by Russell Newton

Decision-Making for Speed and Context

Mental models are blueprints we can use in various contexts to make sense of the world, interpret information correctly, and understand our context. They give us predictable outcomes. A recipe is the most basic form of mental model; each ingredient has its role, time, and place. However, a recipe is not applicable to anything outside the realm of food. Thus, we find ourselves in a position of wanting to learn a wide range of mental models (or latticework, as Charlie Munger puts it) to prepare ourselves for whatever may come our way. We can’t learn ones for each individual scenario, but we can find widely applicable ones. We start with mental models for smarter and quicker decision-making.

Decision-Making for Speed and Context

The name Charlie Munger might not ring a bell, but you’re probably familiar with his business partner, Omaha billionaire Warren Buffett, one of the world’s most famous investors and, accordingly, one of the world’s richest people for decades running.
The two of them have worked side by side for Buffett’s multi-conglomerate Berkshire Hathaway since 1978. Although Munger isn’t in the spotlight as much as his partner, Buffett credits an overwhelming amount of his success to his alliance with him. And in recent years, Munger has begun to build a following in his own right based on how he has articulated his approach to life.
This mostly began when Munger emerged from the shadows to give a commencement speech at USC Business School in 1994 entitled “Lesson on Elementary, Worldly Wisdom as It Relates to Investment Management & Business.” The impact of Munger’s speech has proven to be highly influential in the decades after it was delivered, as it introduced the concept of “mental models,” which was subsequently disseminated to the public at large. He mused,
What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience – both vicarious and direct – on this latticework of models.
You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.
What are the models? Well, the first rule is that you’ve got to have multiple models – because if you just have one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least, you’ll think it does. You become the equivalent of a chiropractor who, of course, is the great boob in medicine.
It’s like the old saying, “To the man with only a hammer, every problem looks like a nail.” And of course, that’s the way the chiropractor goes about practicing medicine. But that’s a perfectly disastrous way to think and a perfectly disastrous way to operate in the world.
So you’ve got to have multiple models. And the models have to come from multiple disciplines – because all the wisdom of the world is not to be found in one little academic department. That’s why poetry professors, by and large, are so unwise in a worldly sense. They don’t have enough models in their heads. So you’ve got to have models across a fair array of disciplines.
You may say, “My God, this is already getting way too tough.” But, fortunately, it isn’t that tough – because eighty or ninety important models will carry about ninety percent of the freight in making you a worldly wise person. And of those, only a mere handful really carry very heavy freight.
He went on to emphasize at a later point,
You must know the big ideas in the big disciplines and use them routinely – all of them, not just a few. Most people are trained in one model – economics, for example – and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.
While I wouldn’t go so far as to say that having deep expertise in a discipline is dumb, it’s certainly not an optimal or efficient way of solving or understanding situations that life will toss your way. It leaves you woefully unequipped for whatever lies outside your primary knowledge base, but the answer isn’t to become an expert in every field. It’s finding your own latticework of mental models.
Thus, Munger makes it clear that to navigate the world without a set of mental models is tantamount to blindfolding yourself and randomly pointing to a spinning globe while trying to find Cuba. Without mental models as a blueprint to guide your thinking, you are only able to see haphazard, individual elements with no connection to each other.
To continue with his hammer analogy, if you are working on a construction site, it would serve you well to know how to use a hammer, saw, nails, drill, sander, and so on. The more tools you are familiar with, the better you can handle different and novel construction jobs; the more mental models you acquire, the better you can deal with and understand old and new life occurrences.
So what exactly is a mental model?
It’s a blueprint to draw your attention to the important elements of whatever you are facing, and it defines context, background, and direction. You gain understanding even if you lack actual knowledge or experience, and the ability to make optimal decisions.
For instance, if you are an aspiring chef, most of what you end up learning amounts to mental models: what kind of flavor profiles exist, what basic ingredients are needed for a stock or a sauce, typical techniques to use for different meats, and the conventional beverage and food pairings. Understand those, and you will generally know how to handle yourself with any type of cuisine. Absent a latticework of underlying models, each new recipe would present entirely new struggles.
Although many are universal, different situations will require different types of blueprints – and that’s why Munger so emphasized the latticework of mental models so as to be prepared in as many situations as possible. Without a mental model, you might see only a random assortment of lines. But with an applicable mental model, it’s like being handed a map to what all those lines mean – now you can correctly interpret information and make an informed decision.
Mental models provide an understanding of the situation, and predictable results for what will happen in the future. You can call them life heuristics or guidelines to evaluate and comprehend. You can also think of them as a set of goggles you can strap on when you want to focus on a specific goal.
You might be thinking that no model is an entirely perfect reflection of the world, but they don’t have to be. They just need to point us in the right direction to the complexity around us and filter the signal from the noise. Anyway, that’s better than the alternative of being completely blind.
We each already have our own mental models gleaned from years of simply living and noticing patterns of everyday life. Most of us have an idea of how to act in a fancy restaurant because we’ve been exposed to it in some way. We also have a set of mental models based on our values, experiences, and unique worldviews. You may refuse to use banks out of distrust for large institutions and keep your money tucked under your mattress as a rule of thumb – no one ever said all mental models are useful, accurate, or widely applicable. Indeed, some can consistently lead us down the wrong path.
By definition, our personal mental models are limited and only reflect a biased perspective.
If my mental approach is the only thing I use when I’m trying to perceive and understand the world, I’m not going to have a very broad spectrum of comprehension about the world. Invariably, I will get some things completely wrong and would come up blank in other situations when nothing in my experience can apply.
That’s where this book comes in. I want to introduce a latticework of mental models for you to operate better in the world. Some are specific, while some are universal and widely applicable. They will all assist you in thinking more clearly, making better decisions, and finding clarity in confusion.
Seeing the same object or event through different mental models will give you vastly different perspectives based on what you are focusing on, and certainly a wider array than if you would have just stuck to your own frame of reference. The more varied perspectives you possess, the more of the world we can understand.
Our aspiring chef from earlier can view a basket of ingredients through a baker’s lens, a classic French chef’s lens, a sandwich artist’s lens, or a Szechuan Chinese chef’s lens. None of these models is necessarily the most optimal, but they give you a frame of reference as opposed to just staring at a bunch of ingredients and not having any idea of what to do with them.
Perhaps the most important part of mental models is that they act to prevent human error – appropriately, another one of Munger’s famous speeches was titled, “The Psychology of Human Misjudgment.”
With too few mental models, you risk falling prey to the fable of the blind men and the elephant, which goes something like the following; there were once six blind men, and they all reached out and could only feel different parts of an elephant: the knee, the side, the tusk, the trunk, the ear, and the tail. None of these blind men were wrong in isolation, but they could only see from a single perspective, so they were wrong about the elephant’s overall appearance.
Multiple models challenge each other to produce a more unified overview, whereas just using one or two restricts your long-range view to a limited context or discipline. Having a huge range of mental models can expand your viewpoint and cancel out some of the stray “errors” that using just one or two models would produce.
This doesn’t mean you have to know all the ins and outs of a million different disciplines to use multiple mental models. You just need to understand the basic points and fundamentals of a few essential ones. Just don’t be the person with a single hammer.
This first chapter delves deeply into decision-making mental models. In a sense, most mental models eventually help us with decisions, but these specific models are about how to process information more quickly and find an outcome that you are more likely to be happy with. In other words, they get you from Point A to Point B in less time, and they might also help you define what Point A actually is.
Most of the time with decisions, we are overloaded with information – the classic signal-to-noise ratio problem. You will learn to become selectively deaf and only intake what matters.