Using Mental Models to Make Better Decisions

One of the goals I have with Country of Quinn is to explore in depth different ways of thinking about our world – how to observe, compare, process, and analyze the world. These tools are called mental models.  They are the best ideas from the key disciplines in life.  You can learn and use these to improve your decisions and predictions.

What are Mental Models?

The idea of mental models originated in philosophy. American philosopher Charles Sanders Peirce postulated in 1896 that we make our determinations of truth by first making mental assumptions, and then running thought experiments on those assumptions and the relations between those assumptions.  Fifty years later, Scottish psychologist Kenneth Craik proposed that the mind constructs “small-scale models” of reality that it uses to anticipate events, to reason, and to underlie explanation.  They are similar to an architect’s building model, the models of molecules you used in chemistry class, and the diagram of a physics problem.  The model is not reality, but it helps us understand reality.

Mental Models Help Us Make Better Decisions

Our toughest decisions usually involve predicting future outcomes in complex scenarios with multiple unpredictable variables in play.  How do you filter out unnecessary or distracting data to test your predictions?  When we reason or make a tough decision, we are using mental models (either consciously or unconsciously).

We believe that something is true if it remains true under all imagined circumstances. To test this, we try to imagine counter-examples.  If the premise remains true, we test it from different angles or disciplines.  As a conclusion holds true over all of the tested models, our confidence in the conclusion’s correctness strengthens. On the other hand, if a model shows a weakness in our conclusion, we can then adjust the conclusion.

One of the important qualities of a mental model is that it acts as a filtering device – it intentionally causes us to engage in selective perception, where we can focus on a narrow set of information for the purpose of testing.  The use of multiple mental models to test an idea or a decision allows us to examine different aspects of a problem or scenario, and ideally, to make a sound decision.

feedback loop for decision making

When we operate without the use of a mental model, we are trapped in a reactive feedback loop.  We exist in the real world.  The world provides us sensory feedback.  We rely on that feedback to make a decision.  Our decision impacts the world and changes it in some way.  This leads to more feedback, and more decision.  And yet in scenario, there is no foundation for our decisions other than our raw experience.  In other words, there is no improvement, no change, no learning.

A mental model changes this and introduces learning to our experience.

When you add a mental model,mental models for decision making
you introduce decision-making
rules to the decision.  This means
that you rely not only on environ-
mental feedback to make your
decision, but also upon controlled
decision-making rules that are
based on the mental model.  What’s
more, you can adjust and improve
your mental models based on the
feedback you get from your decision.

Mental models help you make better decisions and get smarter.

 

A simple example highlighting the difference between these two loops is a thermostat.  A simple thermostat that turns the heat on in your house whenever the temperature drops below 68 degrees is a feedback loop.  If you have one of the exciting new Nest learning or “smart” thermostats, it asks, “Why am I set to 68 degrees?  Is there a better temperature for the moment?”  It uses environmental feedback to improve its decision-making rules.

Mental Models You Can Use

Cataloguing and explaining mental models is too great a task for one simple post.  Charlie Munger explains that this is a life-long process.

You have to learn all the big ideas in the key disciplines in a way that they’re in a mental latticework in your head and you automatically use them for the rest of your life. If you do that, I solemnly promise you that one day you’ll be walking down the street and you’ll look to your right and left and you’ll think “my heavenly days, I’m now one of the few competent people in my whole age cohort.” If you don’t do it, many of the brightest of you will live in the middle ranks or in the shallows.

Psychology teaches us ideas of cognitive bias such as confirmation bias, availability bias, anchoring bias, or survivorship bias. Financial study teaches us about sunk cost, time value of money, and competitive advantage. Neuroscience and biology teach us about meta-cognition, feedback loops, and reciprocity effects.

I’ll be creating a dedicated page for discussion of mental models here.  I’ll be writing new posts, at least one per week, discussing these models with ideas on how you can use them in your decision-making.

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