Using mental models to optimize your decision making (pt. 1)
Using mental models to optimize your decision making (pt. 1)
How to make better decisions by improving thought clarity and reducing cognitive bias.
The idea of using mental models to improve thinking and decision-making has been explored by many.
Daniel Kahneman (economist who wrote ‘Thinking, Fast and Slow’), was awarded a Nobel prize for his work on human judgment and decision-making. Shane Parrish (former Canadian spy who runs ‘Farnam Street’), writes about using mental heuristics to help Wall Street traders think more clearly. Annie Duke, (professional poker player who authored ‘Thinking In Bets’), advises business professionals on how to reduce bias and illogical decision-making in high-stake situations.
Mental models are important as they shape our worldview and how we approach problem solving. As we rely on these models to simplify and optimize our decision-making, it’s important to refine these models.
In this article, I’ll be talking about Inversion and Pareto’s Rule.
Inversion
What is it?
Inversion is a way of exploring a problem by thinking the opposite of what we seek. Reverse questioning can allow us to explore our hidden assumptions and beliefs, and identify new perspectives.
“All I want to know is where I’m going to die, so I’ll never go there.”
– Charlie Munger
When problem solving, I think of potential problems as additive vs. subtractive. (i.e. If I’m trying to convince a friend to invest in my company, I can add an element (allocate more equity, buy them dinner) – or subtract an element (stop bothering them with my pitch emails). Most of the time, we only focus on adding new elements and it’s worth exploring the inverse.
Practical examples:
How can I decrease productivity and collaboration in my organization?
How do I hurt the trust with my investors?
What behaviors should I adopt to slow down my learning and growth?
For the above – brainstorm, then invert.
How can I apply this model?
Next time you formulate a plan to achieve a goal outcome, use inversion as a tool to assess the problem from all angles. Let’s say you want to pick up the habit of reading more regularly.
Thinking traditionally, you may want to:
Add calendar reminders (scheduling)
Reward yourself with a treat afterwards (incentivizing)
Invest in an e-reader (justification)
While this line of thinking is certainly productive, it’s also interesting to think the inverse, and assess what you should be avoiding to achieve your goal.
Spending all weekend going to brunch and dinner parties (just an example… those who know me know I love my dinner parties)
Using your free time after work to start a new Netflix show
Designing your environment so that it’s impossible to read a book (loud, dim, smells like beer)
“Invert, always invert”
– Carl Jacobi, German Mathematician
In the example above, eliminate the current activities that don’t contribute to your goal. Make time and create an environment that is conducive to reading productively.
Pareto’s Principle
What is it?
Business, economics, and statistics students should be familiar with this. Pareto’s principle states that rough 80% of the consequences come from 20% of the causes. Although exceptions to this rule exist, the principle has largely been proven in many mathematically scenarios.
Practical examples:
80% of the revenue is generated by 20% of the customers
80% of the returns are generated from 20% of the investments
80% of the world’s income is attributed to the richest 20% of the world’s population
How can I apply this model?
Understand the 80/20 situations that apply in your work and life. Think about it from an input / output perspective – what are the highly leveraged activities I can engage in?
An example of a high performer leveraging this model:
Tony Xu, CEO and Co-Founder of DoorDash, spends >30% of his time solely in recruiting as he finds it the highest leverage activity in terms of output to input ratio.
Some questions to ask yourself:
Who are the 20% of your stakeholders / network that you need to build the strongest relationships with?
Which 20% of your projects do you need to focus most of your time on? (What are your ‘big bets?’)
What are the activities, habits, and hobbies in your life that will result in 80% of your growth, learning, and happiness?
Support
Thank you for taking the time to read. It took a while to put this together. If this was helpful, I really do appreciate it if you subscribe or share the Twitter thread below.
I’d love your feedback. If you have any comments or ideas, please reply to this thread or comment on the article.
When making difficult decisions, instead of focusing on which one I'd be more excited for, I focus on which one I'd regret not doing. That allows me to size my opportunity cost and then I optimize for regret minimization, as opposed to happiness maximization -- especially since happiness is hard to measure, whereas we're a lot more tuned to negative emotions such as regret. Turns out it's an example of inversion!
As someone who loves to engage in a lot of activities, reading about Pareto’s Principle definitely gave me a new perspective. I think Pareto’s also pairs really well with Inversion and am looking forward to leveraging both! Thanks for sharing Andrew!