We live in a complex, fast-changing world. Thriving in this world requires one to make fast decisions with incomplete information. But how do you do that without making too many mistakes?

My guest today argues that one key is stockpiling your cognitive toolbox with lots of “mental models.”

His name is Shane Parrish. He’s a former Canadian intelligence officer and the owner of the website Farnam Street, which publishes articles about better thinking and decision making and is read by Wall Street investors, Silicon Valley entrepreneurs, and leaders across domains. We begin our conversation discussing how Shane’s background as an intelligence officer got him thinking hard about hard thinking and why the musings of investors Warren Buffet and Charlie Munger have had a big influence on his approach to decision making.

Shane then shares his overarching decision making philosophy and explains what mental models are and why they’re a powerful tool to make better decisions. We then discuss why you should focus on being consistently not stupid instead of trying to be consistently brilliant and tactics you can use to make better decisions.

Get the show notes at aom.is/farnamstreet.

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00:00:56to know again head over strenuous life dot CEO gets name on the waiting list I hope to see you at the end of March in our next and roll it the case you're welcome to another edition of the art of badly this podcast we live in a complex
00:01:22fast changing world thriving in this world requires one to big fast decisions with incomplete information how do you do that without making too many mistakes legacy argues that one key is stockpiling your cognitive tool box with lots of mental models is the B. should perish he's a former
00:01:36Canadian intelligence officer at the owner of the website farted street which publishes articles about better is the key to decision making is read by Wall Street investors Silicon Valley entrepreneurs and leaders across debate we begin our conversation discussing how she's background as an intelligence officer gotta keep hard
00:01:51dot org thank you and why the musings of investors board buffeted Charlie Munger has had a big influence on his approach to decision making change the jerseys overarching decision making philosophy explains what but the bottles are and why they're powerful tools to make better decisions we did discuss
00:02:04why should focus on the system dot stupid as it tried to be consistently brilliant tactics you can use to make better decisions at the show's over check out our show does it a web dot I. S. slash Fordham street James Harris welcome to the show tanks glad to
00:02:29be here so you head up a website called Farnham street I don't know how I discovered you as long as a couple years ago and I've been following it religiously ever since then %HESITATION I love it it's it's a website a learning community dedicated to learning how to
00:02:45sing better make better decisions what's crazy is this thing I mean it's read by all these Wall Street investors and leaders across field so how did this hundred foreign street start my become this phenomenon well in two thousand and seven I made a decision that probably impacted the
00:03:04lives of a lot of other people and I remember leaving work in at the time our train intelligence agency and it was a good two AM and I was walking home at the struggling because I didn't know if I'd made the right decision and I went into work
00:03:17the next day on about three hours of sleep assisted up all night and you know the the stakes are higher right you have your country you have people in theater who are making decisions based on what you're doing you have decisions that you're making that affect then you
00:03:31have your team you have their families if your organization your country's relationship with other countries and all of that you're making a call on a judgment call you know in the wee hours of the morning after not a lot of sleep and I went in the next morning
00:03:44and I said Hey I went to my boss and I was like I don't know if I'm making these decisions right I mean they're working out but I don't know if I'm I'm doing it right I don't know if I'm comfortable lakes that I thought about everything I
00:03:54might be missing something and he just laughed at me and said you know everybody's in the same boat and sort of shrugged off and I remember going home that day going like I think people deserve better and I started just doing a deep dive into how to make
00:04:08decisions and like how do we learn about the world that we're living in and I went back and I ended up doing my MBA and the NBA proved relatively useless in my case I think in part because you know I had six seven seven years of work experience
00:04:24about point which is really probably fourteen because I was working twelve to fourteen hours a day six days a week and you just have this different view of the world when you you for that much and you've done in a sort of all the different jobs that I've
00:04:37done and had all the responsibilities I had in the world's not simple it's complicated it's interconnected and you know the NBA is very much like read this chapter apply this to this case and you know it's it's it oversimplifies things to a degree that is unhelpful and blows
00:04:53doing my MBA I said well if I'm not gonna learn on demand yeah muscle learn on my own so I created this website and at the time it was called six eight one three one dot blogger dot com which we don't own anymore but that was that the
00:05:06website the reason it was called that is six eight one three one is the zip code for Berkshire Hathaway and the website is an homage to Charlie Munger and warm baths and their way of thinking and I figured nobody would type in five digits for a website like
00:05:21at the time this is sort of unheard of anyone a password on the site so I didn't choose a better man and then I just started keeping track of what I was learning Ryan and I started with a lot of academic stuff because I figured I would never
00:05:35have access to academic journals I stopped doing my homework from NBA because it became formulaic right I knew what they wanted to hear and how they wanted things phrase and you have a simple the world was to them and so I I just kinda like bang data says
00:05:49that they want to and you didn't have to really study a lot so my study became self study and I started reading the letters of Berkshire Hathaway Esther reading everything I could on Charlie Munger and I'm wondering you know silently in the background why these two guys who
00:06:03in Omaha Nebraska have created you know by all accounts one of the biggest business successes in history and think about the world in such a complicated interconnected way the white wine I learning that at my MBA and then as I started to look into it a lot of
00:06:17the successful people that I admire sort of Steve Jobs and you know your mosque and all all of these people they think about the world in this very messy sort of way I mean that they have a way to bring it back to first principles or to walk
00:06:31around the problem in a three dimensional way but they realize that it's interconnected every action that you do has and a consequence to it and I thought man this is much better way to learn so I just started the website start writing about it was anonymous because I
00:06:45worked at an intelligence agency it wasn't exactly a good for my name on a website and slowly I don't know why or how people started to discover the website and at first it was like one person and then you can kind of see like one person following you
00:06:59on your RSS feed at the time and then I think it was like two years I had five hundred and I was like oh my god like this is crazy like how to five hundred people find this website and it was twenty thirteen I think when we I
00:07:12became anonymous at twenty five thousand readers and that was a big sort of like miles stand and that is that when you change the two Farnham street yeah because everybody is sort of like it was like Farnam street dot something thought like I don't know at the time
00:07:29is like an easier to type version but it was still weird and then we went to France three blog dot com that year I became on anonymous and I think we started it you know all on the same sort of like year and that was a major sort
