Mental Models
Thinking tools for better decisions and clearer reasoning
First Principles Thinking
Problem Solving
Breaking complex problems down to their fundamental truths, then building up from there. Instead of reasoning by analogy (this is like that), you start with basic facts. Popularized by Elon Musk but used by great thinkers throughout history. I use this for business strategy and investment decisions. Example: Instead of 'electric cars are expensive because batteries cost a lot', ask 'what do batteries actually cost to make?' The materials are much cheaper than the finished product suggests.
Inversion
Strategy
Think backwards from failure to avoid it. Charlie Munger's favorite mental model. Instead of asking 'How do I succeed?', ask 'How do I fail?' then avoid those paths. Incredibly powerful for risk management and decision-making. I use this for investment decisions and business planning. Example: Instead of 'How do I get rich?', ask 'How do people go broke?' Answer: lifestyle inflation, bad debt, speculation. So avoid those.
Circle of Competence
Self-Knowledge
Understanding the boundaries of what you know vs. what you think you know. Warren Buffett's key to successful investing. Stay within your circle for important decisions, acknowledge when you're outside it. I use this to decide which investments to make and which opportunities to pass on. The key is honestly assessing your actual expertise, not your confidence level. Most mistakes come from overestimating your circle's size.
Opportunity Cost
Resource Allocation
The true cost of anything is what you give up to get it. Every choice has an invisible cost - the best alternative you didn't choose. Critical for time management and investment decisions. I use this daily to prioritize tasks and spending. Example: Spending $100 on dinner isn't just $100, it's the investment return you could have earned on that money. Time spent on low-value tasks costs the high-value work you could have done instead.
Compound Interest
Growth
Small, consistent improvements compound into extraordinary results over time. Applies to money, skills, relationships, and habits. Einstein allegedly called it the eighth wonder of the world. The key is starting early and being consistent. I apply this to learning (daily reading), investing (regular contributions), and health (small daily habits). Most people underestimate its power because the early stages look insignificant.
Systems Thinking
Complexity
Understanding how parts interact within a whole system. Linear thinking misses feedback loops, delays, and unintended consequences. Essential for business strategy and personal development. I use this to understand market dynamics and design sustainable habits. Example: Cutting costs might improve short-term profits but hurt long-term competitive position. Focus on optimizing the system, not just individual components.