{"id":59196,"date":"2018-08-21T19:00:12","date_gmt":"2018-08-22T03:00:12","guid":{"rendered":"https:\/\/www.pickthebrain.com\/?p=59196"},"modified":"2018-08-21T19:00:12","modified_gmt":"2018-08-22T03:00:12","slug":"5-mental-models-to-use-for-better-decision-making","status":"publish","type":"post","link":"https:\/\/www.pickthebrain.com\/blog\/5-mental-models-to-use-for-better-decision-making\/","title":{"rendered":"5 Mental Models To Use For Better Decision Making"},"content":{"rendered":"<div style=\"margin-top: 0px; margin-bottom: 0px;\" class=\"sharethis-inline-share-buttons\" ><\/div><p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">If The Joker in The Dark Knight was an agent of chaos, then entrepreneurs are the exact opposite of that, Chaos Managers. Entrepreneurs deal with chaos every single day and try to find the best possible outcomes for their businesses. And since every situation is so varied that it would be beneficial if there were an framework that would help an entrepreneur make better decisions. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">These 5 mental models have helped us immensely in our journey of bootstrapping <a href=\"https:\/\/www.thanksforthehelp.com\/\">TFTH<\/a>. They have guided us in making the right decisions and always stay the course, even when things got really challenging.<\/span><\/p>\n<p><span style=\"text-decoration: underline;\"><b>5 Mental Models that Helped Us in Better Decision Making<\/b><\/span><\/p>\n<ul>\n<li><strong>Occam&#8217;s Razor<\/strong> &#8211;<span style=\"font-weight: 400;\">There are many interpretations to this model but the best one that we like is \u201c<\/span><i><span style=\"font-weight: 400;\">The simplest solution tends to be right or put differently, pick the one that has the least number of assumptions\u201d. <\/span><\/i><span style=\"font-weight: 400;\">We find this to be extremely useful whenever we don\u2019t have enough data to make informed decision. And in such situations we always take that route that has minimum assumptions for every assumption introduces error into the decision model. \u00a0This comes in handy whenever we designing a user flow for our product.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li><strong>Compounding<\/strong> &#8211;\u00a0<span style=\"font-weight: 400;\">This is one mental model that is perhaps used by finance guys more than the entrepreneurs. It is so powerful that Einstein once said &#8212;<\/span><\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span style=\"font-weight: 400;\">\u201c<\/span><i><span style=\"font-weight: 400;\">Compound Interest is the Eighth Wonder of the World. He who understands it, earns it\u2026 He who doesn\u2019t\u2026 pays it.\u201d<\/span><\/i><\/p>\n<p>\u00a0 \u00a0 \u00a0<span style=\"font-weight: 400;\">One would wonder how compounding helps in better decision making. It helps by making us realize that if we keep on doing good habits (in business), then those will compound over time to take us closer to our goals. A lot of times when we are in deep execution, we lose sight of the fact that our daily small efforts will result into something monumental. Compounding helps us stay focussed. It also helps us take a long term view of business much like Jeff Bezos.<\/span><\/p>\n<ul>\n<li><strong>Inertia<\/strong> &#8211;\u00a0<span style=\"font-weight: 400;\">Inertia would perhaps be the least loved concept when it comes to first principles of physics but if applied judiciously, it can help generate positive and better outcomes in business. In the book <\/span><a href=\"https:\/\/en.wikipedia.org\/wiki\/Nudge_(book)\"><span style=\"font-weight: 400;\">Nudge<\/span><\/a><span style=\"font-weight: 400;\">, author Richard Thaler refers to it by Status Quo Bias. Put simply it means that we tend to remain on a course of action even if that course might not be in our best interest. For example if we subscribe to Netflix and don\u2019t watch it beyond one month, we would still not cancel its subscription even though it is costing us financially every month. All the subscription services around the world play on people\u2019s inertia to cancel the subscription hence raking in huge amount of recurring money. We put it to use to design our product better. Since we know that people don\u2019t take too much hassle to change the default settings (due to inertia), we keep our product default settings to benefit our users.