I find the topic of mental models quite fascinating. If you are unfamiliar with mental models there's a great introduction over on Farnam Street, take a look when you get a chance but let me quote their definition.
A mental model is simply a representation of an external reality inside your head. Mental models are concerned with understanding knowledge about the world.
While mental models can be traced back several decades in academic literature, they have been made part of every investors vocabulary because of Charlie Munger, Vice Chairman of Berkshire Hathaway.
One common mental model is called confirmation bias.
Confirmation bias is when we seek information that confirms our prior conclusions, especially when those conclusions are public. It leads us to ignore evidence to the contrary, often without even realizing we are doing it. It's really amazing, once you become aware of confirmation bias you realize that it bleeds into almost every decision you make.
To be honest, I'm a little nervous writing about a mental model for a couple of reasons:
- I'm a total novice when it comes to mental models, so I could look like a fool
- It's possible someone has already written about the model I'm going to describe, perhaps calling it something else.
A friend was recently telling me about a thought that had ocurred to him and I realized it was a mental model he was talking about. We call it Values Dischord Bias. It is when there is a tension between a persons perceived values and the required work needed to succeed in an endeavor. For example, if someone was a salesman and he has to clearly and without equivication say his product does A, B, and C better than the competition or he won't make the sale there are two options. First, if it's not true he can just lie. However, if he has a value system that says it is wrong to lie, then the second option comes into play. He must ignore any information that might reveal his product only does A well, not B or C. He has to be believe the inaccruacy or there is dischord between what is needed and what his values demand.
Applying the Mental Model:
We must strive at all times to understand the truth. Even if it means short term frustration and possibly even financial loss. since By aggressively seeking out then embracing the dirty truth about ourselves we can make the long term changes that will ultimately make our organization better and more successful.