00:07:44of like inflection point for us to do what we were doing and what I was doing and I was still working full time for the intelligence agency at the time we started today to get this audience and our audience at the time was probably eighty percent Wall Street
00:07:59and I would say it's a lot less Wall Street as a percentage basis now but the three main audiences we have are probably Wall Street Silicon Valley and professional sports that's really engine professional sports what we talk about that later artistry that's the address of Berkshire Hathaway correct
00:08:15right so that's a street in Omaha Nebraska where Warren Buffett lives and works and it's for the headquarters for Berkshire Hathaway Gramps so before we do again to what you write about want to backtrack talk about how that moment when you made that decision when you're working for
00:08:32the diligence agency and you're like well I don't know if I made the right decision like before that time was it something you had a moment we took a step back and you sort of think like doing metacognition right thinking about how you sing so but before that
00:08:45how were you making decisions where is it just sort of okay on the phone line were you doing yeah if you think about it like I mean I started August twenty eighth two thousand two weeks later September eleventh happened missing click I don't know three days after that
00:09:01I was promoted %HESITATION and it had nothing to do with me it had nothing to do with my skills it had nothing to do with this for like how good I was as a person and just had I was in the right place at the right time to
00:09:12take on a leadership role and nobody nobody ever taught me how to make decisions nobody in school taught me like how to look at a problem in a three dimensional way and walk around it from different perspectives and like all the perspectives in the room and nobody at
00:09:28work taught me how to do that either it's sort of like you're expected to figure it out and you end up with this ad hoc process which is often works right but when it doesn't work it's hard to diagnose what doesn't work and then it's hard to compensate
00:09:40for your errors through a process and we all have strengths and weaknesses and ideally we would we want to have a repeatable process that we can use that changes as the environment changes but adopts our strengths and weaknesses so that accounts for them or at least allows for
00:09:56us to take into account where we are naturally prone to make good decisions are bad decisions are were naturally primed over confidence in a certain scenario and so then we wanna structure something in if possible to reduce the biases that we might have been that sort of what
00:10:14and I think like you don't want to do that for every decision possible I mean we we don't want that you can sometimes you have to make split second decisions and that becomes more about it preparation and pattern matching and thinking through second order consequences but often you
00:10:29have a lot of time to make decisions on a lot of time can be like thirty minutes and you you want to sort of structure you think in a lot of people do and I think that's one of the reasons that we don't get better at making decisions
00:10:40as we always bring a slightly different approach to the table for how we're gonna decide where is if we sat down and we had some sort of process it's just enough to be formed all that process can be like one of the variables that govern the situation how
00:10:53do those variables interact with each other and how might it be fooling myself I mean it can be a simpler and they can be more complicated depending on your strengths and weaknesses in the type of decision you make okay we'll get into specifics here to bed so talk
00:11:06about Charlie Munger serves as a guy that you were drawn to when used for started thinking about these things while you're doing your NBA for those who aren't familiar with Munger what does he do I mean he he works of Berkshire Hathaway but you don't hear too much
00:11:19about it because Warren Buffett is the guy that gets the attention yeah buffet buffet gets a lot of the attention I mean Munger is an irreverent billionaire at this point he's a vice chairman of Berkshire Hathaway she just has this very unique almost Richard Feynman asking view of
00:11:36the world and a bit of weight to him in a in a way that I find intellectually stimulating right like the world is complicated I want to read about it I want to understand that things in our Oct and I can't if I only understand one portion of
00:11:52the world I'm not gonna understand what's going to happen when I make a decision and he's very sort of like detailed a nuanced about how he he thinks about things and how he builds his what he calls a lattice work of mental models and I think that that
00:12:06really resonated with me while I was in school because I started seeing each chapter as not something that stands alone in and of itself you know sort of like each idea in business school but something that interconnects with every other part of the world and then it became
00:12:21%HESITATION I can just add this to my lot is for my friend works but the next time I make a decision I'm not gonna make it just based on this new model alpha unit incorporate this old model or I'm gonna see if this old model incorporates and then
00:12:33I'm gonna check that and now I have a better more accurate view of the world you can think of it sort of as in like tracing paper right if you draw lines on each you to paper each year paper gives you a view into the world but if
00:12:46you put those paper on top of each other will now you might be able to see what the picture actually is and that's what we're doing right what work struggling to sort of like go through the world and make these decisions and if you think about what we
00:12:59do when we make decisions a lot of us make poor initial decisions and we spend so much time correcting and it could just be like a miscommunication it could be that we didn't think of the second order consequences it could be that we we didn't have the right
00:13:13models in our heads accurately see the problem for what it was we didn't know what to do so were slightly off course but then we spend a ton of time chasing down which causes stress and anxiety and it's part of the reason that we work so long and
00:13:26there's a different approach to that one of the different approaches is like can I learn about a world %HESITATION intelligently prepare for the decisions and likely to make and what is that intelligent preparation look how do I make it a little bit less about lock and make it
00:13:40more about what's within my control yeah more things I love about Charlie Munger is because as you said he's very nuanced and it's very sophisticated is thinking but the way he explains the process it's very folksy it's very simple when you're like when everyone of you read something
00:13:55you're like oh yeah that makes perfect sense why did I think of that before yes so hard to disagree with him even when he's controversial right like one of his opinions is that the US shouldn't be selling their oil that should be keeping an importing oil because oil
00:14:07is cheap and it's a finite resource and the if you think about that at the start it like well that doesn't make sense but the more you dig into it you're like %HESITATION that probably actually if you take a different time horizon that might actually be the best
00:14:21decision that a nation could make right we'll %HESITATION get in some more Munger isn't here to bed so before we get into specific on %HESITATION surest X. hacks or whatever you wanna call to make decisions thing is a lot of people want for someone like tactics let's talk
00:14:36about over arching principles that you use that guide like pretty much every X. like meta principal like first principle that you used to guide decisions in your own life or if you whenever you consult someone or coach someone like what do you do you tell them well Sir
00:14:52we have five principles listed on the website there we have which is after us stop log slash principles and it's kind of just guiding framework for like what we can think about right if you and the first one is direction over speed and the concept there is if
