Checklists

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Of all of the mental models on the list, this one might be the most familiar and one that you’ve used the most often. How often have you used checklists in your life? More importantly, how often have you ignored using a checklist (like running to the grocery store “for a few things”) and ended up wishing you had?

There are a huge variety of checklists you could create, but they often filter into three main buckets.

One-time checklists

This is likely the most common. We have a list of things to do or to purchase, so we write it down and cross them off as we go.

Reusable checklists

I use a few of these. I have some personal ones for various things (such as a default “travel” checklist), and we employ quite a few template-based checklists for projects that we’re working on.

Professional checklists

If you’re getting on an airplane or having surgery, you should really hope that the people in charge are using their checklists properly. In his fantastic book “The Checklist Manifesto“, author Atul Gawande explains how checklists have quite literally changed the world.

When it comes to checklists, Charlie Munger is certainly a fan:

I’m a great believer in solving hard problems by using a checklist. You need to get all the likely and unlikely answers before you; otherwise it’s easy to miss something important.

You can use fancy software or just a pen and paper, but writing out a checklist is a great way to stay on task and get things done without missing any steps along the way.

Base Rates

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The next mental model on my list is base rates. Simply put, when trying to determine the probability of an event happening, you should start at a level where you pretend no other information is available. Further, even if more information is available, you’re still best off to establish the base rate first, and then factor in the other pieces.

The summary on WallStreetMojo is a good place to start:

Base rate fallacy occurs when people ignore general information and base their judgment solely on specific data related to the target case. This happens because people consider base rate data to be less relevant as compared to situational information. As a result, neglecting the base rate leads to inaccurate conclusions.

For example, you may think your child is brilliant and has a great chance at being accepted into the college of their choice. However, suppose the acceptance rate at that college is only 4%. Your child might be smarter than average, but start with the 4% chance and work from there to figure out a realistic probability. In this case you can combine the base rate (4%) with other information that you know (my child has excellent grades and test scores) to help determine their odds of being selected. Even if you decide they have a 4x better chance than normal, that’s still just a 16% chance that they’ll get in.

Or consider flipping a coin. If it lands on heads five times in a row, what are the odds that it lands on heads again? In this case, the base rate of landing on heads is 50%, and the new information that you have doesn’t affect it, so the odds remain at 50%.

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You see this a lot in sports, too. Over his career, Michael Jordan had a shooting percentage of 49.7%. However, when the game was on the line he really stepped up, right? According to Bleacher Report, Jordan was 9-of-18 (50%) on “playoff game-winning shot attempts”, virtually identical to the rest of his playing. Starting with his base rate was a wise thing to do, even if it felt like he was super clutch when the game was on the line.

Bent Flyvbjerg summarizes it this way: “People often think the information they have is more relevant than it actually is.“

If you have more information to help predict the outcome of an event, you shouldn’t ignore it, but you’d be wise to start with the base rate and go from there.

Advantages of Scale

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First on our list of mental models is the concept of advantages of scale. In short, it’s the idea that as a company grows and does more of the same type of work, it can do that work more efficiently and lower their costs quite a lot.

A great example of this is Amazon. Because of their amazing infrastructure, they can sell and deliver items for far less than almost any other company, and still turn a profit while doing it. This is a great thing for them, of course, but makes it difficult for other companies to grow and compete with them.

Investopedia explains it this way:

Most consumers don’t understand why a smaller business charges more for a similar product sold by a larger company. That’s because the cost per unit depends on how much the company produces. Larger companies can produce more by spreading the cost of production over a larger amount of goods. An industry may also be able to dictate the cost of a product if several different companies are producing similar goods within that industry.

Focusing on a tight niche is more likely to help create an economy of scale for your business, but the tight niche can be dangerous if things change. If you had build a huge and efficient CD-ROM manufacturing business, you’d be in big trouble today.

In our agency, one area that we’ve developed some degree of advantage of scale is with website management. With any website, you need to have systems in place to manage software updates, plugin updates, backups, malware scanning, uptime monitoring, etc. It’s a lot to do for one site, but once you grow to managing many sites, those systems become less and less expensive per site, so we can offer a always improving product at a great price.

Do you have an area in your life or business that has benefitted from scale?

The 21 Mental Models

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Mental models can be a great way to help understand the world. Rather than just memorizing facts, which also can be important, mental models provide a way to tie ideas together so you can quickly make sense of new situations.

Charlie Munger is perhaps the most well-known person that thrives on mental models, and he summarizes them this way:

“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.”

21?

If you’re familiar with the concept of mental models, you probably noticed the “21” in the title of this post and wondered what that was about. If you do some digging into mental models, you’ll find that there is no specific “list” of them, and there are likely hundreds of them out there; I simply chose to pick 21 that I felt mattered most to start with.

As with much of this blog, I’m writing to learn. I certainly hope that you find these posts valuable, but I’m doing this exercise to force me to dig into these models and learn them a bit better.

They’ll be shared in alphabetical order, as it’d be nearly impossible to sort them by importance or anything. Here is the list, which I’ll update with links to each post as they come out over the coming weeks.

If you’ve dug into mental models before, is there one that you find to be particularly useful?