The Complete Guide to Mental Models

Nov 21 / Network Capital

Mental models will help, as long as we are ready to put in the effort to contextualize them.Clarity is power and mental models are tools that propel us towards clarity. 

P.S. Please read these carefully and record your own reflections. We will be happy to discuss them with each one of you 1:1.

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Causal Reductionism

Things rarely happen for just one reason. Usually, outcomes result from many causes conspiring together. But our minds cannot process such a complex arrangement, so we tend to ascribe outcomes to single causes, reducing the web of causality to a mere thread.

Definition: Never attribute an outcome to a single cause. Any given instance is a result of a web of causal events, factors and actors at play. Oversimplification can be counterproductive.

Associating lay-offs in late stage Indian start-ups to just cost cutting. Look at the other factors of upskilling, hiring history and economy.

Dunning-Kruger Effect

Awareness of the limitations of cognition (thinking) requires a proficiency in metacognition (thinking about thinking). In other words, being stupid makes you too stupid to realize how stupid you are.

Definition: The inability understand one’s lack of knowledge and gaps in understanding perpetuates an illusion of superiority. Develop practices of self-evaluation to prevent inaccurate and inflated understanding of self.


Pareidolia: For aeons predators stalked us in undergrowth & shadow. In such times survival favoured the paranoid—those who could discern a wolf from the vaguest of outlines. This paranoia preserved our species, but cursed us with pareidolia, so we now see wolves even in the skies.

Definition: From an evolutionary and security perspective, being paranoid has historically been beneficial for humans. This idea of paranoia is the basis of human tendency to see faces in things or pareidolia. However, this core idea and utility of pareidolia and paranoia is no more applicable in the 21st century.

According to Naval Ravikant, AngelList CEO with a far more safer modern society we should all be rational optimists. Rather, today it is better to be an irrational optimist rather than a rational pessimist.

Do you suffer from pareidolia? Or do you fall at the other end of the spectrum?

Woozle Effect

Woozle Effect: An article makes a claim without evidence, is then cited by another, which is cited by another, and so on, until the range of citations creates the impression that the claim has evidence, when really all articles are citing the same uncorroborated source.

Definition: Always be critical and thorough with the source of original information before building on it further. Integrity and reliability of information is always more important that the contents of the information.

The term “woozle” comes from A.A Milnes ‘Winnie the Pooh’. It is based on the Pooh and Pigglet’s adventurous search of “woozle”, as they end up following their own foot-prints and searching in circles. Much of fake news and misinformation is a “woozle”. With Internet and online social media platforms it has been magnified.

When have you fallen prey to the charms of Woozle effect?

Loki’s Wager

Loki’s Wager: Fallacy where someone tries to defend a concept from criticism, or dismiss it as a myth, by unduly claiming it cannot be defined. E.g. “God works in mysterious ways” (god of the gaps), “race is biologically meaningless” (Lewontin’s fallacy).

Definition: If one creates enough ambiguity, contradiction and confusion they can prevent comprehensive definitions and understands. And thereby dismiss things as myths or indefinable.

Legend has it, Loki from the Marvel universe made a bet with some dwarves. Having lost the wager Loki had to pay inform of his head. To escape this, he fermented confusion by putting the clause that no part of his neck could be taken while cutting the head. As there was no consensus on where the neck ends and the head starts between the various parties involved, Loki escaped his payment.

A large part of dialogue and conversation on the internet and online social media platforms, particularly on politics, is like Loki’s Wager. By mixing unnecessary technicalities, personal biases and emotions, all discussion are reduced to random online noise.

Have you tried passing Coronavirus theories with the loki lens?


Enantiodromia: An excess of something can give rise to its opposite. E.g. A society that is too liberal will be tolerant of tyrants, who will eventually make it illiberal.

Definition: Introduced by psychiatrist Carl Jung, enantiodromia is the propensity of things to turn into its complete opposite. This is typically when too much of one thing leads to the rise of its own antithesis.

The modern egregious celebrations of work-place positivity is a case in point. With bright wall, provocative quotes and the obligatory up-beat attitude in co-working spaces and new start-ups a toxic culture of forced happiness has emerged.