00:15:08your point in the wrong direction doesn't matter how fast you're travelling right inversely if you're locked into your desired destination all progress is positive matter how slow or small it see straight you're gonna reach your goal and if you think about this as a lot of us spend
00:15:24a lot of time on speed and not only do we have subtle cues in organizations that we want to signal to other people that were working fast busy that we're we're doing things but we don't actually stop and take time to think about like where we going I
00:15:39might be really busy in these meetings but does that mean we're actually making progress or does it mean like I just have this endless calendars of meaning like does it actually contribute to the work right and if you think of the lost city velocity is a concept in
00:15:53physics that not only has speed involved in it but it has displacement right so it has a factor associated with it where speed is just it's just bobsleigh if you think of a plane leaving New York and going to LA well one plane leaves New York and start
00:16:08flying around in circles in the other plane leaves New York and it's headed for LA right the both flying at the same speed but one of them is going to their destination and the other is just flying around it's going just as and I think that concept is
00:16:21something that we have to keep in mind not only in our personal lives and our relationships but in in the workplace the second principle that we talk about on the website is live deliberately and we settle into habits and we simply live often the same year over year
00:16:40again right we're waiting for some future event before we start occur %HESITATION before we start living like we're waiting for something to happen and we're not conscious about the decisions or make you are not conscious of it who spend their time virgins defaulting to what we've done in
00:16:54the past and so while we wait for a razor media career opportunity or ideal relationship I mean life is passing us by and life is so fragile amazing refer cat there there is no saying more fragile than life I remember I was in Hawaii this year and I
00:17:14ended up somebody drowned on the beach and they they died right in front of me and I was like I was like crying and I was like oh my god like this person is the same age as me they look fit and healthy just like me and their
00:17:29life is over and you know maybe they have an aneurysm all that they were swimming or heart attack I I don't I don't know the medical sort of like reason of this I was like man life can go at any point in time and if you realize that
00:17:43you recognize it you can start setting aside time to date to pursue your dreams right you can start today to learn the things that you like to note you can reach out to day and repair relationship that you want to repair you can jettison is dead weight that's
00:17:59holding you down and you can be more free but to do that you have to be conscious of living deliberately is about awareness and purposeful action the third thing that we talk about on the website from a principals plenty of years thoughtful opinions held loosely right so that
00:18:16the common refrain as strong opinions helplessly but we we prefer a softball right because often like you have to look at where we get our how do you respond when you're faced with toxic Connor decks a long held belief I mean you should have your ego wrapped up
00:18:33in a calm and not necessarily you being right I think that's the key to right you want to update your knowledge update your database your mental sort of like repository of information with you fax and I think it was fourth principle we talked about is our principles at
00:18:50live tactics and you know the example we use on the website is football but another example is sort of the shaft and the wind cut right cell line cook is really good at maybe following our US aid but they don't necessarily know how the ingredients interact with one
00:19:07another to form a recipe and they don't necessarily know what that recipe is intended to do you so when something goes wrong they might not be able to sort of understand what's happening and so we will we will understand right we we want to understand not only the
00:19:26why which is tactics we want to understand how you know sometimes we can get the results we want three tactics but if if you want results in a changing environment you must also understand the walk right by understanding principles that shape the reality you understand the why and
00:19:44alternatively like another way to view this is tactics might get you you what you want but if you're not a principal person you might sort of like end up wanting to redo your life and if you think that sounds crazy there's this great example and this time years
00:20:02perfect right a Christmas Carol by Charles Dickens writes you had diabetes or Scrooge and he wanted to be the richest man in the city he wanted to be respected he wanted to be well there and I think that he did all of those things but he didn't know
00:20:19where there is a mutually exclusive from things that really mattered and I've seen this play out over and over again right I used to be the I used to work directly for the deputy minister and the intelligence agency and you see the sort of stuff happened where people
00:20:35get to their position of power through tactics and then maybe one OR read to you at the end of their career maybe those tactics are mutually exclusive from the relationships that they want after and this just sort of principle we talk about is owning your action right it's
00:20:52incredibly difficult to do you were not programmed to expose our egos are to make ourselves vulnerable we make mistakes or do something stupid but one of the most powerful ways that I've discovered in life to make giant leaps forward is not only accept that will screw up but
00:21:07truly seek out like how do we correct that is how do we how do we get better the next time we're going to do it's it's mostly through refusing to accept ownership of our mistakes that we protect our ego we protect our world view we protect that were
00:21:23were not complicit why this one wrong right those things prevent us from learning and we don't wanna we don't want to be prevented from learning I think it was Steven Covey you said that you know proactive people don't blame circumstances conditions or conditioning %HESITATION behavior we want to
00:21:41take ownership for our decisions and our lives and you know there is an element of luck there's a lot of elements of walk that happen in the world trait like what country you're born and what your socio economic status when you're born and where what your parents so
00:21:57that you don't control and you put it some point you grab the steering wheel and you're you might not be an ex con and you know maybe that's an unfair comparison but there's a version of you that's on a trajectory and what you should be focused on this
00:22:12like how when maximize my own personal trajectory give more I should be given more I could be and I think one of the ways that we do that is we try to go to bed smarter every day I want to go back to that principle three thought for
00:22:25this opinions held loosely because that's related to a Munger is on that really resonate with me he has this idea that you start few you you people have fewer opinions are like you shouldn't have an opinion until you can argue the other side's you part of the argument
00:22:41is as well as they can and then you can like %HESITATION in your opinion is that you're kind of what you're going for their yeah I mean we call it the work required to have an opinion right and so often when I used to see when I managed
00:22:53a lot of people in organizations was that people come and they would have this really strong opinion but they would never really thought about the other side of it and so that they would have a ton of their own ego often it and one of the ways that
00:23:06I used to reduce ego and it does not eliminate it but as I would I would assign people %HESITATION role in the meeting so you would argue for or against it right and then your ego comes and the like I'm really can argue against it even if I
