#59. Mental Models For Decision Making
A Toolbox for Smarter Choices
Welcome to the blog post #59! Click here to read more from previous posts.
Mental models are thinking frameworks used by many successful people. For those who are not familiar with this topic, mental models are simplified and organized ways of thinking to help you understand and navigate the world. They shape how we interpret information, make decisions, and solve problems. By incorporating these powerful tools into your thinking process, you can make choices with clarity, confidence, and effectiveness. You can read the previous article about mental models here.
In this week's article, we continue to discuss five more mental models that can significantly enhance your decision-making capabilities.
1. The Second-Order Thinking Model
Second-order thinking is the model that was popularized by investor Howard Marks in his book “The Most Important Thing”. While the first-order thinking involves in solving immediate problems with conventional or mass thinking, the second-order thinking requires a deeper level of analysis. It considers not just the immediate consequences of your decisions, but also the potential unintended consequences further down the line.
Take an example when you consider a new neighborhood to live in.
First-order thinking might focus on house prices and amenities. But second-order thinking considers future developments like infrastructure projects or changes in the community that could impact your quality of life in the future (e.g., traffic, schools, hospitals, kindergartens, shopping malls, ect.). When you take into account those future scenarios and needs, it makes your decision today more well-rounded.
Another example is deciding on a Master's degree program.
The initial benefits might be increased earning potential and career advancement. While first-order thinking makes you focus on the immediate costs and time required for the program, second-order thinking encourages you to consider:
if the program aligns with your long-term career goals
any alternative ways to gain the desired skills
impacts on your personal life and future relocation needs
By considering these ripple effects, you can make informed decisions that are aligned with your long-term goals.
2. Recency Bias
Our brains have a tendency to prioritize the most recent information we encounter, leading to recency bias. This cognitive bias can significantly impact our decision-making by making us believe recent events are more important or indicative of the future than past experiences or established data.
Recency bias can manifest in many ways. A negative online review might lead you to disregard a product's history of excellence. In the workplace, performance reviews can be skewed by focusing on recent incidents rather than an employee's entire year of contributions.
The stock market is another prime example. What causes the stock price fluctuations? Isn’t it due to the imbalance between supply and demand? But what causes this imbalance? In the long term, it is based on business fundamentals, but in the short term, it is driven by investor sentiment. A stock price might dip after a positive earnings report if it falls short of excessively high investor expectations. If you base your investment decisions solely on recent market movements, you may miss out on golden opportunities in your lifetime. Who knows?
3. The 10/10/10 Rule
The 10/10/10 Rule is a decision-making framework popularized by author and entrepreneur Suzy Welch. It is a straightforward but powerful framework designed to provide clarity and perspective when faced with difficult choices.
It encourages you to consider the potential consequences of your choices across different time horizons.
Ask yourself how you'll feel about a decision in 10 minutes, 10 months, and 10 years. It provides you with perspectives on short-term desires versus long-term goals.
Think about when you receive a new job offer.
In 10 minutes: You'll be thrilled with a new opportunity and a better salary.
In 10 months: The beginning excitement fades and is replaced by workload stress in a new environment, a new industry, and new skill set requirements.
In 10 years: You consider if this career move positively contributes to your long-term career aspiration or makes you astray your trajectory? Would you regret it if you didn’t take this opportunity?
Then it will be much easier for you to make a sound decision, as now you have enough information to paint a full picture across the timeframes. You can be confident that your future self will not regret your decisions in the present.
Talking about the regret minimization framework, you can check out my previous article discussing the process Jeff Bezos used in his pivotal decision to found Amazon in 1994.
4. Opportunity Cost
Opportunity cost is a fundamental concept in economics that refers to the potential benefit you give up when you choose one option over another. It's essentially the hidden cost associated with any decision because you can't be in two places at once or pursue two options simultaneously.
It’s not only about the money you spend but also the foregone benefit of the alternative choice. It's a relative concept, meaning the opportunity cost depends on the options you're considering.
By considering what you give up by choosing one option over another, it helps you prioritize effectively, or, in other words, make effective trade-offs.
Take an example when you are offered to lead a new project. You need to weigh the potential benefits it brings (increased skills, visibility) against the time and resources it demands. Are you willing to give up other important projects to pursue the new one?
Similarly, when investing, you'll likely choose options with a higher potential return for a similar level of risk. By understanding the opportunity cost, you can maximize your returns.
Remember, opportunity costs extend beyond money. It can also be in terms of time, effort, and your experiences. For example, an opportunity cost for many late-working evenings at the office is missing out on quality time with family.
The most obvious thing is that every decision comes with an opportunity cost. By recognizing the trade-offs involved, you can make choices that align with your goals and priorities. If you would like to read more on the art of trade-offs in decision-making, you can check out the previous article here.
5. The Five Whys Model
Albert Einstein had a saying:
"If I had an hour to solve a problem, I'd spend 55 minutes thinking about the problem and 5 minutes thinking about solutions."
His quote goes right to the point about the importance of defining the right problem. To support the problem-solving process, the 5 Whys technique is used to identify the root cause of a problem by repeatedly asking "why" until the underlying cause is uncovered.
This method helps teams delve beyond surface-level symptoms to understand the deeper issues contributing to a problem. Originally developed by Sakichi Toyoda, founder of Toyota Industries, the 5 Whys method has since been widely adopted in various industries for troubleshooting and continuous improvement.
For example, let's use the 5 Whys Model to address a common family concern: picky eating in children.
Problem: Your children refuse to eat vegetables.
Why do your children refuse to eat vegetables?
Because they say the vegetables taste bad.
Why do they feel so?
Because they like to eat things that are sweet or salty.
Why do they like them?
Because they're used to the taste of snacks which are high in sugar and sodium.
Why are they used to the snacks’ tastes?
Because these snacks are readily available and convenient at home.
Why are these snack readily available?
Because we haven't offered them more various healthy snack options at home.
Now you can find the root cause: The reliance on a few readily available processed snacks and a lack of exposure to different options of healthy snack types might be contributing to your children's picky eating.
With this root cause, you can think about potential solutions, such as: limiting processed snacks, offering new kinds of healthy snacks, and making it fun to eat to engage your children in preparing and trying new healthy foods.
It’s important to note that the 5 Whys Model is a starting point for a deeper exploration. Don’t always expect a linear path of five “Whys”. The answer may not be evident after exactly five questions. So be flexible to adapt the process to each situation. Don't get hung up on finding the single "correct" answer. The process itself can reveal valuable insights.
Developing a toolbox of mental models empowers you to approach decision-making with greater clarity and intention. So, the next time you're faced with a difficult choice, take a step back and consider how these mental models can guide you towards a well-considered and successful outcome.
That’s all for today. Till next week!
Cheers,
Do Thi Dieu Thuong