in this video I'll be breaking down the nine most powerful mental models used by some of History's Greatest minds and the best part about this is that you don't need to be a genius to use them you don't have to be smarter than others to outperform them if you can outpos them anyone can look like a genius when they're in a good position and even the smartest person can look like a total idiot when they're in a bad one hey I'm Dante and for the past almost 7 years I've been running my own video production business I love learning from entrepreneurs I love learning from philosophers and this channel is a place where I get to express that passion and share some of the stuff that I learn through the medium that I know how to do which is video let's get started the map is not the territory any representation of reality whether it's a literal map or a plan or a model is always just a simplified version of reality our mental Maps can guide us but they're never a true onetoone reflection of what actually exists during World War II the Nazis invaded the Soviet Union and what was called operation bar Bosa the maps that the Germans had totally underestimated the harsh and brutal Winters in Russia the German Army who was expecting this quick Victory did not plan for these brutal winter conditions and as a result they suffered a disastrous loss when their forces got bogged down in the freezing temperatures their literal map did not match the territory here's a more abstract example in the early days of Amazon Jeff basos caught wind that customers were complaining about really long hold times with customer service however during a meeting with the head of customer service he was shown data that suggested the wait time was 60 seconds or less Jeff Bezos paused the meeting dialed the 1-800 number for Amazon's customer service and waited for over 10 minutes before being able to get a hold of someone clearly there was something wrong with the data collection process their map aka the data in this case did not match the territory which was the reality this concept can be applied on a much smaller scale too if you plan your entire day out to the minute be prepared for real life surprises to get in the way like traffic or last minute errands that you have to run you need to be able to adjust on the Fly the map is not always going to match the territory circle of competence I think it was Mark Twain that said something like it's not what you don't know that gets you in trouble it's what you think you know that just ain't so your circle of competence refers to the domain of knowledge or skills that you really understand knowing where your expertise lies and more importantly where it ends knowing a little about something can get us in way more trouble than knowing nothing at all because knowing a little gives us the illusion of complete understanding Warren Buffett's a famous advocate of this principle and he openly admits that he doesn't invest in companies he doesn't understand instead he sticks to businesses that he gets like Coca-Cola and Candy he avoided investing in Tech technology companies cuz he didn't feel that he understood them especially during the dot boom in the late '90s when many Savvy investors were chasing technology stocks and eventually suffered massive losses during the crash Buffett's caution helped him to avoid the bubble by sticking to businesses that he can grasp like insurance and consumer goods he achieved massive success and even after accumulating billions he still continues to emphasize staying within his circle of competence now applying this principle in real life is relatively straightforward make a list of what you know really well be brutally honest about what you don't now stay mainly within that Circle and expand it ever so slowly through learning but how do I know when I'm at the limit of my circle of competence Buffett's longtime business partner Charlie Munger has a great trick that lets him know when he is operating outside of his circle of competence he says I don't allow myself to have an opinion on something unless I know the other decides argument better than they do if you're unsure about a decision ask yourself is this within my circle or am I risking ignorance before we move on I want to note a couple of caveats when applying this principle the first being confusing interest with competence just because you like something doesn't mean you really understand it loving food doesn't mean you should be a chef beware of overestimating your expertise believing that you're an expert based on partial knowledge can lead to some really bad decisions in fact I kind of think it's a bad idea to think of yourself as an expert at anything as soon as we think of ourselves as experts we tend to think that there's nothing left to learn if you don't keep up with the changing terrain your circle of competence immediately begins to shrink however understanding where your boundaries are is just the first step first principles thinking allows us to solve complex problems basically you separate the things you know are absolutely true from anything that's just an assumption consider Elon musk's approach to building rockets at the time everyone assumed that only governments or massive Aerospace corporations were capable of building them they were insanely expensive and that's just the way it was but instead of just accepting these industry assumptions musk broke the problem down to its core what are the raw materials needed to build a rocket what do those raw materials cost the answer was surprising the raw materials needed to build the rocket only cost