00:23:18believe because outlook you know like I know what I'm doing and I'm confident I've thought about it I wouldn't tell people what role they would have before the meeting and that was just a way to encourage people to do the homework that they need to do before they
00:23:31can come up with any and it helps you think about a problem in a three dimensional what you should be able to sit down and say here the calming counter arguments about what I think and here's what I think about those counter arguments and you should be able
00:23:45to have that discussion with yourself and I think that intellectual playfulness the intellectual curiosity needed to do that is is difficult and you can't do that for every right sometimes you have to let other people you know thanks for you and you can't think about everything but you
00:24:01have to acknowledge that you know maybe that's not your pen maybe that's just an idea instead of what should be done in I imagine the internet makes having thought fourteens difficult because the internet rewards strong opinions right added that shock people or are very up front I think
00:24:20we're we're looking for sort of ups actions are humoristic Sir tactics and we're not looking for like how those are created and if you think about how we learn you know a lot of what we consume online is sort of other people's abstraction straight like our principles to
00:24:35be a great example of this %HESITATION obstructions that we've I've created over years that I think are volleyball and if you read those as you might understand them and you might be like oh this makes a lot of stunts and just like when you read a website that's
00:24:48like the four things you need to do to master office politics and that's tactics probably DMX what you're missing is sort of the reflection that went into there is obstruction and what you're missing from the reflection is the experience that led to that reflection and so you're missing
00:25:06a lot of fluency in a lot of details that we commonly don't get we we skim over as readers or you know consumers of information but it's through that that we make reflections and stray those details that we understand when something is likely to work and when it's
00:25:21not likely to work and I think that that is when we draw our own instructions and so before reading other people's abstractions were consuming information from other people were trying to consume an experience for other people what we really wanted you to improve our learning is ask them
00:25:37like how did they come up with that what variables did they consider relevant Adam is very bulls interact with each other and then we can actually start to learn about the situation because now they're going to give us the context that we need to try our own instructions
00:25:50or at the very least learn when there's obstructions are more likely to serve us someone they're more likely to hurt us so we've talked about principles like first principles here let's take a step down and talk about how we can look at the world before we actually make
00:26:06decisions and something you have written about extensively this idea of mental models so for those who are familiar what what our mental models and how can they help us see the world better so mental models described the way the world works right the ship how we think we
00:26:22understand how we form believes they're largely subconscious straight they operate the lower surface were not generally aware that we're using them at all but we are the reason that we look at a problem or that the reason that when we look at our problem we sort of like
00:26:39take these variables that are these are irrelevant there how we infer causality there how we match patterns and they're sort of like how we reason right in if you think about it a mental model is simply a representation of how something works we can't keep all the details
00:26:57of the world in our brains or concept so we use models to simplify something that's more complex into something that's organize a bowl understandable and gravity is a great example of the mental model right and one example of how that works and it's super simple but if you're
00:27:13holding a pen like I am right now and I tell you I'm gonna drop this and ask you what happens when you know what happens and if you hear clicking you see my hand open you can also retrospectively try to figure out what happened because you understand this
00:27:26concept of gravity if I told you to calculate the terminal velocity of something that was falling most of us wouldn't be able to do that we have this concept of gravity and it's useful we don't necessarily need to know all the details right we don't need to know
00:27:40that this pen is gonna fall at nine point eight meters squared per second would that that's not gonna help us at all but we understand that if we drop the pen what's gonna happen and so the idea was sort of mental models is how do we focus our
00:27:56time on learning mental roles that are less likely to change over time so that our knowledge becomes cumulative and how do we develop a framework for making decisions that incorporates these mental models right how do we think about %HESITATION and if you think of it thinking quality of
00:28:13your thinking is proportional to the models that you have in your head and their usefulness in the situation at hand right so the more models you have you can think of it as a tool box the bigger your Mansell tool box the more likely you are to have
00:28:27the right model to see reality in this given situation and when it comes to improving your ability to make decisions the a variety of models that you have matter straight most of us there if you think about it we're specialist we we go through high school Mister specializing
00:28:44in high school increasingly over and over right so you go into shock science or are you going to advance or not advance and you go to college or university and you get more special as you make it the first year which is a little more multi discipline but
00:28:58increasingly like you live and the sort of demeaning so by default a typical engineer will think in systems psychologist will think in terms of incentives and a biology might think in a biologist might think in terms of evolution but it's only by putting these disciplines together in our
00:29:16head that we can walk around a problem in a three dimensional way right for only looking at the problem one way we've got a blind spot blind spots are how we get into trouble and so if you if you think about it botanists sort of like looking at
00:29:29a forest they may focus on the ecosystem and environmentalists may see the impact of climate change where as a forestry engineer might see this state of tree grow the business person might see the value of the timber and how much it's going to cost to fix ups extract
00:29:44at none of those people are wrong but none of these views are able to describe the full scope of the four straight so mental models are but how do we develop those models that we need in our had to get a better view two of reality and I
00:29:59think that we don't get enough of that through college university or our own sort of learn and what we've tried to do is develop a system where we talk about unchanging mental models that help give you the big ideas of the world than Munger and said that I
00:30:15think that you know there there's hundreds of mental models but you know there's a very relatively few of %HESITATION carry the ball wait in terms of making better decisions and you can get esoteric ones just like you can have a chisel in your tool box that you might
00:30:29pull out on occasion but you'll use your hammer a lot more so there's tools that are more common than other tools that help us think and solve problems where it's a quick break for work for sponsors there's no longer any excuse for wearing an ill fitting suit because
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00:31:58plus there's a great decision making course because washy to game theory how to make better decisions lot of great stuff something do you do you do when you're on your commute to mow the yard on a work out you can exercise your brain while you're also exercising your
