Charlie Munger is probably best known as a Vice President of Berkshire Hathaway, Inc and a long-term business partner of Warren Buffett.
Aside from his extremely successful business career as an investor and his various philanthropic ventures, Charlie Munger is also known for his thinking skills and especially his emphasis on developing multiple mental models to overcome complexity and make good decisions.
He is incredibly well educated and has studied many disciplines besides business, including psychology, history, biology, physics, and economics.
Like all of us, Charlie Munger has had his share of personal setbacks, an early divorce in an era when divorce carried enormous social stigma, serious financial setbacks, the death of his son at the age of 9, cataracts when he was 52 years in a row of failed surgery that caused blindness in his left eye and the removal of that eye.
His views on life in general and business in particular are extremely insightful and often correct with uncommon consistency.
In this article, we’ll take a look at some of the basic principles of your thinking skills so that we can embrace them and incorporate these principles into our thinking skills toolkit as we learn to think more effectively.
“It’s remarkable how much long-term advantage people like us have gained by constantly trying not to be stupid, instead of trying to be very smart.”
“…developing the habit of mastering the multiple models that underlie reality is the best thing you can do.”
Charlie Munger – Mental Models
How to think effectively? According to Charlie Munger:
“…developing the habit of mastering the multiple models that underlie reality is the best thing you can do.”
Munger is referring here to mental models.
Two broad categories of mental models that are particularly useful are those that help us understand how to:
[1] The world works and thus be able to predict the future.
[2] Our mental processes can lead us astray through cognitive biases.
Our world is multidimensional and our problems are complex. Most problems cannot be solved using a single model, so it follows that the more models you have in your toolset, the better equipped you are to solve your problems because you can see the problem from a variety of perspectives and increase chances that you will arrive at a better solution.
But if you don’t have the models, you become the proverbial man with a hammer to whom every problem looks like a nail.
Another important consideration is how you prioritize your learning. Trying to keep up with the latest information will lead us to chase ourselves, therefore Charlie Munger says to focus on things that are slowly changing:
“Models that come from hard science and engineering are the most reliable models on this Earth.”
Charlie Munger – How to prioritize learning mental models
“The more basic knowledge you have… the less new knowledge you have to acquire.”
# Get back to basics. Deeply understanding a simple idea creates a more lasting understanding and builds a strong foundation for complex ideas later.
# Build your base. Take the time to do a Feynman One Pager on an idea you think you know very well. While easy, this process will reveal any gaps in your knowledge.
# The multidisciplinary mind understands the basic ideas. You don’t have to understand the latest biology, but you sure have a better understanding of the concept of evolution because it applies to much more than just animals.
# Understanding the basics allows us to predict what matters. Simply put, people who understand the basics are better at understanding second-order and posterior consequences.
# What has been will continue to be. The longer a technology lives, the longer it can be expected to live.
# Time can predict value. While products and humans have a mathematical life expectancy that decreases with each passing day, some things, like books, increase their life expectancy with each passing day.
In the words of Charlie Munger: “…take a simple idea and take it seriously.”
The “Lollapalooza Effect”
But learning and applying models are not enough, we also need to understand how they interact and combine, and most notably when autocatalysis or [as Charlie Munger calls it] the lollapaloza effect occurs.
The lollapaloza effect occurs when two or more forces all operate in the same direction, and often you don’t get a simple summation, but a nuclear explosion once a certain point of interaction between those forces is reached, such as a breaking point. or critical. -The mass is reached.
In the field of psychology, the phenomenon where different biases overlap and intertwine with each other is the “Lollapalooza effect”. It occurs when multiple different tendencies and mental models combine to act in the same direction. This makes them especially powerful drivers of behavior and can lead to both positive and negative outcomes.
The lollapaloza effect can cause huge negative effects, but it can also cause huge positive payoffs. Therefore, understanding the interconnectedness of the models is critical.
Munger said that while psychologists have been good at identifying individual biases, they are less good at figuring out how they interact and play out in the real world, because it’s hard to run controlled experiments in that setting.
Learn more about critical thinking skills: Charlie Munger