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Useful Mental Models (2016) (defmacro.org)
586 points by Mougatine 11 months ago | hide | past | web | favorite | 73 comments

It would be good to include some mental models for attitude towards money. Things I have noticed about myself:

No problem paying for something that absolutely needs to be done. E.g. repair a leak in the roof. Replace something.

Don't notice money spent on regular monthly payments. E.g. mortgage.

Don't notice $1000 spent as 50*$20 but more frightening to spend $1000 at once.

Fear of loss when investing is big. It feels like such a leap of faith to invest in anything.

However spending the same money as the investment on a holiday is OK for some reason.

Easier emotionally to not earn $1000 than to earn it and spend it, even though the financial outcome is the same. Has nothing to do with working hard etc.

It's hard to hodl!

Earn $1000 = $500 after taxes. :)

Ah, the endowment effect. I don't understand why people worry about taxes so much.

I mean, the way I see (you can add it to the list of mental models), there is a flow of money going through you. Some of the flows you can influence more, some of them less. There is no such thing as "your money". It's really arbitrary where we draw the line.

For example, most people consider money they earned (before taxes) as theirs, while money spent on mortgage/rent as someone's else. In reality, they often have about the same practical ability to influence the amount in both flows.

Depending on where you live, that extra 5 hundred means that the streets are safe, you have clean drinking water on tap and if you get hit by a car crossing the stree you'll probably make it. And defence and welfare and such and such. suck it up. Taxes have a point.

> suck it up. Taxes have a point.

Your comment feels completely out of line.

This comment thread is talking about mental models about money. The GP comment isn't complaining about taxes. Most likely, the observation about taxes is to say that earning an additional $1000 income does not translate into the same amount that could be spent. Or something similar, related to the mental model topic they're talking about.

Sorry if my post comes off terse but truthfully there is a narrative in these (hackernews) boards that thinks taxes == bad. I react strongly to this because I live in Australia and we have taxes and they provide a lot of good.

Sure, I pay a bit more in Medicare levy or income tax but I don't ever look at it. I know when I get sick I just go to the doctor and its' sorted, For $70 at that time with a rebate of $35 and then if I'm getting a script filled it's usually under $15 dollars. And if i have no cash i can take a bus a little further out and bulk bill.

The same people who think that taxes are bad in this place are usually (I know I'm generalizing) the same people that bemoan company taxes. Yet if you look at places like Australia and elsewhere it's those same companies that pay no tax in our jurisdictions at all. I appreciate that our laws make this so. But there is the letter of the law and the spirit of the law. And those companies/people make a choice.

Interesting side note: The people who run those companies are usually talking about UBI. Who the f--k is going to pay for that if those companies don't pay tax.

But hey, what do I know I just pay tax and never really worry about it. If I have money I do stuff. If I have less money, I do less stuff.

It's important that peoples mental models of tax do not regress to thinking it's just a cash grab. If you think government wastes money there are plenty of opportunities to get involved to change that or your way of thinking. But reducing the concept of taxes like this a real danger to any form of productive social contract.

He should probably have elaborated on that then imo. It seems like a low effort post if that was what he was trying to convey. However the comment you're replying to is also a useful mental model. Even though tax is "money spent", it is coming back to you through having a safer environment. Therefore it shouldn't be considered "wasted money" at the very least.

Although the last sentence of the comment doesn't add much to his point.

>He should probably have elaborated on that then imo.

Maybe you shouldn't jump to conclusions and react aggressively to innocuous things?

I use the multiplier the other way around. When I am about to spend $100, I remember it’s about $150-160 in earned money.

Depends on the country. In US, it seems that everybody does their taxes and all salaries and income are discussed as "before tax"; in Russia, for example, all taxes and payments for employees are done on employer's side and all salaries and income are usually discussed as "after tax" - people don't even usually know how much are they earning "before tax".

Same here in the UK. You can look at how much tax you've paid on your payslip, but you never feel like that money was yours in the first place since it never hits your bank.

I had to complete a tax return for the first time last year, although it's completely illogical (and I'd budgeted the number so knew what it would be well in advance), it felt more painful paying the ~£_,000 of extra tax I owed than paying the ~£_0,000 of tax that had been automagically deducted from my pay packet.