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00:32:22for unlimited access to learn about anything start your free trial now at the great courses plus dot com slash manliness again that's the great courses plus dot com slash manliness forty free unlimited trial and now back to the show the worst examples of this are long lasting ones
00:32:38that you use on a regular basis to make decisions well I think one more my favorites is sort of like the map is not the territory rate and the concept there is the map of reality is not reality the bass knobs are in perfect even mental models are
00:32:51in perfect and that's because they're reductions of what they represent and if I'm not for to represent the territory with perfect fidelity it would no longer be a reduction right they wouldn't be useful to us if it wasn't a reduction but a map can also be a snapshot
00:33:08of a point in time representing something that no longer exists in this is an important model because we run businesses off not use financial statements to evaluate their one of our investments is doing well the the financial statements are a mop that doesn't represent what's actually happening in
00:33:24the business you can look at Enron is a perfect example like the financial statements leading up to the bankruptcy where you know in missed they didn't represent that territory that was actually happening in and Ron if you think about the business that we're in you can think about
00:33:40email swell the size of your email list is I'm not but it doesn't represent that her for it doesn't tell you but the open right it doesn't tell you that the engagement it doesn't tell you whether people care about whether they received the email or how many emails
00:33:52you get if people miss just thinking about dashboards and how we run business we have to run businesses on terrorist acts but the more that we run businesses on juristic so last in touch we are with the territory right the last we see what's actually happening and we
00:34:09want to keep around it we want to keep an eye on what the territory really looks like because we want to know when the territory ships because a shift in the territories shift in the environment a shift in the conditions under which were operating in the way that
00:34:23we're operating might mean that our map for using the wrong hop or can it get destination and another one that I really like is sort of second order thinking right which is one we used at the intelligence agency all the time right almost everybody can anticipate the immediate
00:34:39results of their actions but that's kind of first order thinking and it's pretty easy and it's safe and it's a way to ensure that you how to get the same results as a split second order thinking is thinking further and thinking holistically it requires us to not only
00:34:56consider our actions and their immediate consequences but the subsequent a fax of those actions as well feeling to consider the second and third order faxed can unleash disaster if you think about running a business we're doing something in life you want to think about something where the first
00:35:11order consequences are negative but the second third fourth fifth sixth order consequences are positive and the reason that you want to look at those things specifically is because there's not gonna be a lot of people who do those things right if you think about delayed gratification is a
00:35:27great example of sort of like a first order negative second order highly likely positive third order highly likely positive saving for retirement another example right like you're suffering now to do something for later and those are things that you want to think about not only in the context
00:35:44of business like what am I willing to suffer now what can I do now that I know is going to be negative in the short term and discipline that's important right you want people to see how negative it is what if I think about the second third and
00:35:57fourth order consequences those are positive consequences and even better if they're not super visible positive consequence is and then you can start to do things from a competitive point of view that other people can do and they won't be able to copy in they won't understand what you're
00:36:13doing and I think those things are really just different ways of seeing the world right yeah and it was some there's lots more you're talking in there all the ones that will send people links there so they can go check them out where the image interesting things I've
00:36:26read the mugger talks about is that he's a voracious reader he's reading about economics he's reading about philosophy he's reading biology he's reading behavior psychology and what what I find interesting is that it's still a sometimes find ways denies he's res developing these mental models ill find ways
00:36:43to like apply a mental models say from the realm of biology you never think to apply to business but he does that right yeah definitely like I we learn this sort of Jim independence in school which is really interesting right to get percent over the physics problem in
00:36:59physics class and that you use this almost algorithm to solve this problem they're going to give you a problem that looks like a certain way and you're gonna take this formula that you use and you're going to apply it and we're not focused on sort of like a
00:37:13core understanding of the underlying concept so we're not focused on how those concepts might apply biology and physics sort of chemistry side of my %HESITATION ballistic thinking is a great example of just probability applied to think I know a lot of people don't even view sort of our
00:37:31thinking as probabilistic but inherently it it's probabilistic we're just trying to create better probabilities and I think that we do ourselves a disservice when we learn about these topics we learn about them in such a one dimensional way because the real world doesn't present you problems that look
00:37:46like your grade ten chemistry they're gonna present you problems where the information you learn in grade ten might be valuable for usual plot but you're not gonna see it because you're not thinking about it in that way and I think if we learn about all all of these
00:38:02basic concepts and we just take a look at like how they might apply in different situations nothing monger Saddam is been a champion on not %HESITATION Kaufman is another wanted Peter balance those three in particular have been really good I juror some core concepts in here how they
00:38:18apply it side of these domains in which they've been presented or how we can think about them and most of the time those examples are fairly esoteric or specific but they give you a sense for like how you can think about it evolution and how you can think
00:38:32about an example of evolution and applied to business would be you know things of all and we have these mutations in this mutation sort of get beneficial selection in a certain environment we think of in organizations that we don't want to try something that's failed again but that's
00:38:49a really simplistic example I mean when you go to somebody and you're like I have this idea and they're like oh that fails like we've tried and that is a really common thing I talk to my friends who work in organizations that happens all the time what you're
00:39:01missing though is the the environment in which it felt you're not talking about that you're not taking it did the reason it fail change will it succeed not not nature is blind in terms of gene mutations that just keeps trying the same experiments over and over again and
00:39:18it ends up with different results right a trait that is valuable today might have been one that is way less valuable hundreds of thousands of years and that's something that we can apply to business and you can think about it just it just requires a few extra seconds
00:39:34that you're not dismissing it out of hand and you're going %HESITATION that failed because of this but this reason is no longer there so maybe it will work on that allows us to experiment better not to an example of how we can apply evolution business so it sounds
