Latticework Investor

Value Investing

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Mental Models

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The title of this blog is based on a quote from Charlie Munger about getting worldly wisdom from having a number of mental models

In multiple speeches, and in the book Poor Charlie’s Almanack, Munger has introduced the concept of “Elementary, Worldly Wisdom” as it relates to business and finance. Munger’s worldly wisdom consists of a set of mental models framed as a latticework to help solve critical business problems. According to Munger, only 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person.

Conveniently Farnam Street posts daily about mental models, and provides a pretty complete list below.

Each of the links should take you to the appropriate Farnam Street post.

Psychology (misjudgments)

  1. Bias from Availability — including ease of recall, vividness, exposure, memory structure limitations, Von Restorff Effect, and love of a story. (introduction | all posts)
  2. Bias from the most recent evidence
  3. Bias from denial
  4. Bias from insensitivity to base rates
  5. Bias from insensitivity to sample size
  6. Bias from misconceptions of change
  7. Bias from insensitivity to regression
  8. Bias from conjunction fallacy
  9. Confirmation bias (all posts)
  10. Bias from anchoring (all posts)
  11. Conjunctive and disjunctive-events bias (all posts)
  12. Bias from over-confidence (all posts)
  13. Hindsight Bias (introduction | all posts )
  14. Bias from incentives and reinforcement (all posts)
  15. Bias from self-interest — self deception and denial to reduce pain or increase pleasure; regret avoidance. (all posts)
  16. Bias from association (all posts)
  17. Bias from liking/loving
  18. Bias from disliking/hating
  19. Commitment and Consistency Bias (introduction | all posts)
  20. Bias from excessive fairness (all posts)
  21. Bias from envy and jealousy
  22. Reciprocation tendency (introduction | all posts)
  23. over-influence from authority; halo effect? or is that liking?
  24. Tendency to super-react to deprival; strong reacting when something we have or almost have is (or threatens to be) taken away. loss aversion?
  25. Bias from contrast (all posts)
  26. Bias from stress-influence (introduction | all posts)
  27. Bias from emotional arousal (introduction | all posts)
  28. Bias from physical or psychological pain
  29. Bias from mis-reading people; character
  30. Attribution Error; underestimating situation factors (including roles) when explaining reasons; one to one versus one to many relationships
  31. Bias fro the status quo (introduction | all posts)
  32. Do something tendency (introduction | all posts)
  33. Do nothing tendency (introduction | all posts)
  34. Over-influence from precision/models
  35. Simplicity Bias
  36. Uncertainty avoidance
  37. Ideological bias (all posts)
  38. Not invented here bias — thinking that our own ideas are the best ones
  39. Bias from over-weighting the short-term
  40. Tendency to avoid extremes
  41. Tendency to solve problems using only the field we know best / favored ideas. Man with a hammer.
  42. Bias from social proof (all posts)
  43. Over-influence from framing effects (all posts)
  44. Lollapalozza.

Other Mental Models:

  1. Asymmetric Information
  2. Occam’s Razor
  3. Deduction and Induction
  4. Basic Decision Making Process (introduction | all posts)
  5. Scientific Method
  6. Process versus Outcome
  7. and then what?
  8. The Agency Problem
  9. 7 Deadly Sins
  10. Network Effect

Business

  1. Ability to raise prices
  2. Scale
  3. Distribution
  4. Cost
  5. Brand
  6. Improving returns
  7. Porters 5 forces
  8. Decision trees
  9. Diminishing Returns

Investing

  1. Mr. Market
  2. Margin of Safety
  3. Circle of competence

Ecology

  1. Complex adaptive systems
  2. Systems Thinking

Economics

  1. Utility
  2. Diminishing Utility
  3. Supply and Demand (introduction | all posts)
  4. Scarcity
  5. Opportunity Cost
  6. Marginal Cost
  7. Comparative Advantage (introduction | all posts )
  8. Trade-offs
  9. Price Discrimination
  10. Positive and Negative Externalities
  11. Sunk Costs
  12. Moral Hazard
  13. Game Theory (all posts)
  14. Prisoners’ Dilemma (all posts)
  15. Tragedy of the Commons (all posts)
  16. Bottlenecks
  17. The invisible hand

Engineering

  1. Feedback loops (Introduction | posts)
  2. Redundancy (Introduction | posts)

Mathematics

  1. Bayes Theorem
  2. Power Law
  3. Law of large numbers
  4. Compounding
  5. Permutations
  6. Combinations
  7. Statistics
  8. Mean, Medium, Mode
  9. Distribution
  10. Varability
  11. Trend
  12. Inversion

Statistics

  1. Outliers and self fulfilling prophecy
  2. Correlation versus Causation
Chemistry

  1. Thermodynamics
  2. Kinetics
  3. Autocatalytic reactions

Physics

  1. Newton’s Laws
  2. Momentum
  3. Quantum Mechanics
  4. Critical Mass (introduction | posts)

Biology?

  1. Evolution (all posts)

Written by latticework01

November 24, 2009 at 5:13 pm

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