Have you ever experienced toxic positivity? Remember that road to hell is paved with good intentions


We impose our imaginations on arrangements of data, seeing patterns where no such patterns exist.

Definition: A ball, bat and pitch in itself means nothing. Human minds have the unique ability to draw patterns, narratives and dots from seemingly unrelated pieces of information. This ability is determined by our imagination. Therefore based on your imagination, that ball, bat pitch could mean the sport of Cricket, Baseball, both or something completely different.


Taleb explains that you can see how books, companies, etc. fare over time by taking a given snapshot, in the absence of systemic risks or contagions that effectively eliminate ergodicity.

Assuming Ergodicity, we can look at nature, and consider the various species at a different stages in their cycles, and say that the future for a *given* species will "resemble" (that is for specific statistical properties) that of all other species.

Wisdom includes the detection of ergodicity where applicable but we should be careful of extending this line of thought unconstrained.


When many simple objects interact with each other, they can form a system that has qualities that the objects themselves don’t. Examples: neurons creating consciousness, traders creating the stock-market, simple mathematical rules creating “living” patterns.

Definition: Most modern systems that exist today are a result from interactions between simple actors and objects. These interactions then create complex systems with unique qualities. For example, debit and credit creates banking systems.

Understanding stock markets and investment.

Cumulative Error

Mistakes grow. Beliefs are built on beliefs, so one wrong thought can snowball into a delusional worldview. Likewise, as an inaccuracy is reposted on the web, more is added to it, creating fake news. In our networked age, cumulative errors are the norm.

Definition: Errors breed error. It only takes one error, one inaccurate statement or one false piece of information to snowball into large-scale misinformation and conspiracy theory.

Gender and biology – historically there were inaccurate and gendered understanding of biology that informed modern medicine and gender norms.

Survivorship Bias

We overemphasize the examples that pass a visibility threshold e.g. our understanding of serial killers is based on the ones who got caught. Equally, news is only news if it’s an exception rather than the rule, but since it’s what we see we treat it as the rule

Definition: Never build judgements or understandings of people, things, concepts or events solely based on only visible historical data. Always think of the possible pieces of missing information and alternative perspectives.

Simon’s Paradox

A trend can appear in groups of data but disappear when these groups are combined. This effect can easily be exploited by limiting a dataset so that it shows exactly what one wants it to show. Thus: beware of even the strongest correlations.

Definition: According to Simpson’s Paradox, trends and analysis that appear in small data-sets may disappear when amalgamated with the larger data-set. Do not assume data as a fact in itself. Always look at the variables and the data-set.

Condorcet Paradox

A special instance of Simpson’s paradox applied to elections, in which a populace prefers candidate A to candidate B, candidate B to C, and yet candidate C to A. This occurs because the majority that favors C is misleadingly divided among different groups.

Definition: The Condorcet paradox explores the cyclic process of preferences of voters. That is, an individual might might prefer candidate X to candidate Y, candidate Y to candidate Z and candidate Z to candidate X. This is representative of conflicting majorities. Therefore, are critical limitation to mass voting systems, and therefore opinion polls, election results, etc. are not necessarily representative of majority support.

Limited Hangout

Limited Hangout: A common tactic by journos & politicians of revealing intriguing but relatively innocent info to satisfy curiosity and prevent discovery of more incriminating info. E.g. a politician accused of snorting cocaine may confess to having smoked marijuana at college.

Definition: It is the practise of self-exposing a previously hidden secret to prevent a greater exposure of information.

Focusing Illusion

Nothing is ever as important as what you’re thinking about while you’re thinking about it. E.g. worrying about a thing makes the thing being worried about seem worse than it is. As Marcus Aurelius observed, “We suffer more often in imagination that in reality.”

Definition: We see life, events, instances, people and concepts through different lenses and perspectives. By constantly focusing only on one lens or perspective we distort and bias our understanding.

Concept Creep

As a social issue such as racism or sexual harassment becomes rarer, people react by expanding their definition of it, creating the illusion that the issue is actually getting worse.

Definition: As our moral compass, sensitivity and empathy increases our reaction to issues of social oppression and violence is magnified. This creates a deceptive scenario of negative growth and false victim-hood.