00:39:49like the we developmental models is reading a lot and just putting these things in a practice in what what have you found this way to develop these mental models I think like a reading and just thinking about like could the supply is in is different scenario is a
00:40:02great example of that %HESITATION but I mean we we try to distill them for other people because we realize that not everybody has a ton of time to sort of like put this effort into reading biology textbooks or you know reading as much as we do and so
00:40:15we're we're just trying to like yours a model you're so you can apply it in different ways and we're gonna add to it later but we we give you sort of like the eighty percent we if you do the extra where the problem is we give you the
00:40:27whole model you won't actually learn anything you need to do a little bit of mental work you need to like how does that apply to me as this applied to a situation that I'm how can I use other other circumstances and it's those questions that create the reflection
00:40:41for you personally and that reflection leads you to sort of like your own instruction or where it's going to be useful markets can hinder you and I think that when the big problem with mental models I think the world would be a just a much better place if
00:40:55we all just the base level of education just include it like all the big ideas from most of the major disappointments not the new novel stuff like the stuff that doesn't change right like incentives in psychology and randomness and sort of like numeracy and evolution and power laws
00:41:12and systems thinking and feedback loops and cast an annex and you know those are the things that we want to think about this is the things that we want to learn and those are the things that you learn in a particular demand but you don't necessarily learn as
00:41:24a general education and then we also one overlay that with sort of what we call the general thinking concepts which are just tools that allow us to think through problems in a different way we already talked about a couple right the map is not the territory and sort
00:41:39of second order thinking just ways that we think about problems in a different way you can also add thought experiment right which is Einstein is famous for and the the the way that I landed on this was you know I did a lot of computer programming and so
00:41:53you end up with this concept called the sandbox and thought experiments are really like in Sam straight you run this experiment to Nick you're really wrecked the system but you're trying to think about what will happen in internet contain sort of unit and that was how Einstein came
00:42:07up with relative right now I think there's a lot to the thought experiments also help us point it second order thinking may help us thinking first principles that help us probabilistic we think and all these things are reinforce each other so the more of them you have the
00:42:21better you're able to see reality the better you're able to see reality if you're blind spots you gonna happen if you're blind spots you the better decisions you're going to make another guy who who did something similar to what Munger these other guys are doing was %HESITATION the
00:42:35Jon Voight the military strategist with his little loop yes service cymera cons idea of mental models but I love this idea that he had he wrote a killing wrote published one piece of a published work right us alive call creation and destruction near this idea that you can
00:42:52take what I guess what you'd call mental models and you can take parts of them from each other and then combine them together to cut start something you see destruct and you create something news that's with another fund like another level you can take these mental models not
00:43:05just use them discreetly by themselves but actually start mashing together to create something new yeah totally and you can also use other people's mental models against right if you're in a military or you work for an intelligence agency you want to think about the cultural influences that affect
00:43:22people's mental models you want to think about it there genetic heritage you want to think about their ability to analyze synthesize and how they're all look like lead to use the information and you want to think about like how they're combining models and like how they're taught in
00:43:36schools combined models and if you think about organizations and diversity you also want to think through at a different level of better the diverse it like he gives it a different meaning to diversity right diversity becomes like applying mental models in a different way diversity comes from different
00:43:50backgrounds different socioeconomic status different lives different but so often we're getting less and less diverse and organizations we hire similar sort of background similar people and then more and more we're training them in very similar ways and so they go for it you know they want to everybody
00:44:06wants to be promoted so they get into an organization that like what's my past to promotion used to be like him to like it's your first day buddy like calm down but now it it's kind of expected we we do this where we give people a potter promotion
00:44:21but what we're doing on that path is recruiting a checklist we're creating a checklist of people who are going to combine they're going to have a have the same mental models and be they're going to combine the same way so all of those people are more likely in
00:44:34the future look at a problem in the exact same way and I think boy it's concept of almost Kamatari play appointment models is really get so let's get into making decisions so first let's talk about why like really really smart people can sometimes make really really bad decision
00:44:53is is it just incorrect mental models or is it a combination of something else well I mean like people were talking earlier a little bit with him information overload and sort of like how we consume information it's really easy to tell when we're physically overload it like if
00:45:10we go to the gym together and I put too much weight on a bench press you just not gonna be on the left and you know that you're physically overloaded but it's really hard to tell when we're cognitively overlooked it more more cognitively overloaded we tend to take
00:45:24short cuts brain wants to optimize for supplies everybody right wants to optimize for the best solution that fits what we have immediately in our minds and the more busy we are the more hurried we are the last we're gonna have in our minds the last that decision has
00:45:40to satisfy which is also more likely to mean that sessions specially if it's not a common decision that we're making and so I think we get lettuce ran a couple waits right one is just were overloaded Grover words were over tired one of the reasons that all of
00:45:53that happens which is really weird and perverse is that we just make poor initial decisions and the consequence of poor initial decisions is that we have to spend more time correcting those decisions which increases our anxiety under stress and one of the ways that we can get out
00:46:08of this sort of like spiral it should counterintuitive leach slowdown right actually schedule thinking to me that would be one way that we do it improved decisions dramatically and most of the people I know who make really good decisions on a consistent basis to that and they're not
00:46:26people that you would think typically have time right there people like Patrick call us in Europe stress Toby who run Shopify those people make time to make decisions to make time to think about problems may think about problems in a different way and I think that's really important
00:46:40and then you also counter intuitively you want to do something that's first order negative second order positive we talked about that earlier which is like you want to intelligently prepare to make decisions what are the decisions that you're likely to be making in the next year to what
00:46:57information do you need now in advance of those decisions this can allow you to make better decisions and I think too often we go searching for information at the point when we were making a decision on what happens is we just end up in this weird state right
