Sunday, February 23rd, 2014

The Mental Model of Confirmation Bias (aka Goal Seeking or My Side Bias )

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Confirmation Bias is the tendency of people to favor information that confirms their own beliefs, goals or desired outcomes (and ignore what doesn’t fit).

A definition of confirmation bias from the book Consumer Behavior:

“The tendency of consumers to interpret ambigious evidence as consistent with their current beliefs.”

A  business example of confirmation bias is the hugely popular personality-type quizzes (e.g. which ‘Beatle member are you?’ or ‘What type of Ice Cream are you?’). When people take those quizzes they are typically reaffirming the opinion they already have in their mind (“I’m Mick Jagger of course”).

A trick of those quizzes is that most of the successful ones return you results that are positive (you’re unlikely to find one that asks ‘Which mass murderer are you?).

Why do people do this? According to PsyBlog:

“In an uncertain world, people love to be right because it helps us make sense of things. Indeed some psychologists think it’s akin to a basic drive.”

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Wednesday, February 19th, 2014

Wow, an inspiring company and excellent communication (2 min. read)

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If you want to be inspired by a business, please take 2 minutes to read the “2 big announcements” on 37Signals.com.

Some things that impress me about this business:

• They have been in biz for 15 years
• They started as a web design firm and evolved into software (basecamp)
• They created and open-sourced Ruby on Rails and wrote some books (cool!)
• They are at 43 people (pretty small team compared to the Dropbox, Facebook, Twitters of the world, but still one with massive respect and footprint!)
• Last week, 6,622 co.s signed up for new Basecamp accounts and over 15M users have accounts
• They sat down and talked about their vision for the next TWENTY years. how’s that for forward-thinking?
• They decided to go all-in on Basecamp and are renaming the company Basecamp and probably spinning off their other products (ballsy)

Flexible, long-term thinkers who are able to focus.

Inspiring!

Thanks, team Basecamp!

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Sunday, January 19th, 2014

The Mental Model of Cumulative Advantage (“The Matthew Effect”)

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The Principle of Cumulative Advantage, as noted on Thwink.org, states that:

“…once a social agent gains a small advantage over other agents, that advantage will compound over time into an increasingly larger advantage.”

Cumulative Advantage is sometimes known as The Matthew Effect or Accumulated Advantage or “the rich get richer, the poor get poorer”.

A common example of Cumulative Advantage is that a prize will almost always be awarded to the most senior researcher involved in a project, even if all the work was done by a graduate student. The senior researched has accumulated that advantage. …

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Tuesday, July 9th, 2013

The Mental Model of Compound Interest

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This article on Compound Interest continues my quest to list out the Top 100 Mental Models Needed to Succeed in Business, inspired by Charlie Munger.

Munger calls compound interest “one of the most important models there is on Earth.”

It arises when interest is added to the principal.

If you don’t know how to use compound interest on a calculator,  there are a couple of excellent online compound interest tables/calculators that do all the work for you here:

• The Calculator Site
• GiniFab Compound Interest
• NCalculators Compound Interest Calculator

For example, …

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Saturday, July 6th, 2013

The Mental Model of “Inversion” in Business

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You know the story of the man who wanted to know where he was going to die, so he could make sure not to go there?

That’s a favorite story of Charlie Munger’s to explain the concept of inversion.

Munger credits mathematician Carl Jacobi (who famously said: “Invert, always invert”) who recommended working through math problems in reverse.

As A Margin of Safety wrote in Invert, Always Invert, an example of inversion (working through a problem backwards) came from University of Florida professor Jay Ritter who looked at the problem of whether to invest in Facebook around the time of its IPO. …

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Saturday, April 6th, 2013

7 Easy Ways to Tackle Your To-Do List

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I write a to-do list at the start of just about every day, but it can be tedious so I look for ways to shake up the process. Here are some ideas I find useful (in no particular order):

1) ABC Method — Try the ABC Method in which you write down the tasks you need to do and categorize them by:

• A = Critical to your goals and must be done that day.
• B = These are less urgent but should be started after your A’s are done.
• C = These are nice-to-do tasks that can be done if you’ve got some extra time

2) The 1-to-10 Stress Method

• List down all the to-dos that are stressing you out at the moment
• Rank them 1 to 10 in which 10 is stressing you out the most and 1 the least
• Tackle the tasks ranked 10 first, 9 next, 8 after that, etc.

3) Andreessen’s 3 to 5 Things on an Index Card — Marc Andreessen found it valuable to write down 3 to 5 things that you want to get done the following day. He does the following:

• The night before he writes the 3 to 5 most things he wants to get done on an index card
• He wakes up and tries to do those things
• For anything else he does (not on the list), he writes those things down on the opposite side of the index card and calls them his “anti-to-do” list.

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Sunday, March 17th, 2013

The Mental Model of AutoCatalysis (aka “Evergreen” or “Self-Breeding”) in Business

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I first heard of AutoCatalysis being used as a business tool from reading Charlie Munger.

AutoCatalysis originates in chemistry, a subject I did poorly in in high school, so I’ll give this definition from The Focus Investing Series Part 3: The Munger Network of Mental Models:

“In the autocatalysis process, properties, events or products serve as their own catalysts and are “self-breeding. For example the self-stimulated increase in the demand for air conditioning, hence the self-stimulated increase in the demand for air conditioners.”

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Sunday, March 17th, 2013

The Mental Model of Attribution Theory (aka “Cause Theory”) in Business

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Attribution Theory could easily be called “Cause Theory” or “Explanation Theory” because it centers around the cause or explanation of why something happens.

This is critical to understand in business.

Let’s say, for example, your Web designer builds a new home page and it is considered by users to be awesome — if they attribute it to their own brilliance then that’s internal attribution.

If, on the other hand, the designer’s new Web page is criticized as shoddy and the designer attributes the fault to having too little time to do a good job, then that’s external attribution. …

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