The Great Mental Models Read online

  Norgay is around the closest someone could come to being a Lifer when it comes to the competence required to climb Mount Everest.

  How do you know when you have a circle of competence? Within our circles of competence, we know exactly what we don’t know. We are able to make decisions quickly and relatively accurately. We possess detailed knowledge of additional information we might need to make a decision with full understanding, or even what information is unobtainable. We know what is knowable and what is unknowable and can distinguish between the two.

  We can anticipate and respond to objections because we’ve heard them before and already put in the work of gaining the knowledge to counter them. We also have a lot of options when we confront problems in our circles. Our deep fluency in subjects we are dealing with means we can draw on different information resources and understand what can be adjusted and what is invariant.

  A circle of competence cannot be built quickly. We don’t become Lifers overnight. It isn’t the result of taking a few courses or working at something for a few months—being a Lifer requires more than skimming the surface. In Alexander Pope’s poem “An Essay on Criticism,” he writes:

  “A little learning is a dangerous thing;

  Drink deep, or taste not the Pierian spring:

  There shallow draughts intoxicate the brain,

  And drinking largely sobers us again.”6

  There is no shortcut to understanding. Building a circle of competence takes years of experience, of making mistakes, and of actively seeking out better methods of practice and thought.

  How do you build and maintain a circle of competence?

  One of the essential requirements of a circle of competence is that you can never take it for granted. You can’t operate as if a circle of competence is a static thing, that once attained is attained for life. The world is dynamic. Knowledge gets updated, and so too must your circle.

  There are three key practices needed in order to build and maintain a circle of competence: curiosity and a desire to learn, monitoring, and feedback.

  First, you have to be willing to learn. Learning comes when experience meets reflection. You can learn from your own experiences. Or you can learn from the experience of others, through books, articles, and conversations. Learning everything on your own is costly and slow. You are one person. Learning from the experiences of others is much more productive. You need to always approach your circle with curiosity, seeking out information that can help you expand and strengthen it.

  «Learn from the mistakes of others. You can’t live long enough to make them all yourself.»

  Anonymous

  Second, you need to monitor your track record in areas which you have, or want to have, a circle of competence. And you need to have the courage to monitor honestly so the feedback can be used to your advantage.

  The reason we have such difficulty with overconfidence—as demonstrated in studies which show that most of us are much worse drivers, lovers, managers, traders (and many other things) than we think we are—is because we have a problem with honest self-reporting. We don’t keep the right records, because we don’t really want to know what we’re good and bad at. Ego is a powerful enemy when it comes to better understanding reality.

  But that won’t work if you’re trying to assess or build your circle of competence. You need to keep a precise diary of your trades, if you’re investing in the stock market. If you are in a leadership position, you need to observe and chronicle the results of your decisions and evaluate them based on what you were trying to achieve. You need to be honest about your failures in order to reflect and learn from them. That’s what it takes.

  Keeping a journal of your own performance is the easiest and most private way to give self-feedback. Journals allow you to step out of your automatic thinking and ask yourself: What went wrong? How could I do better? Monitoring your own performance allows you to see patterns that you simply couldn’t see before. This type of analysis is painful for the ego, which is also why it helps build a circle of competence. You can’t improve if you don’t know what you’re doing wrong.

  Finally, you must occasionally solicit external feedback. This helps build a circle, but is also critical for maintaining one.

  A lot of professionals have an ego problem: their view of themselves does not line up with the way other people see them. Before people can change they need to know these outside views. We need to go to people we trust, who can give us honest feedback about our traits. These people are in a position to observe us operating within our circles, and are thus able to offer relevant perspectives on our competence. Another option is to hire a coach.

  Atul Gawande is one of the top surgeons in the United States. And when he wanted to get better at being a surgeon, he hired a coach. This is terribly difficult for anyone, let alone a doctor. At first he felt embarrassed. It had been over a decade since he was evaluated by another person in medical school. “Why,” he asked, “should I expose myself to the scrutiny and fault-finding?”7

  The coach worked. Gawande got two things out of this. First, Gawande received something he couldn’t see himself and something no one else would point out (if they noticed it at all): knowledge of where his skill and technique was suboptimal. The second thing Gawande took away was the ability to provide better feedback to other doctors.

  It is extremely difficult to maintain a circle of competence without an outside perspective. We usually have too many biases to solely rely on our own observations. It takes courage to solicit external feedback, so if defensiveness starts to manifest, focus on the result you hope to achieve.

  How do you operate outside a circle of competence?

