Mental models from microeconomics, game theory, and strategic thinking. Incentives, opportunity cost, comparative advantage, and network effects.
Mental models from microeconomics, game theory, and strategic thinking. Incentives, opportunity cost, comparative advantage, and network effects.
Browse all mental models in this discipline below.
Build a buffer between what you expect and what you plan for. The world will surprise you.
The true cost of anything is whatever you give up to get it — including the next best alternative.
Some things don't just survive shocks — they get stronger from them. Position yourself to benefit from disorder.
Losses hurt roughly twice as much as equivalent gains feel good — and this asymmetry distorts nearly every decision you make.
Never ask why someone is behaving a certain way until you understand what they're incentivised to do.
Do what you're relatively best at, even if someone else is absolutely better at everything.
The price and availability of anything — goods, jobs, attention, ideas — is shaped by how much exists relative to how much is wanted.
You have to keep running just to stay in place — because everyone else is running too.
Don't evaluate the total — evaluate the next unit. The value of one more hour, one more dollar, one more feature is what matters.
Money, time, or effort already spent should not influence future decisions — but it almost always does.
Seek decisions where the potential upside vastly outweighs the potential downside — even if success is unlikely.
People who bear consequences make better decisions. Design systems where decision-makers face the results of their choices.
When one side of a market has more information, the people most likely to participate are those who benefit most — often at the other side's expense.
One party in a transaction knows more than the other. This imbalance drives much of economic behaviour.
Combine extreme safety with small, high-upside bets. Avoid the dangerous middle.
Economic progress requires old industries and methods to be destroyed by new ones. The process is painful but essential for growth.
Adding a clearly inferior option makes one of the other options look more attractive by comparison.
Each additional unit of input produces less additional output. The first hour of practice helps more than the hundredth.
We value things more once we own them — simply possessing something increases its perceived worth.
The average outcome for a group can be completely different from the typical outcome for an individual over time.
Multiply each possible outcome by its probability and sum them. The mathematically optimal choice is the one with the highest expected value.
We strongly prefer immediate rewards over future ones, even when waiting would give us much more. $100 today feels better than $120 next month.
Never ask someone for their opinion on something when their income depends on giving you a particular answer.
Small inputs that produce disproportionately large outputs. Time, capital, code, media, and labour can all be leveraged.
When buyers can't distinguish quality, sellers of high-quality goods exit the market because they can't get fair prices — leaving only low-quality goods.
We treat money differently depending on where it came from or what we've labelled it, even though a dollar is a dollar.
When you're insulated from the consequences of risk, you take more risk.
Some products become more valuable as more people use them — creating winner-take-all dynamics.
Create situations with limited downside and unlimited upside. Keep your options open until you have to commit.
More options don't always make us happier — beyond a threshold, additional choices increase anxiety, regret, and decision paralysis.
Where you end up depends heavily on where you started and the sequence of steps taken — not just the destination's inherent qualities.
Charging different prices to different customers for the same product, based on their willingness to pay.
When someone acts on your behalf, their interests may diverge from yours.
When two parties would both benefit from cooperating but each has an individual incentive to defect, the result is often mutual loss.
Choose the first option that meets your criteria rather than exhaustively searching for the best possible option.
People with something to lose make better decisions than those who are insulated from consequences.
Specialists exploit narrow advantages efficiently. Generalists adapt to change flexibly. The optimal strategy depends on environmental stability.
Organisms (and organisations) can form mutually beneficial relationships where both parties gain more together than either would alone.
People are promoted based on their current performance until they reach a role they're incompetent at — where they remain.
When everyone has access to a shared resource and acts in self-interest, the resource gets depleted.
In competitive bidding, the winner often overpays because winning means you valued the item more than everyone else — likely too much.
Some situations have a fixed pie where one person's gain is another's loss. Many situations have an expandable pie where everyone can gain.