I have been researching the decision-making topic for years now. Not as a scientist but rather as a practitioner. My optimization function š¤ is to improve my practical daily decisions and develop a process that would give me sounder outcomes on average.
I canāt say I am too far along the way in building it, but I have made some progress and even talked about it as a guest speaker at the National University of Singapore.
I have created a Mental Model cheat sheet for myself, and Iām collecting all those models that I find helpful when making decisions.
The Mental Models approach is trendy in the community of investment managers because this is the approach heavily used by Charlie Munger (business partner of Warren Buffet and a brilliant thinker). Farnam Street is probably the best blog/podcast out there that isĀ talking about Mental Models.
Examples of Mental Models could be any mental construct that can help you make a decision better, e.g., First-Principles Thinking, Probabilistic Thinking, Incentives, Feedback Loops, Compounding, Loss-Aversion Bias, and many-many more.
I prefer to split those Mental Models into 3 categories -Ā Lenses š, Biases š§ , and Tools š ļø.
Lenses š
What I call a Lens is the kind of Mental Model that allows you to look at the problem from various perspectives and see the situation differently and make better decisions.
Think of it this way - whenever you are analyzing the problem, using a Lens means thatĀ you make yourself think about this problem in the context of this specific Lens.
Examples of this could be Cynefin Framework, Laws of Thermodynamics, Pareto Principle (20% of effort brings 80% of result), Maslowās Hierarchy of Needs, SWOT analysis, or the Theory of Constraints (TOC). You can take any of those and use them to look at your problem and understand if there are any similarities and appropriate actions that can be borrowed from these concepts.
Biases š§
This is probably the most exciting topic for me personally. This includes all the different judgment errors made by our brain and every property of our mind that makes us make irrational decisions. And there are hundreds of them, though I would say that probably a couple of dozen are the most important ones.
I will be writing a lot about these on this channel. One of my favorite examples of this isĀ Confirmation BiasĀ - our tendency to look for the facts that confirm our beliefs. Other examples are Loss Aversion, Sunk Cost Fallacy, Gambler Fallacy, etc.
Sometimes Biases are included as part of the Mental Models, but I prefer them separately because they serve a different purpose -Ā before making a decision, you need to make sure you (and other people involved) are not falling victim to biases.
Tools š ļø
The final category is Tools - a different kind of mental model that can help you make the decision. Usually, those are calculative kinds of tools like Game Theory, Expected Value, A/B Testing, Probabilistic Approach, etc. But sometimes, they donāt have anything to do with the numbers but force you to think in a particular way that helps you make the right call - e.g., Thinking By Inversion, Second-Order Thinking, SWOT Analysis, and Two-track analysis.
So, whenever you are ready, you apply the Tools one-by-one to help you construct the right decision.
How do they work together?
Itās important to highlight that these categories overlap. There are quite a few Models that I see simultaneously as a Lens and a Tool or as a Lens and a Bias.
When I need to make an important decision, and (critically), I have time to actually think about it, I use the following approach.
I look at the situation through different Lenses - applying the ones that I believe fit the best to the problem, and see what I can learn from it.
Then I look at the potential judgment errors I (or others in this context) may have made and trying remove them from judgment. This is the hardest part because while people could be skilled in detecting biases in other people, we are pretty bad at detecting those in themselves.
Once the situation is clear and biases are removed, itās time to see which tools can be applied to resolve the problem. Oftentimes, those are the Tools from the most applicable Lens to the situation. Again, I just go through the list and apply them one by one.
One of the biggest challenges is that even in my limited list, there are over 100 Mental Models of all 3 kinds, and it is time-consuming and hard to go through even the most applicable ones. This means that this method is only suitable for situations when:
1ļøā£Ā You have time to decide, and
2ļøā£Ā The decision needs to maximize the result
Now you would probably ask me - hey, whereās your list of the Mental Models? Why are you not sharing it? I will donāt worry. It will come in bits. To not miss it - sign up for my Telegram channel and Substack Newsletter, where I talk about the Science and Practice of Decision-making.