  Part of successfully using circles of competence includes knowing when we are outside them—when we are not well equipped to make decisions. Since we can’t be inside a circle of competence in everything, when we find ourselves Strangers in a place filled with Lifers, what do we do? We don’t always get to “stay around our spots.” We must develop a repertoire of techniques for managing when we’re outside of our sphere, which happens all the time.8

  There are three parts to successfully operating outside a circle of competence:

  Learn at least the basics of the realm you’re operating in, while acknowledging that you’re a Stranger, not a Lifer. However, keep in mind that basic information is easy to obtain and often gives the acquirer an unwarranted confidence.

  Talk to someone whose circle of competence in the area is strong. Take the time to do a bit of research to at least define questions you need to ask, and what information you need, to make a good decision. If you ask a person to answer the question for you, they’ll be giving you a fish. If you ask them detailed and thoughtful questions, you’ll learn how to fish. Furthermore, when you need the advice of others, especially in higher stakes situations, ask questions to probe the limits of their circles. Then ask yourself how the situation might influence the information they choose to provide you.

  Use a broad understanding of the basic mental models of the world to augment your limited understanding of the field in which you find yourself a Stranger. These will help you identify the foundational concepts that would be most useful. These then serve as a guide to help you navigate the situation you are in.

  There are inevitably areas where you are going to be a Stranger, even in the profession in which you excel. It is impossible for our circles of competence to encompass the entire world. Even if we’re careful to know the boundaries and take them seriously, we can’t always operate inside our circles. Life is simply not that forgiving. We have to make HR decisions without being experts in human psychology, implement technology without having the faintest idea how to fix it if something goes wrong, or design products with an imperfect understanding of our customers. These decisions may be outside our circles, but they still have to get made.

  The Problem of Incentives

  The problem of incentives can really skew how much you can rely on someone else�
��s circle of competence. This is particularly acute in the financial realm. Until recently, nearly all financial products we might be pushed into had commissions attached to them—in other words, our advisor made more money by giving us one set of advice than another, regardless of its wisdom. Fortunately, the rise of things like index funds of the stock and bond markets has mostly alleviated the issue.

  In cases like financial advisory, we’re not on solid ground until we know, in some detail, the compensation arrangement our advisor is under.

  The same goes for buying furniture, buying a house, or buying a washing machine at a retail store. What does the knowledgeable advisor stand to gain from our purchase?

  It goes beyond sales, of course. Whenever we are getting advice, it is from a person whose set of incentives is not the same as ours. It is not being cynical to know that this is the case, and to then act accordingly.

  Suppose we want to take our car to a mechanic. Most of us, especially in this day and age, are complete Strangers in that land; we subsequently are open to be taken advantage of. There is not only an asymmetry in our general knowledge base about mechanics of a car, there is usually an asymmetry of knowledge about the actual current problem with the car. We haven’t been under the hood, but the mechanic has. We know his incentive in this situation; it’s to get us to spend as much as possible while still retaining us as a customer. The only solution, at least until we reach a certain level of trust with our mechanic, is to suck it up and learn a bit of the trade.

  Fortunately, these days that is easy with the aid of the internet. And we don’t need to learn it ahead of time. We can learn it on an as-needed basis. The way to do it, in this case, would be to defer all decisions on major spending until you’ve had time to poke around the resources you can find online and at least confirm that the mechanic isn’t making a major bluff.

  _

  You can’t see what’s wrong but trust me.

  When Queen Elizabeth I of England ascended to the throne, her reign was by no means assured. The tumultuous years under her father, brother, and sister had contributed to a political situation that was precarious at best. England was in a religious crisis that was threatening the stability of the kingdom, and was essentially broke.

  Elizabeth knew there were aspects of leading the country that were outside her circle of competence. She had an excellent education and had spent most of her life just trying to survive. Perhaps that is why she was able to identify and admit to what she didn’t know.

  In her first speech as Queen, Elizabeth announced, “I mean to direct all my actions by good advice and counsel.”9 After outlining her intent upon becoming Queen, she proceeded to build her Privy Council—effectively the royal advisory board. She didn’t copy her immediate predecessors, filling her council with yes men or wealthy incompetents who happen to have the same religious values. She blended the old and the new to develop stability and achieve continuity. She kept the group small so that real discussions could happen. She wanted a variety of opinions that could be challenged and debated.10

  In large measure due to the advice she received from this council, advice that was the product of open debate that took in the circles of competence of each of the participants, Elizabeth took England from a country of civil unrest and frequent persecution to one that inspired loyalty and creativity in its citizens. She sowed the seeds for the empire that would eventually come to control one quarter of the globe.

  _

  Elizabeth I led her country at a time when very few women had public positions of power. It is testament to her strength and intelligence that she was able to admit what she didn’t know and take counsel from others.

