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.
- Thinking, Fast and Slow (Daniel Kahneman)
- Influence: The Psychology of Persuasion (Robert Cialdini)
- Metaphors We Live By (George Lakoff)
- Predictably Irrational: The Hidden Forces That Shape Our Decisions (Dan Ariely)
- The Art of Thinking Clearly (Rolf Dobelli)
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.
- 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.’
- 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.’
- 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.’
- 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.’