00:47:11and the weird state is that we're seeking out information when we need it for more likely to over value the information but that information is also commonly now right so it's gonna almost guaranteed a mediocre decision and that might be great mediocre decision might be really good if
00:47:28we don't know what we're doing we sort of like one of all the common wisdom because that's gonna lead to average perform and if we do you know what we're doing we want to know when to deviate because deviation of are not following others is gonna lead farm
00:47:42but too often we're sort of like don't know what we're doing and we do and that leads to like what I call a lottery ticket and it's like the hail Mary pass in football it might be successful and it might not if it is it's not repeatable and
00:47:55you have no idea why it worked Hey if it doesn't work well you just sort of absolve yourself and that you didn't know what you're doing so you can actually get that are the worst Qatar to sort of like if you were not that too but you metrics
00:48:10and I think that we we all suffer from these thanks to the keys are like slow down it seems counterintuitive you might have to work a little bit longer at first make better initial decisions that's going to free up a lot of your time at time time to
00:48:24invest in intelligently preparing to make better decisions it's going to very depending on the type of career you how the type is field at your end but you can start by understanding the big mental models that exist in the world right one of the hundred and one biggest
00:48:39ideas that I would have learned if I did a university education and just sort of like the basic ideas of each discipline and then think about how those things apply to your specific field your specific problems and then get more esoteric great like what information do I need
00:48:54to speak to make better decisions in my niche and then you wanna take time to incorporate that find it and not a lot of people are going to do that and slowly over time you'll be able to leverage those decisions into more and more responsibilities at first it's
00:49:07going to be small you might have in increments incremental advantage or somebody else making a decision but it might not even be or it's barely perceptible but over time as you make more mark insistently better decision you get more more responsibilities as you get more more responsibilities that
00:49:24leverage sixty K. and and not you can that little advantage turns into a bigger so it sounds like you know decision making a lot of the the work is in on the front end right it's not actually be done actually when you make the decisions just giving information
00:49:40used thinking using mental models look at the problem in a three way and then when you when it comes time to actually making the decision and it is it pretty easy at that point well I mean if you if that's a really interesting question because I think if
00:49:53you understand the problem it's really easy to know what to do and one of the indications that you don't understand the problem are you don't understand the trade offs are you don't understand what you're optimizing for you don't understand the situation the way you want to see you
00:50:07get stock and that sort of like process of information overload or seeking out information at the time of making a decision in the hopes that it's just gonna like satisfied that that's a good state to be and you just have to be aware of it right none of
00:50:22these states are good or bad by default it sometimes they serve you and sometimes they don't serve you in your call is a thoughtful sort of practitioner of decision making is to understand what is this likely to serve me and one is this likely to hurt you and
00:50:37you have to deviate and draft of a different process for the situation and in particular like you're picking cheapest it doesn't really matter the consequences of a bad decision are easily remedied right but if you're making a consequential irreversible decision you want to approach the problem differently what
00:50:55you don't want to be doing is like Google Lang other people's thinking you don't want to be googling sort of like information because you're over value when you over value it you're gonna take risks that you probably shouldn't take an anything on the first page of Google is
00:51:10probably like common now right so you're not even getting information an edge over other people have to think about all of those things when you're making a decision and it sounds like a lot but it comes a bit of a habit after a while whenever you make these
00:51:24decisions one of my favorite Munger isms is this idea of like you tried the goal in life is to try not to be consistently not stupid instead of trying to be very intelligence a lot of people they just they focus on making really really brilliant decisions but often
00:51:38times they do that at at the expense of is making really dumb decisions yes think about like most of the concepts that we learn to look at the world are on a risk basis so the tools that we have to evaluate situations are based on risk like it's
00:51:52like relax right you know how many slots there are you know the odds it's gonna land on any particular slot assuming around but life isn't really a rex gets more uncertainty and uncertainty by its very nature means we might not know all the possible outcomes and if we
00:52:09don't know all the possible %HESITATION comes there's no way we know the probability of each individual so we have this idea of what we see and what we think is likely to happen but we don't really know how accurate that is and so one of the ways to
00:52:22make that you more accurate is to take the inversion which is like one of the %HESITATION comes that I want to avoid what can I be doing now to avoid this and if I can avoid those okay well now I am more likely to get to the account
00:52:36one and I think working backwards is really really hard for people to do and if you think about in meetings like we have this quote awhile ago which is avoiding stupidity is easier than seeking Bryant's but eat out I I came up with that well I worked at
00:52:52the intelligence agency and it was a really op sort of quote because I was in meetings all the time where people are trying to like one up each other in their brilliance and insight fullness and sort of like complicated view of the situation often the best decision really
00:53:08just when you're dealing with an uncertain environment is like okay well what are what are the things that would be really bad how do we eliminate happening and if we can eliminate all the bad %HESITATION comes war only left with and you can think about the problem forwards
00:53:24sort of backwards and I think that that gives you a much more holistic view the situation which leads to a better understanding which leads to better initial decision you want examples Munger gives of like good accurate sticks or rules that will prevent you from doing stupid things if
00:53:40you just follow those like you have a pretty good life like the ten commandments from the Bible rating you're not killing anybody not having any in the not committing adultery not lying like that's your if you avoid those things the cost was that come with those things like
00:53:55your life is gonna be pretty good and then everything else just cherry on the top after that we get avoid leverage right like financial leverage of boy age you know alcohol and substance abuse and if you think about it in a decision making contacts there's other things you
00:54:10can do to sort of like prime the environment which is like get a good night's sleep take time to sync of both the problem don't be rushed I mean when you look at it sources of stupidity or where were likely to be stupid it's often when were rushed
00:54:23one we're switching contacts really quickly when we haven't got a lot of sleep we have something important to do and I think they just slowing down and being like one of the basics let's get the basics right and what do I. controlling what Donna control right to a
00:54:37large extent you control how much sleep you get to a large extent you control what your roster not even if you work for an organization I mean you control a lot of your time what more of your time than you think you do and the the higher up