about 2% of a typical Rockets price this Revelation led to a fundamental question why the heck are these Rockets so expensive by challenging the conventional manufacturing process and the assumption that Rockets couldn't be reused SpaceX was able to reduce rocket launch costs by over 90% they didn't just iterate on existing rocket designs they totally reimagine the process from the ground up but you don't have to be a rocket scientist to apply this principle children do it all the time they do it so much in fact that parents have developed a term for it called the Y phase why is the sky blue why do we go to work why does the earth spin they keep digging deeper and deeper and deeper until parents often reluctantly say because I said so this is the death of first principal thinking so start asking why deconstruct problems down to these smaller pieces and then challenge everything you know about those small pieces do I know this to be true how do I know this to be true why do I think that can I back it up with evidence after identifying the fundamentals you can begin to reason upwards from here instead of operating based on assumptions I actually have a full newsletter on this topic I'll link it in the description if you're interested by returning to the building blocks of a problem we often find more impactful solutions that can pave the way for real breakthroughs but breaking down a problem is only the beginning we need to find a way to explore these possibilities before committing to action and that is where the thought experiment comes in you could probably figure this one out but a thought experiment is a mental simulation that allows us to explore possibilities before committing to action one of Albert Einstein's most notable thought experiments involved an elevator imagine you were in a closed elevator with your feet glued to the floor now without any other information do you think you'd be able to tell whether or not that elevator was an outer space being pulled upwards by a string or sitting on Earth being pulled down by Gravity by running the thought experiment Einstein concluded that you wouldn't be able to tell this led to the formulation of Einstein's second theory his theory of relativity Einstein's hypothesis was that the force you feel from accelerating and the force you feel from Gravity don't just feel the same they are the same before making any major life decision mentally simulate the worst and best possible outcomes if you're considering quitting your job imagine how your daily routine your finances and your stress levels will be affected over the next year our stress often comes from what we don't know and the same force that causes us to delay action can also delay us from even thinking About It by engaging in a thought experiment we get to enjoy the upside that comes with simulating the experiment without risking the downside that comes from taking that risk in real life if Einstein actually glued his feet to an elevator in space he may have never got around to formulating the actual Theory another famous thought experiment is called the trolley experiment I'm not going to go into detail on that here but if you're interested in a full video on that let me know in the comments while the thought experiment is a great way to help us think through problems they don't always account for the long-term Ripple effects that come from our decisions that's where second order thinking comes in second order thinking is the practice of looking beyond the immediate consequences of a decision most people stop at first order thinking what is the direct outcome of my decision but second order thinkers often ask and then what this approach can help us make better long-term decisions one of the best examples of second order thinking was Henry Ford's decision to raise his workers wages in 1914 at the time most Business Leaders were only focused on cutting costs but Ford saw a second order effect if he paid his workers more they would have greater purchasing power allowing them to actually buy the cars that they were producing this strategy increased worker loyalty reduced turnover expanded the customer base and led to enormous profits now a negative example of second order thinking comes from Warren Buffett describing a crowd that's at a parade once a few people decide to stand on their tiptoes so they can see better everyone behind them has to stand on their tiptoes and everyone behind them has to stand on their tiptoes within a few minutes no one can see any better and they're all worse off because they now have to stand on their tiptoes before making a big decision ask and then what project further out into the future and examine the second and third order effects that are at play stupidity is the same as evil if you judge by the results but even when we anticipate future effects uncertainty remains how do we make better decisions when the comes are uncertain probabilistic thinking is the practice of making decisions based on the likelihood of different outcomes instead of asking will this happen probabilistic thinkers ask How likely is this to happen some of the best applications of probabilistic thinking come from professional poker players like Annie Duke people often say that life is like a game of chess but Annie says it's actually a lot more like poker you need to consistently assess the probability of winning each hand based on the available data it would be a mistake to judge the results of a decision solely based on the outcome even when she made the right decision she understood that losing the hand was still possible by consistently