“You don’t need to be smarter than others to outperform them if you can out-position them. Anyone looks like a genius when they’re in a good position, and even the smartest person looks like an idiot when they’re in a bad one.” - Shane Parrish
I recently picked up this book by Shane Parrish that breaks down the mental models of Warren Buffett, Elon Musk, Albert Einstein, Charlie Munger, and others. The best part? You don’t have to be a genius to use them. The book is called The Great Mental Models, and it’s a game changer. Below, I will briefly introduce them.
1. The Map Is Not the Territory
You know how sometimes your GPS tells you you've arrived, but you're clearly staring at an empty lot? That's this principle in action. Our mental "maps" of reality are never perfect. Here’s a more abstract example: Jeff Bezos discovered this when Amazon's customer service data showed quick response times, but when he actually called the helpline himself, he waited for over 10 minutes. His map (the data) didn’t match the territory (reality). The world has a way of humbling our plans and assumptions.
2. Circle of Competence
Mark Twain nailed it when he said, “It's not what you don't know that gets you in trouble - it's what you think you know that just ain't so." Warren Buffett is famous for this approach. During the dot-com boom, when everyone was throwing money at tech stocks, he simply said, "Nope, don't understand it well enough," and stuck to investing in things he got - like Coca-Cola and candy. Guess who avoided the crash? Knowing a little can get you in bigger trouble than knowing nothing.
3. First Principles Thinking
This is just fancy talk for "question everything like a curious kid." When Elon Musk looked at rockets, instead of accepting that they were expensive because "that's just how it is," he asked, "What are rockets actually made of?" Turns out, the raw materials only cost about 2% of the typical rocket price. SpaceX was able to reduce the standard rocket cost launch by over 90%. Mind. Blown.
4. Thought Experiments
Einstein loved these. Imagine you're in an elevator with no windows, and your feet are glued to the floor. In one scenario, you're in space, and the elevator is being pulled upward by a rope at an accelerating rate. In another scenario, you're just standing in a normal elevator on Earth, being pulled down by gravity. Einstein's brilliant insight? You wouldn't be able to tell the difference between these scenarios. The force you feel from acceleration and the force you feel from gravity don’t just feel the same; they are the same! This seemingly simple thought experiment led to one of the most groundbreaking scientific theories ever, general relativity.
5. Second-Order Thinking
This is about asking "and then what?" Henry Ford shocked everyone by raising his workers' wages in 1914. People thought he was crazy until they realized his workers could now afford to buy the cars they were making. Genius! But here's a flip side from Warren Buffett: Think about standing on your tiptoes at a parade. When one person does it, they get a better view. When everyone does it, nobody sees any better, and now everyone's uncomfortable. Before you make a big decision, consider the second and third order effects.
6. Probabilistic Thinking
Life's more like poker than chess. Annie Duke, a world-class poker player, says we need to stop thinking in terms of "Will this work?" and start thinking "What are the chances this will work?" Sometimes you can make the perfect decision and still get a lousy outcome - that's just how probability works.
7. Inversion
Charlie Munger, Warren Buffett's right-hand man, has a refreshingly simple approach: instead of trying to be brilliant, just focus on not being stupid. Want to find the right career? Start by listing everything that would make you miserable in a job. Sometimes clearing out the bad choices makes the good ones easier to see.
8. Occam's Razor
The simplest answer is usually right. Here's a wild example: In India, villages were having trouble with Bengal Tigers attacking people. They tried everything - weapons, electric traps, you name it. The solution? Wearing masks on the back of their heads. Tigers only attack when they think you can't see them. Simple, right?
9. Hanlon's Razor
Never attribute to malice that which is adequately explained by stupidity. During the Cuban Missile Crisis, a Soviet officer named Vasili Arkhipov probably prevented nuclear war by assuming the Americans dropping depth charges were trying to signal them to surface, not start World War III. This insight prevented the Soviets from launching a nuclear-tipped torpedo. Next time someone doesn't text you back, assume they just forgot rather than assume they’re ignoring you.
Hanlon’s Razor teaches us that many mistakes come from oversight, not malice—but what if you could structure your life to prevent those mistakes in the first place? That’s where the Eisenhower Matrix comes in. This powerful mental model helps you separate what’s urgent from what’s important, so you can focus on making real progress while avoiding unnecessary stress. I made a short about this you can check it out here!
Which one of these resonates with you the most? I'd love to hear how you might use these in your own life!
In the business, the “Circle of Competence of a CEO” is the Knowing Of Industries and Business inside out.
In the stock market, the greatest “Circle of Competence of an investor” is not the Knowing Of Industries and Business inside out, but the ultimate “VALUATION”.
I really like your explanation of the Eisenhower matrix. This is a powerful tool that can help us be more productive in the things that matter. Thanks!