Everyone wants to learn to make better decisions and minimize errors & regret.
Here are 12 powerful mental models the world's wealthiest & most influential people use to improve their decision-making:
// THREAD
Here are 12 powerful mental models the world's wealthiest & most influential people use to improve their decision-making:
// THREAD
• Second & Third-Order Consequences
Used by Ray Dalio.
Blinded by the short-term, we're tempted to make decisions on the basis of the first consequence.
Exercise consequences for example:
First-order = pain & time
Second-order = better health & more attractive appearance
Used by Ray Dalio.
Blinded by the short-term, we're tempted to make decisions on the basis of the first consequence.
Exercise consequences for example:
First-order = pain & time
Second-order = better health & more attractive appearance
• The Eisenhower Matrix
4 parts of the matrix:
1. Important, but not urgent - decide when you will do it
2. Urgent and important - do it immediately
3. Urgent but not important - delegate to somebody else
4. Not important and not urgent - do it later or delete it
4 parts of the matrix:
1. Important, but not urgent - decide when you will do it
2. Urgent and important - do it immediately
3. Urgent but not important - delegate to somebody else
4. Not important and not urgent - do it later or delete it
• Circle of Competence
Taken from Warren Buffett, this is about knowing your strengths and virtues.
"The size of that circle is not very important; knowing its boundaries, however, is vital.”
Identify your strengths and create your own games, don't compete in others'.
Taken from Warren Buffett, this is about knowing your strengths and virtues.
"The size of that circle is not very important; knowing its boundaries, however, is vital.”
Identify your strengths and create your own games, don't compete in others'.
• Pareto Principle
80% of results come from 20% of the work.
80% of your portfolio returns come from 20% of your stocks.
Stay persistent through errors & mistakes.
Work smarter, not necessarily harder.
80% of results come from 20% of the work.
80% of your portfolio returns come from 20% of your stocks.
Stay persistent through errors & mistakes.
Work smarter, not necessarily harder.
• Occam’s Razor
Choose explanations that are based on as few concepts and assumptions as possible.
Simple explanations are generally better than complex ones.
"Entities are not to be multiplied without necessity"
Addition by subtraction.
Choose explanations that are based on as few concepts and assumptions as possible.
Simple explanations are generally better than complex ones.
"Entities are not to be multiplied without necessity"
Addition by subtraction.
• Inversion principle
Used by Charlie Munger.
When you're not sure which solution to choose, use inversion to eliminate choices and approach from a new angle.
Instead of thinking about how you can achieve something, think about what would prevent you from achieving it.
Used by Charlie Munger.
When you're not sure which solution to choose, use inversion to eliminate choices and approach from a new angle.
Instead of thinking about how you can achieve something, think about what would prevent you from achieving it.
• Compound interest
This applies to investing as well as personal development, health, and creativity.
Einstein called it the 8th wonder of the world.
1% better every day makes you 37x better by the end of the year.
Consistency beats intensity.
This applies to investing as well as personal development, health, and creativity.
Einstein called it the 8th wonder of the world.
1% better every day makes you 37x better by the end of the year.
Consistency beats intensity.
• Hanlon’s Razor
"Never attribute to malice that which is adequately explained by stupidity"
This suggests a way of eliminating unlikely explanations for human behavior and avoiding assumptions & judgments about others.
"Never attribute to malice that which is adequately explained by stupidity"
This suggests a way of eliminating unlikely explanations for human behavior and avoiding assumptions & judgments about others.
• The Principal–Agent problem
This is a conflict of interest that arises when one party makes decisions on another's behalf.
Always strive to align the goals & desires between two parties.
Work with people with similar attitudes & approaches to avoid these issues.
This is a conflict of interest that arises when one party makes decisions on another's behalf.
Always strive to align the goals & desires between two parties.
Work with people with similar attitudes & approaches to avoid these issues.
• Black Swan
Things that are important but are not yet known.
• Hidden incentives
• Tail risk events
• Low probability, highly impactful
"We can’t predict them, but we can create the space for black swans to enter our lives by cultivating serendipity, & experimenting."
Things that are important but are not yet known.
• Hidden incentives
• Tail risk events
• Low probability, highly impactful
"We can’t predict them, but we can create the space for black swans to enter our lives by cultivating serendipity, & experimenting."
• Hard-Choice Model
1) Iow-impact, easy to compare- go with your gut
2) Iow-impact, hard to compare- reduce # of options & prioritize
3) big-impact, easy to compare- focus on confidence to simply execute
4) big-impact, hard to compare options- get feedback and mitigate risk
1) Iow-impact, easy to compare- go with your gut
2) Iow-impact, hard to compare- reduce # of options & prioritize
3) big-impact, easy to compare- focus on confidence to simply execute
4) big-impact, hard to compare options- get feedback and mitigate risk
• Probabilistic Thinking
This is basically just trying to estimate the likelihood of a specific future outcome becoming a reality and making a decision based on probabilities rather than assumptions or biases.
The best article I've read on this topic-
cobie.substack.com
This is basically just trying to estimate the likelihood of a specific future outcome becoming a reality and making a decision based on probabilities rather than assumptions or biases.
The best article I've read on this topic-
cobie.substack.com
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