Making Sense — Shane Parris

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On: Mental Models

Episode: 155

Date: April 2019

Key Subjects:

  • Author of “Mental Models”, founder of Farnam Street blog.
  • How to be better at making decisions – difficulty of bias approach:
    • Retrospectively: cognitive biases are helpful explaining past mistakes.
    • Prospectively: biases are not great at helping you avoid future pitfalls.
      • The smarter you are, the better story you’re going to tell yourself about why a bias doesn’t apply.
      • Creates overconfidence about outcomes, worse decisions.
    • How to be better at making decisions – match applicable skills with constant environment:
      • Skills: ability to see things a certain way, chunk things a certain way to help solve specific problems.
      • Stable environment; helps if environment hasn’t changed much from the time you learned these skills and expertise.
      • Allows for knowledge to accumulate and compound over time and intuitions to be correct.
      • Example: Buffett/Munger.
    • On compounding:
      • Applies not only to finance, but also to learning, relationships, reputation.
      • Requires long runway, incremental progress and consistency.
      • Optimizing for the long-term, rather than short term optimization.
      • Results in a willingness to sacrifice: first order negative for a second order positive return.
      • Relationships:
        • 4 types: win/win, lose/win, win/lose or lose/lose.
        • Win/lose, lose/win, lose/lose: don’t compound due to tit-for-that behavior.
        • Only win/win compounds: develop trust, speed and simplification.
        • Don’t deal with assholes.
      • The big themes: understand (meaning) and upgrade (self, relationships, decision making).
  • Other mental models discussed in the book.

Key Takeaways:

  • Biases are not great at helping you avoid future pitfalls.
    • The smarter you are, the better story you’re going to tell yourself about why a bias doesn’t apply.
    • Creates overconfidence about outcomes and worse decisions.
  • Willingness to sacrifice: accept a first order negative for a second order positive return.
  • Don’t deal with assholes: only win/win relationships compound and optimize for the long term: consistency, trust, knowledge accumulation, and simplification.
  • Understand (awareness, meaning) and upgrade (self, relationships, decision making).

Worth Listening:

8/10

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