Farnam Street’s Great Mental Models

Published on January 20, 2020

“So whatever you wish that men would do to you, do so to them; for this is the law and the prophets.”

The Golden Rule as expressed in Matthew 7:12

Hanlon’s Razor advises us to give others the benefit of the doubt when we interpret the intent of their actions. This is such a simple concept. Taking this approach makes life much more pleasant than it would be if one constantly assumes the worst in others. Most people are busy living their day to day lives and it is not uncommon to be on the receiving end of actions that are negative, whether it involves being cut off on the road or receiving a terse text message from a colleague. When we witness actions that seem unjust or wrong, we have a choice regarding how to respond. We can adopt the mindset of Hanlon’s Razor and attribute the action to stupidity or inadvertent neglect, or we can choose to assume malign intentions.

There are many more people in the world who are inconsiderate or lazy than people who are intentionally evil. Assuming malign intent is not really the best way to bet if we are affected by an action that we do not like. However, we also want to avoid being fools, and in cases where the stakes are particularly high, is giving the benefit of the doubt the intelligent way to behave? And how would we want others to behave in response to our actions if the situation was reversed?

Hanlon’s Razor is an example of a mental model that can help us make better decisions in life but, taken in isolation, a single mental model can be ineffective or even dangerous. We need what Charlie Munger has called a “latticework of models” in our brains that we can call upon when making decisions. Shane Parrish founded Farnam Street to help people “master the best of what other people have already figured out.” Parrish, who worked for many years as a cybersecurity expert at Canada’s top intelligence agency, was heavily influenced by Charlie Munger and spent several years covering various mental models on his website. His new book, The Great Mental Models: General Thinking Concepts, is the first volume in a series that seeks to distill and expand on the content already published on Farnam Street.

The Latticework

Farnam Street’s take on mental models has been heavily influenced by Charlie Munger’s “latticework” approach which has been described in vivid detail by Peter Kaufman in Poor Charlie’s Almanack. Munger realized early in life that the conventional way of making decisions suffers from massive flaws, most seriously the tendency of people to look inward to their own field of expertise and fail to borrow concepts from other disciplines:

“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.”

Charlie Munger, Poor Charlie’s Almanack, p. 55

Those who fail to adopt a multi-disciplinary approach and compete with those who do so will resemble “one legged men in an ass kicking competition.” Yet, the majority of people go through life either without any notion of mental models at all, being reactive to what the world throws at them, or overemphasizing the few mental models that they are familiar with. What is the solution? As Munger says, you need to grasp multiple models and then use them. You cannot just memorize facts and figures and expect to be able to use them without having a latticework of models that you refer to automatically. Parrish expands on this concept:

“A latticework is an excellent way to conceptualize mental models, because it demonstrates the reality and value of interconnecting knowledge. The world does not isolate itself into discrete disciplines. We only break it down that way because it makes it easier to study it. But once we learn something, we need to put it back into the complex system in which it occurs. We need to see where it connects to other bits of knowledge, to build our understanding of the whole. This is the value of putting the knowledge contained in mental models into a latticework.”

The Great Mental Models, p. 35

This sounds complicated, but Munger believes that eighty to ninety important models carry most of the burden and that mastery of the most important of these models can greatly improve decision making. And while this may sound like a great deal of work, Munger counsels us to go about it in a systematic way to benefit from the compounding effects of the knowledge over time. It turns out that gaining an understanding of mental models can be a great deal of fun if we learn and apply the models to our day to day decisions which will begin to resemble puzzles for us to solve using our growing toolkit.

General Thinking Concepts

Parrish has undertaken a very ambitious task and the first volume of his Great Mental Models series introduces what he refers to as general thinking concepts. The nine concepts covered in the book are not from any specific academic discipline but instead take a step back and provide guidance on how one should approach thinking in general. The general concepts include:

  • The Map is not the Territory
  • Circle of Competence
  • First Principles Thinking
  • Thought Experiment
  • Second-Order Thinking
  • Probabilistic Thinking
  • Inversion
  • Occam’s Razor
  • Hanlon’s Razor

Before taking a look at a few of the concepts in more detail, it is worth noting that the Farnam Street website covers many of these topics, if not all of them, in quite a bit of detail, and this information is freely available to anyone with internet access. Given that this is the case, is it worth reading the book? Obviously, everyone can decide for themselves and there are some negative Amazon reviews that suggest the website is more useful. However, the physical book is aesthetically pleasing and very well presented and can serve as a useful reference volume. There is something to be said for the combination of aesthetics and knowledge found in a well-made physical volume. These are timeless concepts and they seem best presented in a timeless printed format.

Model Blindness

In various disciplines, especially in social sciences, academics tend to develop elegant models purporting to describe human behavior and sometimes even give these models a quasi-mathematical justification. What many people forget, however, is that a model is inherently a simplification of the real world.

The idea that the map is not the territory is a recognition of the fact that maps are reductions of what they purport to represent. As Parrish states, “if a map were to represent the territory with perfect fidelity, it would no longer be a reduction and thus would no longer be useful to us.” If we allow our knowledge to become restricted to the map rather than the territory, we inevitably run into major problems. The world is too complicated to navigate without making use of abstractions, but we cannot treat abstractions as gospel.