>>...but you never feel like that money was yours in the first place since it never hits your bank.

A politician (republican-ish, Scandinavia) once told me, that the whole tax-system would fall apart if people were paid their salaries in full and had to pay their taxes in cash.

It is of course absurd and impractical in our day and age, but I think most people are blind to the amount of tax they pay.

Well, salaries paid in full would certainly give more power to the taxpayer who would in turn demand more accountabilty from the politican. Perhaps the politician in your story is a bit biased and is spreading FUD.

> You can look at how much tax you've paid on your payslip, but you never feel like that money was yours in the first place since it never hits your bank.

It is the same in the US - however, if you get a job offer in the US for a given salary - that is a pre-tax number. I believe the grandparent was making the point that in Russia, salary and wages are discussed purely in after-tax terms.

I hate how governments do that. It's as if they're interested in not letting people know how much things cost to run, and making them feel that they're getting a lot for their (seemingly) low taxes.

How can you handle more complex scenarios without knowing your before tax salaries?

For example, working two jobs.

Simple and predictable tax code that almost never depends on any particular person: flat 13% tax. (It's much worse and complicated for companies though).

don't work two jobs, be happier

More like 800, I don't know why people like to exaggerate how much goes to taxes. Median marginal federal tax rate is 15%, which means on average it's less than that.

I would be very surprised if the median HN user had a marginal tax rate of 15%. At last year's rates, I would expect something like 36%. Of this, 28% is federal, 1.45% is payroll, and 9.3% is state. These add up to more than 36% because of deductions.

Depends on country. Here, for a salary you typically pay 45% tax and the employer pays an additional 2.25% - so that's pretty close to the parent comment. (however, for e.g. stock gains you only need to pay 10%)

Hello from Scandinavia!

(Ok, I don't live there any more but... )

I meant post tax earnings, of course.

Not spend $500=$500 after taxes.

A weird one about myself: Renting a boat at $500/day feels wasteful, but buying a boat for $40,000 doesn't. But I'd have to use that boat for 80 days to get my money back (not counting upkeep, storage, and so on). I probably wouldn't use it that much, not even in two decades.

As the old saying goes, If it floats, flies or (something else, I forget!) it's better to rent it than to buy.

Kent Beck has a similarly-themed list of mental models:


I love the idea of cataloging your interests at this high-level of abstraction, and wish it were more common.

In case there is any interest, I write a bi-weekly newsletter on mental models, covering not just the concept but how you can apply them to your life: https://alexpetralia.github.io/newsletters

The founder of DuckDuckGo published a similar list of mental models a little before this one. His list is longer, but there is some overlap between it and this one:


A personal favorite on the subject of mental models: A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business Charles Munger, USC Business School, 1994


As far as I can tell, Munger is the one who really popularized the notion of mental models, so this is a must-read.

For anyone not in the know, Munger is Warren Buffett's business partner. The basic idea is to collect an interdisciplinary checklist of different paradigms for viewing the world, and then run through that checklist and apply each mode of thinking to whatever tough problem you're working through.

HN readers probably already know all of this, but I just love this approach to thinking and wanted to share the wealth :)

Great list! Two criticisms:

1. One mental model that I applied when reading this post on mental models (so meta!) is "audience". As I was reading I thought to myself, "Who is this guy? Why should I trust his mental models? Is he living a life that I want to duplicate?" I mean it with respect and with no malice towards him, he's probably awesome. It's also possible to pick up useful mental models from people that you may not necessarily want to emulate. All I'm pointing out is that it's been really useful for me to consider the motivations and track record of the person giving me advice, before I take that advice to heart.

2. It's a long list! I wonder if it'd be more fruitful to have a shorter list, but to apply each mental model rigorously, every time. Charlie Munger (the guy who popularized mental models, as far as I can tell) himself is a huge advocate of checklists. I remember him saying something along the lines of "you have to be disciplined about your mental models. You have to apply every one, every time. You can't pick and choose."

Efficient market hypothesis

That's a kind of ideological way to phrase the situation. It's easier to just describe the "stable market hypothesis"; however things are organized is the way that market structures have stably gone and thus can't easily be changed (whether market are efficient or not). This includes all the points in the parent plus the point that you may have improved on app/gimzo X significantly over the weekend but the market probably still won't jump to your solution easily because of mind-share/network-effect/existing-investment/market-leader's-connection-to-customers/etc.