What have you changed your mind about lately? Does concept creep have anything to do with it?

Streetlight Effect

People tend to get their information from where it’s easiest to look. E.g. the majority of research uses only the sources that appear on the first page of Google search results, regardless of how factual they are. Cumulatively, this can skew an entire field.

Definition: Also known as the drunkard’s research principle, it is the tendency to look for sources and information only from the easiest and the most obvious places.

Belief Bias

Arguments we'd normally reject for being idiotic suddenly seem perfectly logical if they lead to conclusions we approve of. In other words, we judge an argument’s strength not by how strongly it supports the conclusion but by how strongly *we* support the conclusion.

Definition: Never approve or support arguments or perspective purely based on their conclusion. Always evaluate and judge an argument comprehensively based on its propositions, assumptions, correlations, empirical support and deductions.

Pluralistic Ignorance

Phenomenon where a group goes along with a norm, even though all of the group members secretly hate it, because each mistakenly believes that the others approve of it. (See also: Abilene Paradox).

Definition: Never blindly support a group decision simply because everyone around seems to agree. Groups where people secretly disagree but collectively comply are inherently counterproductive. To avoid this, create a safe environment for conversation, expert people to disagree, and actively listen for feedback.

The Petrie Multiplier

In fields in which men outnumber women, such as in STEM, women receive an underestimated amount of harassment due to the fact that there are more potential givers than receivers of harassment. (See also: Lotka–Volterra equations).

Definition: Let’s assume that in a room with 6 men and 4 women, each individual is equally likely to make rude, derogatory and sexist remarks. Simply the virtue of having lesser number of women, women will receive more negative comments. To put it simply, diversity and representation matter. Even the smallest majority can be oppressive.

Tocqueville Paradox

As the living standards in a society rise, the people’s expectations of the society rise with it. The rise in expectations eventually surpasses the rise in living standards, inevitably resulting in disaffection (and sometimes populist uprisings).

Definition: Much of discontent and dissatisfaction is social conditions today is a product of the exponential increase in expectations and relatively slower rise in capabilities. The gap between expectations and capabilities breed frustration.

Ultimate Attribution Error

We tend to attribute good acts by allies to their character, and bad acts by allies to situational factors. For opponents, it’s reversed: good acts are attributed to situational factors, and bad acts to character.

Definition: People have the tendency to attribute positive acts by known individuals to their character and negative acts to their situation. While doing the reverse for their adversaries.

Golden Hammer

When someone, usually an intellectual who has gained a cultish following for popularizing a concept, becomes so drunk with power he thinks he can apply that concept to everything.

Definition: For an individual with a hammer, everything is a nail. People have niche area specific knowledge, or unique expertise have a propensity of looking at all issues with that one concept that they are proficient in.

To a man with a hammer everything seems like a nail – a few words

Pareto Principle

Pattern of nature in which ~80% of effects result from ~20% of causes. E.g. 80% of wealth is held by 20% of people, 80% of computer errors result from 20% of bugs, 80% of crimes are committed by 20% of criminals, 80% of box office revenue comes from 20% of films

Definition: 80 percent of results come from 20 percent of actions.

Nirvana Fallacy

When people reject a thing because it compares unfavorably to an ideal that in reality is unattainable. E.g. condemning capitalism due to the superiority of imagined socialism, condemning ruthlessness in war due to imagining humane (but unrealistic) ways to win.

Definition: It the impulse to compare actual events, practices or solutions to utopian ideals. This not only creates a false dichotomy, but also reduces the space for achievable constructive actions.

Emotive Conjugation

Synonyms can yield positive or negative impressions without changing the basic meaning of a word. Example: someone who is obstinate (neutral term) can be “headstrong” (positive) or “pig-headed” (negative). This is the basis for much bias in journalism.

Definition: Most words, phrases and sentences are combination of factual and emotional content. To accurately distil the message, it is important to be able to distinguish the factual and emotional contents.

Sheryl Sandberg shared how men and women are considered different kinds of leaders for having the same qualities

Halo Effect

When a person sees an agreeable characteristic in something or someone, they assume other agreeable characteristics. Example: if a Trump supporter sees someone wearing a MAGA cap, he’s likely to think that person is also decent, honest, hard-working, etc.