Not only can maps (or models, more generally) not show everything about the real world but they are made from a certain perspective and only represent the world at a specific point in time which is subject to change. Parrish cleverly presents a world map created in 1450 and asks “Would you be able to use this map to get to Egypt?” Were it not for accidentally spotting the boot of Italy presented upside down, the map would have been totally indecipherable to me. But when the page is flipped upside down, suddenly it becomes clear and I probably could use it to get to Egypt. The map was made from a different perspective than we are accustomed to today.

The Great Mental Models, p. 46

We must make use of maps and models to navigate anything complicated, but we should do so bearing in mind that reality always trumps models. It is imperative to update models based on what we experience and observe, understanding that the territory does change over time.

And Then What?

Howard Marks, Chairman of Oaktree Capital Management, often emphasizes the need to ask a simple question: “And then what”? In his widely read memos to clients and in his latest book, Mastering the Market Cycle, Marks advises investors to look beyond the surface, or gut level, reaction to events and consider the second and third order consequences that others may be neglecting. Parrish describes second order thinking as follows:

“Second-order thinking is thinking farther ahead and thinking holistically. It requires us to not only consider our actions and their immediate consequences, but the subsequent effects of those actions as well. Failing to consider the second – and third – order effects can unleash disaster.”

The Great Mental Models, p. 109

Pretty obvious, isn’t it? Well, not so much based on several high profile disasters that have happened over time due to people ignoring important second-order effects usually powered by strong incentives. Parrish describes how the British colonial rulers in India attempted to reduce the number of venomous snakes in New Delhi by offering rewards to Indian citizens who brought in dead snakes. Did this reduce the number of snakes in New Delhi? No, it did not because the Indians responded to incentives by breeding more snakes in order to be able to kill them and claim rewards!

Charlie Munger again helps us out when it comes to second-level thinking. His admonition to “never, ever, think about something else when you should be thinking about the power of incentives” can help us to detect second order effects in many cases. Had the British colonial rulers of India considered incentives, they would never have put in place a policy that was sure to make the problem worse!

Parrish notes that we need to avoid allowing the prospect of second and third order effects lead to decision making paralysis. We cannot operate effectively in life if we worry about every conceivable effect of the effects of our actions. We have to use the mental models we have accumulated to make rational decisions.

Pick Your Razor

We opened this article with a brief discussion of Hanlon’s Razor which counsels us to not attribute an action to malice when it can be more easily explained by stupidity or neglect. The book covers this model along with Occam’s Razor which is more widely known. Occam’s Razor encapsulates a very straight forward concept: We should default to explanations that are simple rather than complicated when the simple explanation adequately describes a situation.

There is always a risk of oversimplifying a complex situation but that is not what Occam’s Razor advocates. The explanation must be sufficient to explain the scenario in order to qualify. If one has several explanations, all of which seem to be plausible, the one with the fewest complications is more likely to be true because it has fewer moving parts and assumptions. Furthermore, a simple explanation is easier to falsify, or prove incorrect. Used properly, Occam’s Razor can allow us to make better decisions more rapidly and avoid chasing down dead ends and wasting resources.

There is an interesting tension between Occam’s Razor and Hanlon’s Razor that is worthy of some thought. There are many events in life where one encounters a negative situation caused by another person and, often, the simplest explanation is that this person intended to do us harm, and perhaps this explanation is what we should adopt according to Occam’s Razor. However, human beings are fallible and there are more good people than evil people in the world. Hanlon’s Razor counsels temperance and the benefit of the doubt. How are we to choose?

The answer clearly depends on context, common sense, and the consequences of being wrong. If you are in an auto accident in broad daylight in a busy intersection where the other car made an illegal left turn and slammed into your car, it would seem best to adopt Hanlon’s Razor and assume negligence or stupidity rather than malice and be kind to the other driver.

But if you are waiting at a red light at 2 am and the car in front of you backs into your car without warning, the simplest explanation is that this individual has malign intent. It is possible that they shifted into reverse by accident, but that is not the likely explanation, and the consequences of being wrong are high. It would be best to not get out of your car and instead drive away to a safe location where you can summon help.

No Shortcuts

The fact is that building a latticework of mental models that you know well enough to draw upon takes years of hard work and continual effort. Charlie Munger’s quest for worldly wisdom has taken decades and, at age 96, he hasn’t stopped learning yet. It is unrealistic to think that one can pick up a book like The Great Mental Models or Poor Charlie’s Almanack and suddenly emerge worldly and wise. But while you may not become as wise as Munger or Parrish overnight, reading books like this are required to have a chance to improve over time.

The good news is that the process of learning mental models is not boring, when approached with the right mindset, and can actually be a great deal of fun when approached as a series of puzzles to solve. Knowledge compounds over long periods of time and the progress is not linear. Sometimes the combination of multiple mental models leads to breakthroughs or insights that result in “aha!” moments. You cannot predict when or if such moments will come, but you can add some positive optionality to your life by being prepared.

Farnam Street’s Great Mental Models
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