Written by: October 11, 2024
Mental Models 101: How to sharpen your decision-making
Principle-First
Charlie Munger, Warren Buffett's long-time partner at Berkshire Hathaway, passed away in 2023.
Buffett famously praised Munger for having the best “15-second mind” he'd ever encountered. Munger could rapidly understand complex ideas and make insightful decisions in mere moments.
His secret? Munger attributed much of his success to using “mental models.” Think of these as conceptual roadmaps that guide you through solving problems.
Today, I’ll cover 3 of Munger’s favorite models so you can make wiser decisions (with less stress).
SUPERHUMAN SCORING
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Impact (9.5/10)
In 2017, I was studying for the GMAT—a standardized test for business school admissions.
A friend who aced their exam shared a game-changing tip:
“Instead of diving right into the problem when you read it, step back and ask, What is the test maker testing me on right now?”
If I knew that, it could give me a shortcut to the right approach—saving me precious time.
This insight was profound not just for standardized tests but also for solving problems in life. Life tests us in our businesses, careers, and personal lives with recurring challenges.
By pausing to recognize the problem type and applying the suitable mental model, we can navigate life's tests with greater clarity and confidence.
Setup (8.5/10)
Here are 3 powerful mental models, with examples of when you might apply them…
1. The Pareto Principle (80/20 Rule)
Origin: Economics
The Pareto Principle asserts that roughly 80% of outcomes result from 20% of causes. In other words, a small fraction of your actions lead to most of your results.
To harness this principle, ask yourself: What’s the one thing I can do today that will make everything else easier? By focusing on your most impactful task each day, you can significantly boost your productivity and progress.
Other practical applications of the 80/20 Rule include:
- Business Focus: Prioritize the 20% of clients who generate 80% of your revenue.
- Stress Reduction: Eliminate the 20% of activities that cause 80% of your stress and distractions.
2. Sunk Cost Fallacy
Origin: Behavioral Economics
The Sunk Cost Fallacy is a cognitive bias that makes us continue something simply because we’ve already invested resources into it—time, money, or effort. This happens even when it no longer serves our best interests.
Imagine you’ve spent years studying for a degree in a particular field. A few years into your career, you realize it’s not the path you want to follow. Yet, the weight of your past investment keeps you tethered.
Recognizing the Sunk Cost Fallacy empowers you to make decisions based on future potential rather than past costs.
It’s better to pivot now rather than spend the next several decades in unfulfilling work. This mental model applies broadly—from careers to business strategy to relationships.
3. Parkinson’s Law
Origin: Management Theory
Parkinson’s Law states that “work expands to fill the time available for its completion.”
In other words, the more time you give yourself to complete a task, the longer it will take.
Think about those school assignments you finished just before the deadline, regardless of when they were assigned.
Whether you tend to procrastinate or be a perfectionist, setting your own deadlines (applying Parkinson’s Law) will help you get things done.
Maintenance (7.0/10)
To dive deeper into mental models, I highly recommend these books:
- Poor Charlie’s Almanack by Charlie Munger
- Super Thinking: The Big Book of Mental Models by Gabriel Weinberg
Take the next 10 minutes to consider how you might apply the 80/20 Principle, the Sunk Cost Fallacy, or Parkinson’s Law to your day.
BRINGING IT HOME
Just remember: Mental models are a tool, not the goal.
The goal is to apply these models to navigate complex situations better.
With the right mental toolkit, no challenge is insurmountable.
All systems go,
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