The efficient-market hypothesis is an idea that already has a well-known name. In the article the words are a Wikipedia link.

Indeed, I'm pretty familiar with it. It is well known, not universally accepted and a variety of ideology implications go along with it.

Most of these are really good, especially productivity and time estimation.

Some I do not agree with (although perhaps the model presented is useful depending on desired outcome).

-Efficient market hypothesis: Markets are not fully efficient and the state of the world is not optimal. Thus opportunities exist. It's our job as engineers (and business people/humanitarians/writers/philosophers etc.) to recognize and correct these inefficiencies. Look for them. Its not easy and thus is called work. Do it anyway.

-Base Rates: People are over-optimistic. They are also bad at finding similar things to compare.

-Emic vs Etic: Dangerous form of mental laziness. While it might be "efficient" it leads to underestimating people and phenomenon, missing out on valuable information and, as the old saying goes, judging books by their covers. Sometimes valuable lessons and opportunities can be found in strange places. And often it isn't even what is said or even "anti-lessons". Better to remain somewhat open and listen without preconception and with consideration as much as possible.

-Bias for Action: Unsure about this one. Looking back I'm not sure if I regret more actions I didn't take or actions I took that were mistakes. I think probably the second has had more negative impact. But I've been a fairly active person, maybe for a less active person it would different. In my case though very often doing nothing would have been the better choice.

-Charitable interpretations: These do make relationships go better. Especially for people who take advantage of others. I'd recommend outward charitable interpretation, inward cynicism. It's usually more accurate for prediction. But cynicism does make a person unpleasant and negative so best not to display it.

-Global Utility: A dangerous precedent. But sometimes yes, indeed needed. Be extremely careful of deals with the devil though and prefer principal, honer and fairness as much as possible. The long term gains are usually greater. The long term effects of short term utility can sometimes be fatal.

-Reasonable Person Principal: Meh "reasonable" can be whatever a group decides. It's not always good. However, no need to keep someone around who doesn't fit the agenda. Hopefully you don't see them in the 30 under 30 list in a few years though.

Otherwise it's a pretty good list.

This was a really good viewpoint as it made me realize that the listed things are not only useful mental models but deeply connected to values. These models are used to guide your thinking which will affect your behavior. Therefore it's very important to be careful with what rules-of-thumb you decide to follow.

Of course, it's also important to reflect on your thinking and be able to spot the exception that proves the rule. But it's unrealistic to be constantly vigilant about your own analysis of things. You need abstractions (eg. mental models) to be efficient, but leaky abstractions will ruin you.

Re -Charitable interpretations

I use a modified model of this called the 'Forgiving Copycat' model. Basically, I assume there is some chance people accidentally do rude/inconsiderate things. At the same time, someone who consistently does rude or inconsiderate things is probably rude or inconsiderate.

To that end, I ignore rude behavior the first time, address it the second time, and return it the third.

> Emic vs Etic: Dangerous form of mental laziness.

Agreed. This model seems akin to prejudice.

I think this is great! I love to explore how I think by asking myself questions on how I do things, be it decision making or planning.

I created this site which I use to help me figure things out.

https://www.deepthoughtapp.com/en/topics/decisions/ https://www.deepthoughtapp.com/en/topics/planning/

Great list. Incidentally I started an Instagram and Twitter account this week, to stick to my resolution for continued learning, where I plan to post one mental model per day. Please check it out if you're interested, and I'd appreciate your feedback.

https://www.instagram.com/mental.models/ https://twitter.com/learnmodels/

Nice. This is a good addition to "List of cognitive biases", a Wikipedia article I've liked to read from time to time ever since I discovered it, years ago.


As a Stoic, it's good food for thought to improve your "perception" of life and the world.

I personally find a lot of the material about cognitive biases hard to swallow -- I was forcing myself really hard when I read Kahneman's book. There were some good points but while reading it something just seemed off in a way similar to trying to break down the world into a rigid dichotomy -- likes "is the a ok approximate anwser?" "Yes" "Would I use it?" "Possibly with great skeptism and appropriate weight given the context, but likely not"

I still have to read that book. Thanks for reminding me.