making high probability decisions she became a World Series of Poker Champion now she teaches these same tenants of decision-making in business and investing when the weather forecast says that there's a 70% chance of rain probabilistic thinkers don't assume that it will or won't rain they bring an umbrella and acknowledge that there's a 30% chance they won't need it inversion is a mental model that flips a problem on its head and asks what should I avoid rather than what should I do instead of focusing just on success inversion allows us to imagine the worst case scenarios and the pitfalls that could lead to failure by avoiding these mistakes we naturally improve our chances of success previously mentioned Charlie Munger the billionaire investor partner of Warren Buffett and vice chairman of birkshire Hathaway once said something like it's remarkable how much long-term Advantage folks like us have gotten from trying to consistent ly be not stupid rather than be very intelligent the duo never really set out to become the smartest investors they just tried to avoid big mistakes instead of trying to make the best investment they tried to avoid dumb ones they avoided excessive leverage speculation and anything outside their circle of competence by eliminating bad decisions they were able to naturally increase their chances for long-term success and this can be applied so far outside of the world of investing think about your job choice for inance instance instead of trying to identify the perfect job before you actually get it instead think about what types of jobs would I hate what are the characteristics of that job that would make me miserable by avoiding certain pitfalls the path forward becomes so much more clear but even once we eliminate bad decisions and other problems how do we determine the most effective path forward enter aam's Razer aam's Razer suggests that simpler answers are more likely to be right than complicated ones Whenever there are multiple different explanations for something the one with the least amount of complexities is usually correct okay so in 1989 Bengal tigers killed 60 villagers in this particular region of India the villagers tried everything from arming themselves with weapons to even lacing up dummies with live wires to shock the Tigers and hopefully condition them to not attack humans but it didn't work one student however noticed that the Tigers only attacked when they felt that they were unseen and it reminded him of those decorative patterns that you sometimes see on the backs of beetles or caterpillars or even butterflies you know the ones that look like the huge eyes that deter Predators a human face mask was developed to be worn on the back of the head of the villagers the result no one wearing a mask was attacked by a tiger for 3 years okay think about the last time you struggled with a piece of technology only to realize that it wasn't plugged in that's aam's Razer in action the simplest explanation is usually the right one similar to aam's Razer is hanlin's Razer hanlin's Razer states that you should never attribute malice to something that can adequately be explained by stupidity in other words when something goes wrong it's most likely due to a mistake or a misunderstanding than a deliberate attempt to cause harm this mental model helps us to avoid any unnecessary conflict or Paranoia by encouraging us to assume a mistake before assuming malice this next story is so insane it blew my mind the first time I heard it vasil arapov was a Soviet officer during the height of the Cuban Missile Crisis in 1962 he applied hanlin's razor in a way that may have literally saved the world he was on board a Soviet submarine that was carrying a nuclear tipped torpedo when US forces started dropping depth charges a depth charge is basically an underwater explosive device that the US would use to force the submarine to surface but not as a direct attack the Americans informed the Soviets that they would be dropping these depth charges but that information never made it to the submarine crew the crew unable to communicate with Moscow assumed that they were under attack and that World War III had begun luckily the launch of the nuclear torpedo required that all three senior officers on board the summary had to agree to it now two of the officers voted yes but facil questioned whether the Americans were attacking them or simply trying to get them to surface his refusal to authorize the strike may have literally saved the world now fortunately this model applies outside of nuclear war I if somebody doesn't text you back they're probably not ignoring you they most likely forgot or got distracted if your boss overlooks your contribution in a meeting it's probably just an oversight not a deliberate attempt to snub you hanlin's Razer teaches us that mistakes usually come as a result of oversight and not malice but what if you could structure your life to prevent those mistakes in the first place this is where the Eisenhower Matrix comes in this powerful mental model helps us to separate what's urgent from what's important helping us to make real progress and avoiding any unnecessary stress I actually have a full video on this you can check it out here and if you made it to this far in the video thank you so much for watching I have to give credit to this incredible author Shane Parish this is his book The Great mental models and all of the models that I went over in this video all came out of this book he is three more like it as well as another book on clear thinking and I cannot recommend them enough thanks for watching [Music]