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li><strong>Tragedy of the Commons<\/strong> &#8211;\u00a0<span style=\"font-weight: 400;\">No one captures tragedy of the commons better than Aristotle who remarked &#8211;<\/span><\/li>\n<\/ul>\n<p style=\"text-align: center;\"><i><span style=\"font-weight: 400;\">\u201cWhat is common to the greatest number gets the least amount of care. Men pay most attention to what is their own; they care less for what is common; or at any rate they care for it only to the extent to which each is individually concerned. Even when there is no other cause for inattention, men are more prone to neglect their duty when they think that another is attending to it\u201d<\/span><\/i><\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: left;\">\u00a0<span style=\"font-weight: 400;\">What Aristotle said way back is still relevant today. In an organisation, if a task is to left to be shared among 2 or more people then it always almost result in sub-optimal output. This model doesn\u2019t go against teamwork but asks for pinning accountability of the task to one person.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li><strong>Margin of Safety<\/strong> &#8211;\u00a0<span style=\"font-weight: 400;\">If you are a fan of Warren Buffett, then you would already know this. \u00a0In financial terms, Margin of Safety is the difference between intrinsic value of stock and its share price. And any value investor would love to buy that stock that has good margin of safety for that allows cushion against loss of capital. We use the same theory to design our business models and product\/service offerings. While preparing our annual financial plan, we always keep that cushion in case things don\u2019t go our way, we don\u2019t lose our sleep. Similarly we always try to build our margin of safety (from other competitors) through 4Ps framework.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\"> These mental models have helped us immensely in making better decisions throughout our entrepreneurial journey. Do you use any mental model that you would like to share?<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp; If The Joker in The Dark Knight was an agent of chaos, then entrepreneurs are the exact opposite of that, Chaos Managers. Entrepreneurs deal with chaos every single day and try to find the best possible outcomes for their &hellip; <a href=\"https:\/\/www.pickthebrain.com\/blog\/5-mental-models-to-use-for-better-decision-making\/\">Continue reading <span class=\"meta-nav\">&rarr;<\/span><\/a><\/p>\n","protected":false},"author":12994,"featured_media":59197,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0},"categories":[3709,6,31],"tags":[6717,6716,66,4629,4640],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v19.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>5 Mental Models To Use For Better Decision Making<\/title>\n<meta name=\"description\" content=\"Mental Models help make better decisions. 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We used these 5 mental models to make better decisions while growing our start-up.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.pickthebrain.com\/blog\/5-mental-models-to-use-for-better-decision-making\/\" \/>\n<meta property=\"og:site_name\" content=\"Pick the Brain | Motivation and Self Improvement\" \/>\n<meta property=\"article:publisher\" content=\"http:\/\/www.facebook.com\/pickthebrain\" \/>\n<meta property=\"article:published_time\" content=\"2018-08-22T03:00:12+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.pickthebrain.com\/blog\/wp-content\/uploads\/2018\/08\/GettyImages-614955176_hrvcc-800x480.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"480\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@pickthebrain\" \/>\n<meta name=\"twitter:site\" content=\"@pickthebrain\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Ankit Garg\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.pickthebrain.com\/blog\/#website\",\"url\":\"https:\/\/www.pickthebrain.com\/blog\/\",\"name\":\"Pick the Brain | Motivation and Self Improvement\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.pickthebrain.com\/blog\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.pickthebrain.com\/blog\/5-mental-models-to-use-for-better-decision-making\/#primaryimage\",\"url\":\"https:\/\/www.pickthebrain.com\/blog\/wp-content\/uploads\/2018\/08\/GettyImages-614955176_hrvcc-800x480.jpg\",\"contentUrl\":\"https:\/\/www.pickthebrain.com\/blog\/wp-content\/uploads\/2018\/08\/GettyImages-614955176_hrvcc-800x480.jpg\",\"width\":800,\"height\":480,\"caption\":\"Better Decision Making\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.pickthebrain.com\/blog\/5-mental-models-to-use-for-better-decision-making\/#webpage\",\"url\":\"https:\/\/www.pickthebrain.com\/blog\/5-mental-models-to-use-for-better-decision-making\/\",\"name\":\"5 Mental Models To Use For Better Decision Making\",\"isPartOf\":{\"@id\":\"https:\/\/www.pickthebrain.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.pickthebrain.com\/blog\/5-mental-models-to-use-for-better-decision-making\/#primaryimage\"},\"datePublished\":\"2018-08-22T03:00:12+00:00\",\"dateModified\":\"2018-08-22T03:00:12+00:00\",\"author\":{\"@id\":\"https:\/\/www.pickthebrain.com\/blog\/#\/schema\/person\/6269e04190898790d62285f0e3076b25\"},\"description\":\"Mental Models help make better decisions. 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