00:54:48you get an organization one of the weird things I found this I controlled less less of my time and I thought that was really weird when you know I almost ended more marketable I not less and less because the decisions have more more consequences and you're expected to
00:55:04kind of context which you know eight to ten times over the course of the day and make you know large decisions that affect a lot of people and you're not really given a lot of time to think those are things that you want to start thinking about one
00:55:18of those variables that we can get right what things prevent us from you know or get in the way or encourage is probably a better way to look at that what what things encourage stupidity or encourage bad decisions and avoid the US yeah then you're better off than
00:55:33you know a lot of people just I do not right you don't have to be brilliant brilliant just don't be stupid so beyond taking a multi disciplinary approach to decisions have you come across the like tried and true tactics are checklist that you walk yourself through in making
00:55:49a decision I think mongers like Munger came up with this than most people I've never even heard of it but he came up with a very simple friend mark which I call the Munger to stop which is look at the situation do I understand if I don't understand
00:56:05that that's one pop the way for me in that past you want to go seek out somebody who does understand it ideally I do understand I know what variables modern I know how those variables interact and then the second sort of step to this decision making is how
00:56:20might I be fooling myself order the ways that I might be tricky myself and I think I'm right about that and I think that that is a very simple juristic and free market people can start with an H. one of the mistakes that I see people make is
00:56:34like I don't know what I'm doing but I recognize it so it's super important you recognize right there's again tying your ego to outcomes and not you personally being all right enables you to see the world much more clearly than other people and so when you're able to
00:56:48go to somebody else the mistake that most of us may to make a decision area that we're not an expert in is that we ask people what they would do we go to the auto dealers ox like what should we fix on our car of course they have
00:57:05their own incentives and we don't learn anything when they tell us or we go to somebody we say how should I picked a doctor to go to a doctor friend of ours and we asked them like what doctor would you pick we should ask them is like what
00:57:16variables would you consider relevant when you pick a doctor now actually learning now the next time I have to pick a doctor I have an idea of what this very well Sir which is better than just somebody telling me what to do but we're so busy or so
00:57:32it's sort of like starving for meaning in our lives that we just sometimes we coaxed right we ask people like who would you pick as a doctor and then we're not actually taking advantage of an opportunity to learn might take five extra minutes to learn something bear learn
00:57:45something that applies to the course of your life that's a great example of something that might be first order negative second order positive so imagine that second part of the monger to stop going there figure out how your how you before yourself like having a list of by
00:58:01sees that exist out there that we know of and just walking through it check by says like my is this bias plane affect your is this bias plane effect there and then you know answer those questions you kind of get a better idea if you're full yourself or
00:58:13not I have a like a bit of mixed feelings on that like I I think that the more intelligent you are the better the story you're gonna tell yourself why that bias does not apply in this particular situation I think biases are great at explaining why are mine
00:58:31struck us I think that we need to structure things more physically and our environment or is or with the process structured thinking to sort of account for by right whether we have reminders about what to do whether we sort of like how this informal process that we had
00:58:50just based on the type of decision making that we're doing and I think that we want to incorporate we also want to incorporate other people's views that are very diverse and different from us and I think that that's going to allow us to sort of like get out
00:59:05of this and we really I mean the ultimate ones just attach your ego accounts not you're eager to your opinion or your idea of being the one that's it docked at and that's going to enable you just just see clearer what's happening in the world and I think
00:59:18ultimately that's what we want we want to understand the situation is with instant whose side is to understand the problem is to know what to do and I imagine to be size detaching or you go from your decision like also detaching yourself from results might help sometimes you
00:59:33can make a good decision like the right decision but the results are bad because of factors that you had no control over yes sometimes I I think a lot of times do we eat you have to play a repeatable game right and that repeatable game is like how
00:59:47do I. calibrate like is my judgment of the fact that I made this right decision cracked and you have to be self aware enough to be like oh I consistently think I'm right but I'm getting bad okay well there's some thing wrong either with your view of the
01:00:00world with how the decisions being implemented there's something that you know there's a flag that you need to look at doesn't mean that you're wrong it doesn't mean that you made a bad decision but it does mean that there's something to Austin it's really easy just to convince
01:00:14ourselves that we we did the best we could we made the best decision or you know given the information we have that was that was all over to side but I used to ask people at the intelligence agency like what information you're not what information did you use
01:00:29to make that decision show me people would just come up with stuff and they would come up with the post hoc and then that's how we started decision channels right which is like now you're gonna record this at that time you make the decision we're gonna see like
01:00:41this is how I can judge your judgment this is how I can be comfortable trusting you to make decisions I need to see the way that you think I need to see the variables that you consider relevant together we're gonna own your church and if you're consistently missing
01:00:55something it's my job as your posture appeared as sort of like point that out so that we can come to better decisions together and if we have to structurally process that maybe your decision journal includes a flag for Hey are you %HESITATION are you considering a large enough
01:01:09sample size because you have a bias towards small sample sizes and just that alone like you have to fill that in its on a checklist is something you have to fill out you have to explain and you have to do it in your own handwriting and we were
01:01:21able to a clear raised I think the quality of the decisions we made and %HESITATION and is there some place will go to learn about this decision journals like how to do that yeah if you just Google decision journal or just go to FSL blog slash DJ for
01:01:37decision journal deal we have a template online that we use we'll be updating not soon we're working with the special forces to come up with a different a slightly different version of it right now that's awesome well Shane this is been a great conversation and there's like so
01:01:51much more we could talk about we could probably devote like entire episodes of the individual mental models so people good at this blog dot com effigies SS blog to find out more about what you do yen our afternoon street on Twitter impassable shin perish thanks much time it's
01:02:05been an absolute pleasure thanks man really appreciated the conversation well that wraps up another edition of the A. with podcast head of the art of manliness dot com we find thousands of thorough well research articles on personal finances style life social skills you name it it's there if
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