Definition: It is a cognitive bias that leads people to take one positive trait or characteristic as applicable in other area

Out-group Homogeneity Effect

We tend to view out-group members as all the same e.g. believing all Trump supporters would see someone wearing a MAGA cap, and think that person is also decent, honest, hard-working, etc.

Definition: Each individual is product of multiple interest, identities and beliefs. Never stereotype or categories people based on just one of these aspects.

Matthew Principle

Advantage begets advantage, leading to social, economic, and cultural oligopolies. The richer you are the easier it is to get even richer, the more recognition a scientist receives for a discovery the more recognition he’ll receive for future discoveries, etc.

Definition: Matthew principle is a theory of accumulation according to which advantages as well as disadvantages get concentrated overtime. This makes it easier for the rich to get richer, the poor to get poorer, and the smart to get smarter.

Network effects and associated benefits are great examples of Matthew Principle.

Peter Principle

People in a hierarchy such as a business or government will be promoted until they suck at their jobs, at which point they will remain where they are. As a result, the world is filled with people who suck at their jobs.

Definition: Workplace hierarchies, may it be in businesses or government, enable growth of individuals only till they reach their highest point of incompetence. That is, people rise in their workplace till the time they succeed in their previous role. This leads to either firing or work stagnation


We use different mental processes in different situations, so each of us is not a single character but a collection of different characters, who take turns to commandeer the body depending on the situation. There is an office “you”, a lover “you”, an online “you”, etc.

Definition: Fictionally writings have best captured the nuances of subselves and multiple-competing identities. Much like Shakespeare prolific depiction of multiple-selves in ‘As You Like It’, everyone is an amalgamation of multiple characters. Understanding the different mental processes and multiple “you” is important to understand your own actions, intents and capabilities.

Goodhart’s Law

When a measure becomes a goal, it ceases to become a measure. E.g. British colonialists tried to control snakes in India. They measured progress by number of snakes killed, offering money for snake corpses. People responded by breeding snakes & killing them.

Definition: Phrased by Marilyn Strathern “when a measure becomes a goal, it ceases to become a measure”. That is by reducing a goal to just a quantity, you drastically change the quality. Always be careful when you get target based on number.


We see a complex natural system, assume that because it *looks* messy that it must be disordered, then impose our own order on it to make it “legible”. But in removing the messiness we remove essential components of the system that we couldn’t grasp, and it fails.

Definition: In the process of transforming “messy” natural system into “legible” and codified processes we tend to miss important components of that system. This causes inherent failures and contradictions in the new legible process.

Shifting Baseline Syndrome

Frog says to Fish, “how’s the water?” Fish replies, “what’s water?” We become blind to what we’re familiar with. And since the world is always changing, and we're always getting used to it, we can even become blind to the slow march of catastrophe.

Definition: By taking things for granted, and ignoring historical developments we become continuously get new ideas of “normal” and neglect systemic changes.

Example Climate change.

Availability Cascade

When someone is restricted from expressing a POV, or pressured to adopt a different POV, they usually react by believing their original POV even more.

Definition: By restricting a particular behaviour, action or expression, you consistently strengthen it. Restrictions rarely working in altering behaviour and thoughts.

Predictive Coding

There is no actual movement on a TV screen; your brain invents it. There are no actual spaces between spoken words; your brain inserts them. Human perception is like predictive text, replacing the unknown with the expected.

Definition: All of your imagination, mental visualisations, and thought processing is a result of predictive coding. Predictive coding is essentially our brains ability to receive, process and respond to inputs from our environment. While responding to input is the by-product, the act of receiving and processing input is foundational to the functioning of our brain.

Narrative Fallacy

When we see a sequence of facts we interpret them as a story by threading them together into an imagined chain of cause & effect. If a drug addict commits suicide we assume the drug habit led to the suicide, even if it didn’t.

Definition: In most cases, when faced with a random sequence facts people tend to link them in a chronological chain of cause and effect. By doing so, other factors and components are often ignored.

Recency Bias

The tendency to assume that future events will closely resemble recent experience. It’s a version of what is also known as the availability heuristic: the tendency to base your thinking disproportionately on whatever comes most easily to mind.
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