  Conclusion

  Critically, we must keep in mind that our circles of competence extend only so far. There are boundaries on the areas in which we develop the ability to make accurate decisions. In any given situation, there are people who have a circle, who have put in the time and effort to really understand the information.

  It is also important to remember that no one can have a circle of competence that encompasses everything. There is only so much you can know with great depth of understanding. This is why being able to identify your circle, and knowing how to move around outside of it, is so important.

  «Ignorance more often begets confidence than knowledge.»

  Charles Darwin11

  Staying in Your Circle

  The idea a circle of competence in the realm of investments was stated very well by Berkshire Hathaway’s Warren Buffett. When asked, he recommended that each individual stick to their area of special competence, and be very reluctant to stray. For when we stray too far, we get into areas where we don’t even know what we don’t know. We may not even know the questions we need to ask.

  To explain his point, Buffett gives the example of a Russian immigrant woman who ran one of his businesses, the famous Nebraska Furniture Mart. The CEO, Rose Blumkin, spoke little English and could barely read or write, yet had a head for two things: numbers, and home furnishings. She stuck to those areas and built one of the country’s great retailing establishments. Here it is in Buffett’s words:

  I couldn’t have given her $200 million worth of Berkshire Hathaway stock when I bought the business because she doesn’t understand stock. She understands cash. She understands furniture. She understands real estate. She doesn’t understand stocks, so she doesn’t have anything to do with them. If you deal with Mrs. B in what I would call her circle of competence…. She is going to buy 5,000 end tables this afternoon (if the price is right). She is going to buy 20 different carpets in odd lots, and everything else like that [snaps fingers] because she understands carpets. She wouldn’t buy 100 shares of General Motors if it was at 50 cents a share.12

  Her iron focus on the things she knew best was largely responsible for her massive success in spite of the obstacles she faced.

  Supporting Idea:

  Falsifiability

  Karl Popper wrote “A theory is part of empirical science if and only if it conflicts with possible experiences13 and is therefore in principle falsifiable by experience.” The idea here is that if you can’t prove something wrong, you can’t really prove it right either.

  Thus, in Popper’s words, science requires testability: “If observation shows that the predicted effect is definitely absent, then the theory is simply refuted.” This means a good theory must have an element of risk to it—namely, it has to risk being wrong. It must be able to be proven wrong under stated conditions.

  In a true science, as opposed to a pseudo-science, the following statement can be easily made: “If x happens, it would show demonstrably that theory y is not true.” We can then design an experiment, a physical one or sometimes a thought experiment, to figure out if x actually does happen. Falsification is the opposite of verification; you must try to show the theory is incorrect, and if you fail to do so, you actually strengthen it. To understand how this works in practice, think of evolution. As mutations appear, natural selection eliminates what doesn’t work, thereby strengthening the fitness of the rest of the population.

  Consider Popper’s discussion of the concept of falsifiability in the context of Freud’s psychoanalytic theory, which is broadly about the role of repressed childhood memories influencing our unconscious, in turn affecting our behavior. Popper was careful to say that it is not possible to prove that Freudianism was either true or not true, at least in part. We can say that we simply don’t know whether it’s true because it does not make specific testable predictions. It may have many kernels of truth in it, but we can’t tell. The theory would have to be restated in a way to allow for experience to refute it.

  Another interesting piece of Popper’s work was an attack on what he called “historicism”—the idea that history has fixed laws or trends that inevitably lead to certain outcomes. This is where we use examples from the past to make definite conclusions about what is going to happen in the future.

  Popper considered this ki
nd of thinking pseudoscience, or worse—a dangerous ideology that tempts wannabe state planners and utopians to control society. He did not consider such historicist doctrines falsifiable. There is no way, for example, to test whether there is a Law of Increasing Technological Complexity in human society, which many are tempted to claim these days, because it is not actually a testable hypothesis. Instead of calling them interpretations, we call them laws, or some similarly connotative word that implies an unchanging and universal state that is not open to debate, giving them an authority that they haven’t earned. Too frequently, these postulated laws become immune to falsifying evidence—any new evidence is interpreted through the lens of the theory.

  «A theory is part of empirical science if and only if it conflicts with possible experiences and is therefore in principle falsifiable by experience.»

  Karl Popper

  For example, we can certainly find confirmations for the idea that humans have progressed, in a specifically defined way, toward increasing technological complexity. But is that a Law of history, in the inviolable sense? Was it always going to be this way? No matter what the starting conditions or developments along the way, were humans always going to increase our technological prowess? We really can’t say.