his belief in their power even more.
A general rule of thumb to help you deal with people. Understand that, with certain circumstances and incentives, people can’t help the way they behave.
Sure, ethically it might seem that you’d be a scrupulous banker, but if you knew your income was based on quarterly earnings instead of long-term growth, would you focus on the health of the company or do everything you can to succeed now?
In the talk, Munger tells a story about a company that sold copy machines. The managers wondered why the new and better model didn’t sell as well as an older inferior machine. The older machine had higher commissions.
Never, ever, ever focus on the way things should be. Focus on how the incentives shape the environment. Idealists get into trouble because they look at the way the world should work and twist themselves into knots over ethics.
They don’t understand how incentives work thus coming to the wrong conclusion that we should all just adhere to our higher nature. This also alludes to the earlier mental model of confirmation bias — their worldview is such that they genuinely can’t understand why everyone doesn’t agree with them.
The Safety From Ignorance Model
“Madness is something rare in individuals — but in groups, parties, peoples, and ages, it is the rule.” — Friedrich Nietzsche
On the one hand, some conventional wisdom is good. Without it, the world couldn’t function. But often, people get into trouble because they follow the crowd.
Most people are living a real-life example of “If your friend jumped off a bridge, would you do it too?” People “jump off bridges in their lives all the time just because other people are doing it.
You come across people like this all the time. In some ways, you’re this person. People have a hard time thinking for themselves so when they tell you their beliefs, they’re almost verbatim repetitions of conventionally contrived narratives. I call these people political robots — whatever their teams believe, they believe.
You see this tribalism effect in society today. At this point, you have to believe one hundred percent of what your “team” believes or else you’re not part of the team. Often, these teams have contradicting beliefs within their own dogma, but people accept all of them because it’s part of the program.
The point isn’t to become a contrarian just to be a contrarian. The point is to learn how to think for yourself.
The Live Your Dreams Model
“Fear is good. Like self-doubt, fear is an indicator. Fear tells us what we have to do. Remember our rule of thumb: The more scared we are of a work or calling, the more sure we can be that we have to do it.” — Steven Pressfield
This the fun heuristic. My favorite one.
You’re wired to avoid pain and seek pleasure, but the areas of highest perceived pain are often the most fulfilling ones.
Nobody is ‘afraid’ to become an accountant, a retail shop clerk, or a mid-level manager at a corporation — all honorable careers but definitely don’t fall under the definition of passion.
What are you afraid to do?
You’re often afraid to do things with the following qualities:
- Facing rejection and embarrassment — If you want to become a writer like me, these two are unavoidable. But getting your words out there to the world, at scale, creates a euphoric feeling. Most euphoric feelings of success come from overcoming rejection and embarrassment.
- Not fitting in — You’re a social animal, which means you’re afraid of being in the “out-group.” Most people work their 9 to 5 and people bond over that shared experience. If you try to do something like start a business, most will tell you it’s “risky.” You have to be willing to do what others won’t get outcomes others don’t have. There’s an easy fix to this, though. Use Robert Greene’s 38th Law of power — Think as you like, but behave like others.
- True failure — Some of the best outcomes in life come with a huge caveat — you can do everything right and still fail. This is hard to deal with because, where do you go from there? Fortunately, over a long-enough time-scale, if you try many different things, something will work.
Flip these feelings on their head. You’re not afraid. You’re excited.
You’re not in the “out-group.” You have the balls — a colloquial definition fitting all genders — to put yourself out there when others won’t.
You don’t want the absence of fear. Instead, you want courage in the face of fear.
The Obvious Secret to Success
You want to know my favorite compliment I get about my writing.
Many people tell me:
Your writing is very basic.
Yes, it is. Intentionally. I don’t want my writing to be complex and esoteric. I want it to be lucid and useful.
The philosophy I use to guide my writing also guides my life.
If you learn how to get good at a few simple and complementary skills, people will think you’re extremely talented.
If you learn how to make a few good bets in life, people will think you’re a genius decision-maker.
Most importantly, if you learn how to avoid bullshit, noise, ‘loser think’ so to speak, you’re left with nothing but useful information.
I feel for you. You think life is hard. You think success is difficult to achieve. But it isn’t.
Success requires a small collection of non-sexy tools and behaviors — mental models along with the patience and discipline to execute on them. That’s it.
My recipe for success is simple. Collect these models, build the right skills, and just wait.
Your time will come.
Ayodeji is the author of Real Help: An Honest Guide to Self-Improvement Grab your free checklist The Ultimate Guide to Discovering Profitable Skills Wanna keep in touch online? Follow me on Instagram here.