An Introduction to Mental Models
Mental models are ideas about how something works.
Supply and demand is a mental model (from economics). But we apply it to many problems, from the demand for stocks to the product choices of your local grocery.
Mental models exist to help us understand how the world works. There are thousands of mental models from many different disciplines—engineering, economics, finance, psychology—and they apply in many different situations.
The good news is that some are much more useful than others.
Once you’ve learned some of them, you can combine them to become even better at solving problems. You learned many of them in school, but not how to apply them elsewhere.
Mental models are important because they help us understand the world, tackle problems from multiple angles, and counter cognitive biases.
To think clearly, you must become comfortable with a wide range of models and understand how to apply and combine them.
Thinking Better with Mental Models
Charlie Munger, the billionaire investing partner of Warren Buffet, was one of the first to popularize the term ‘mental models’, and he speaks at length about them in his book Poor Charlie’s Almanack, and in his 1995 speech The Psychology of Human Misjudgement.
He attributes much of his own success in avoiding mistakes and thinking clearly by using mental models.
Don’t Memorize; Understand
He also likes them because they end the need to memorize facts.
If you instead memorize and understand a variety of models, you can understand the problem in a way that those who memorize facts cannot:
“You’ve got to have models in your head. And you’ve got to array your experience ‑ both vicarious and direct ‑ on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.”
It may seem like a daunting task to be able to understand enough models to be able to apply them to any problem in life. Indeed, there are thousands of potential models to learn.
But some models that are more applicable than others, and Munger suggests that a small number punch above their weight:
“...80 or 90 important models will carry about 90% of the freight in making you a worldly‑wise person.”
Select a Subset of High-Impact Models
The key to selecting these 80 or 90 models is that they cover multiple disciplines. The power in attacking problems comes from the ability to layer models from multiple disciplines on each other.
This makes your thinking much more powerful than a person who is only familiar with models from a single area:
“The models have to come from multiple disciplines ‑ because all the wisdom of the world is not to be found in one little academic department. That’s why poetry professors, by and large, are so unwise in a worldly sense. They don’t have enough models in their heads. So you’ve got to have models across a fair array of disciplines.”
How to Think Better
The key information from Munger on mental models:
- You must understand the fundamental models, rather than memorize facts,
- You must understand key models from a wide variety of disciplines,
- When you are attempting to understand a problem, layer your experience and the facts on this “latticework” of models; combine models to reach your answer.
Combining models reduces our human tendency to fit reality to our experience or view, which is what makes it so powerful.
“Well, the first rule is that you’ve got to have multiple models ‑ because if you just have one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does.”
On the Importance of Mental Models
Munger on how important mental models are:
“When I urge a multidisciplinary approach- that you’ve got to have the main models from a broad array of disciplines and you’ve got to use them all – I’m really asking you to ignore jurisdictional boundaries...It is important that you read outside of your domain if you want to avoid failing based on man with a hammer syndrome.”
“Man with a hammer syndrome” is Munger’s term for the bias known as “the law of the instrument” or the “law of the hammer”: to the man with a hammer, everything looks like a nail.
In other words, if you only have one or two tools (in this case mental models), you’ll attempt to solve every problem with them, regardless if they’re appropriate or not.
The most vivid Mungerism in favor of developing a strong stable of models:
“Without worldly wisdom, you end up like a one-legged man in an ass-kicking contest.”
You want to avoid that.