We want to talk about mental models. They are key for intelligent decisions making. We want to introduce you to one of our intellectual heroes. A man who turned 95 on January 1st of 2019. There’s a fair chance that you’ve never heard about him. But you definitely have heard about his 88 years old associate, Warren Buffett. The man we’re talking about is Charlie Munger.
Charlie Munger became a hero to many people who are interested in better decision-making with a famous lecture he gave in 1994 at USC business school. The talk was called “A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business”. You can’t find it on Youtube, but the transcript was published on the blog of startup Incubator Ycombinator and in the curious book “Poor Charlie’s Almanack, The Wit and Wisdom of Charles T. Munger“.
I want to urge you to read the transcript of the lecture. It’s one of the most exciting texts you will ever read. I re-read it at least three times per year. In this lecture on Worldly Wisdom, Charlie Munger argues that the reason why Munger and Buffett beat the market with their investments, for more than 60 years is that they have a different approach to decision making. Munger argues that if you want to make better decisions, you need to use more than one mental models to look a the problem. One of his famous quotes to make his point is the following:
“To a man with a hammer, every problem looks like a nail”.
He argues that most people in business, everyday life and investing approach problems from a single mental model. If you work in branding, everything looks like a branding problem, if you work in business consulting, everything sounds like a transformation problem. If you are an economist, everything looks like a market-problem.
Munger and Buffett pride themselves with locking themselves up most of the day, reading books. What they are looking for is elementary worldly wisdom.They are obsessed with learning interesting “mental models”. Mental models are concepts from all kinds of sciences that offer elegant explanations to the world. To quote Munger:
“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”.
A list of mental models.
There’s a lot of renewed excitement for Munger’s idea of Mental Models. Shane Parish, host of the amazing podcast “The Knowledge Project” and author of Farnamstreet, the ultimate blog on better decision-making by learning from the smartest people in the world. Shane Parish is writing a book on the subject. He recently published a post called “Mental Models, the best way to make intelligent decisions (109 models explained)“. It’s a list of all the mental models that he is using in his daily life. A lot of these models are concepts from cognitive psychology and the science of influence. BTW, Munger is also fascinated with how human decision-making works. If you understand how people think and why they do what they do, you can do a much better job at predicting and changing their behaviour.
Want to learn more:
- Here’s another great blogposts on Mental models (Thanks for sharing: Ed Borsboom)
- Start making a list of your favorite mental models in your todo-list. I use Wunderlist. I created a folder “Mental Models” and started the habit to post concepts I use a lot in my thinking. My most recent one is this: “You are the sum of the five people you hang around with”.
- Re-read your mental model list regularly. Once you use them to look at challenges or problems, they will always provide you with new ways of looking at the problem and its solutions.
Enjoy Munger while he’s still alive. 🙂
Tom, Astrid and the SUE | Behavioural Design Team
PS: We had Munger’s mental models in mind when we designed the program of the Behavioural Design Acacademy master classes. Our program is designed to teach you some very powerful and easy to remember mental models for finding human insights and for coming up with smart interventions for behavioural change. #funfact.
Want to learn more?
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