About rigid dichotomies though, including the page I linked, I think it's a cognitive bias in and out of itself.

I take these observations as "food for thought", literally, not ready-made conclusions to swallow. A good basis to reflect upon things, but it's just that, the initial spark.

I agree. But I think the value these biases actually provide in helping to understand what is going are more limited than people make them out to be. It's much more powerful to simply internalize the worldview of somebody who knew what they were doing, or several of them -- you're not starting from scratch and you're not using models like a dictionary without knowing how to write.

Farnam Street Blog also has their comprehensive list of mental models: https://www.farnamstreetblog.com/mental-models/

What does LRU (least recently used) have to do with picking the highest-priority problem?

But overall, pretty good overview and I appreciate the links to other sources.

To pick an example out of thin air, think of stage act trying to keep a number of plates spinning. You can keep a number of them going, but the LRU one is the one most likely of falling because it's lost some energy, and you need to check it to keep it up in the air.

That's a great explanation for something the article didn't explain very well.

Still, LRU only works if they are of equal importance. Otherwise, work on the important one, even if you've worked on it more recently than the others.

A related idea is the "tyranny of the urgent". You can't let the urgent things keep you from doing the important things. (I stole this from a booklet with the quoted title, which stole the idea from the manager of a cotton mill.)

Front page test – an ethical standard for behavior that evaluates each action through the lens of the media/outside world.

Example: What would happen if HN found out we’re mining our users’s IMs?

I feel like I might be okay with it if was a university (.edu domain) and I knew it was anonymized. Not sure I'd be okay with a random blog doing that.

lots of models for combating optimism, but few for combating pessimism.

written for sure from the perspective of an optimist.

Wow. This is a great list. I've seen individual ideas here and there but never put together in a list. This is excellent for exploring these ideas in one shot.

"The teaching method" - I observed this myself while helping Python newbies on the internet. Pretty often when you're answering a newbie question, you gain a deeper understanding of the problem. Newbies don't ask exactly the same questions as you have in the past, so you start seeing old problems in new light. Also, you dust off your skills.

Moral of the story: helping people on IRC can be a fun and enlightening past-time.

The method of loci[1] is missing from this list. I am a visual/spatial learner, and find it quite useful for quick information storage and retrieval.

[1] https://en.m.wikipedia.org/wiki/Method_of_loci

Emic and Etic:

I observed that I very often disagree with people who use anime forum avatars. A few of them came close to getting banned (I'm not a moderator anywhere), others made really poor arguments.

Re efficient market hypothesis + five forces: new markets are inefficient and you can sit on top of a big opportunity. More, when your company has real customer leads and profits.

I appreciate the planning fallacy. I usually do this implicitly but I just changed an expected timeline on a JIRA epic from 80 hours to 160 days after reading this.

Watch out - there is a reverse bias, Parkinson's law, that work expands so as to fill the time available for its completion. This is why Elon Musk sets absurd deadlines he rarely can meet, to resist the expansion of make-work and administrative bloat which consumes longer-timed tasks.

Work behaves like a gas: It fills all the available space (time) and the smaller the space the more pressure you get.

There's a reason I encourage calling a collection of epics a "fantasy".

"I can look through all of my emails before the end of the day"

80 hours to 160 days? Or do you mean 80 hours to 160 hours?

The article said, “upgrade the units and double the estimate.”

So 20 hours -> 40 days -> 80 weeks -> 160 months

so 1 month -> 2 years but 4 weeks -> only 8 months

I think the proposed method should be categorized as a hyperbole.

30 days is 720 hrs -> 1440 days which is 3.9 years.

I love it

Nice, but imho the list should be accompanied by at least three real-world examples per model.

Otherwise, many of the models may seem contrived and practically useless.

The funny thing about expected value. Even if the expected value of a one dollar lottery ticket was ten dollars, it still wouldn’t be worth playing.

People always say lottery tickets have low expected return and aren't worth buying, and then use that to conclude that people are stupid.

Instead of concluding that people do buy lottery tickets, so their model doesn't accurately model "value".

That's so useful. Everyone should read this list.

Reminder? Good.

Theres a spelling error on "counterpary"

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