Mental models

mental-models.md

• Confirmation bias: a pattern that causes one to notice or look for things that confirm one's beliefs rather that counter-evidence.

• Loss aversion: Loss aversion refers to people's tendency to prefer avoiding losses to acquiring equivalent gains: it is better to not lose $5 than to find $5. The principle is very prominent in the domain of economics. What distinguishes loss aversion from risk aversion is that the utility of a monetary payoff depends on what was previously experienced or was expected to happen. Some studies have suggested that losses are twice as powerful, psychologically, as gains.

• Intuition:  Personal experience coded into your personal neural network, which means your intuition is dangerous outside the bounds of your personal experience. A.K.A: thinking fast vs thinking slow — "a dichotomy between two modes of thought: 'System 1' is fast, instinctive and emotional; 'System 2' is slower, more deliberative, and more logical."

• The 5 Whys: The "Five Whys" is a mental model developed by Sakichi Toyoda, the founder of Toyota, for solving the problem that arises when you set out to build a product, and the most obvious problem isn't always the real problem you should be solving. Developing a deep understanding of the root problem helps you save time and money. It simply involves asking "Why" five times.

• Tragedy of the commons: hard to explain, basically "even though minor behavior change could result in a great benefit for the many, the coordination problem is too high"

• Activation energy: "The minimum energy which must be available to a chemical system with potential reactants to result in a chemical reaction". Even though afterwards it could release more energy (which is the basis for what's popularly known as "chain reactions"), if the threshold is not achieved, the reaction won't happen.

• Power-law: "A functional relationship between two quantities, where a relative change in one quantity results in a proportional relative change in the other quantity, independent of the initial size of those quantities: one quantity varies as a power of another." (related: Pareto distribution; Pareto principle — "for many events, roughly 80% of the effects come from 20% of the causes.", diminishing returns, premature optimization, heavy-tailed distribution, fat-tailed distribution; long tail)

• Compounding: When your interest starts earning interest. Applies to a lot of things, most interestingly knowledge. 1.01 and 0.99 are completely different numbers: 1.01^1000 ~= 20,000 and 0.99^1000 = 0.00004

• Expected value: a simple model for evaluating uncertain events (multiply the probability of the event by its value). Example: Chance of winning NY lotto is 1 in 292,201,338 per game. Let's say the grand prize is $150M and ticket price is $1. Then the expected value is roughly $0.5. Since $0.5 < $1, the model tells us the game isn't worth playing.

• Entropy (Thermodynamics): a measure of the number of possible microscopic configurations Ω of the individual atoms and molecules of the system (microstates) which comply with the macroscopic state (macrostate) of the system Entropy (Information Theory): the average amount of information produced by a source of data.

  Von Neumann suggested Shannon that he could use the term "Entropy" because the equations were pretty much the same. And nobody understood what the heck was Entropy anyways.

• Information wants to be free: You can never re-encrypt something you decrypted, also known as "Pandora's Box": once you know something, you can't un-know it.

• Dunbar's number: is a suggested cognitive limit to the number of people with whom one can maintain stable social relationships—relationships in which an individual knows who each person is and how each person relates to every other person. This number was first proposed in the 1990s by British anthropologist Robin Dunbar, who found a correlation between primate brain size and average social group size. By using the average human brain size and extrapolating from the results of primates, he proposed that humans can comfortably maintain only 150 stable relationships.

• Theory of black swan events: or "black swan theory" is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term is based on an ancient saying that presumed black swans did not exist – a saying that became reinterpreted to teach a different lesson after black swans were discovered in the wild.