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Mental Models

the circle of competence

the law of diminishing returns

the Pareto principle – the 80/20 rule

5 great books about mental models

If you want to read more about mental models, here are some books to further explore the topic. Not only I found these books useful, but I’ve seen them recommended over and over again on Hacker News and other places.

https://nesslabs.com/mental-models

https://valuetortoise.com/mental-models-for-curious-investors/

The Psychology of Human Misjudgement. He reviewed many causes of human misjudgement.

He used an example of open outcry auctions to explain the same. Let’s have a look at it –

There are four tendencies when participants of open auction are pushed to bid.

  1. Reciprocity

Reciprocity is a social pattern of responding to a positive action with another positive action. So, the participants feel entitled to buy something just because they were invited to the auction. ‘I must buy something because I am invited by the host.’

  1. Consistency

It refers to a thought process when an individual does not want to break a chain. For example, if the participant is famous for liking a particular type or a product, they feel obligated to buy it. ‘I am known to buy such products. I must buy this one for the record.’

  1. Commitment Tendency

If the participant is bidding in the outcry auction, they feel a tendency to continue bidding just because they started with it. ‘I must continue because I am already bidding.’

  1. Social Proof

Humans have a habit to try and find a way to fit in a social crowd to validate themselves. Social proof is a tendency where the participant does something just because a group of social peers are doing the same. ‘I should buy such pieces because my peers are buying it.’

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