In his 1995 talk at Harvard, Charlie Munger, an American investor, and right-hand man of Warren Buffett, coined something called the "Lollapalooza effect". But before we get into the idiosyncratic word, it’s important to understand what “mental models” are.
Mental models can be understood as our brain’s environment which present a way of perceiving and reacting to the world. These tools are the basis for our psychological tendencies which determine why we choose one behaviour over another and why we are inherently biased.
While the recognition of our personal psychological tendencies is in itself a step forward, developing new mental models - no matter how difficult - is akin to developing a new way of thinking. It’s this reformed thinking that can allow us to strategise and make better decisions.
Munger, while explaining the faults in our thinking invokes the following quote: “To the man with only a hammer, every problem looks like a nail” and recommends the development of a “latticework of mental models” which can prevent us from solely, blindly wielding a hammer. The quest must instead be to explore our minds for greater success.
Munger calls it a “confluence of psychological tendencies in favour of a particular outcome”. At Tupperware parties or open auctions, for example, Munger believes, three or four psychological tendencies reject our rationality turning “our brains into mush”. When we are at an auction or a Tupperware party, there’s a desire to reciprocate to the host which leads to a commitment of purchase regardless of value. There’s also the effect of “social proof” which is humans’ tendency to imitate others or act and think the way everyone else does.
The most dreadful example of “social proof” and succumbing to authority (“authority misinfluence”) has been the Milgram experiment where participants were instructed to administer electric shocks to “learners”. The experiment found that the participants, although reluctantly, agreed to the inhumane task and led the scientific community to draw parallels between this exercise and the holocaust.
Clearly, our psychological tendencies and biases play a big role in how we lead our lives, but now that we’re armed with this rare awareness, can we use it to change how we think and fare better in life and work?
This can also be called the herd instinct where you think and act like others around you. In a workplace, herd instinct leads to uninspiring, run-of-the-mill thinking that doesn’t help the company.
If you’re following the herd instinct, you’re not thinking for yourself and are instead blindly following the social norm and practices. When businesses have to grow, herd instinct is a confirmed dampener. It must be each of our pursuits to ensure that we use our time, not to parrot other people’s views, but develop original, insightful analyses that can help our progress at the workplace.
However, it’s worth noting that herd might not be all bad. There are communities, such as the Alcoholics Anonymous, where being part of them and using our tendency of imitating others can help us live more valuable lives.
Elon Musk, James Clear writes, ran into a major challenge while forming his company SpaceX: the astronomical cost of purchasing a rocket. Instead of giving in, he looked at first principles and decided to build a rocket from scratch. Today, other companies are 3D printing entire rockets to bring costs down even further. This is, in fact, a result of a first principles thinking. What first principles thinking suggests is that we must dig deeper till we are left with the foundational truths of the problem.
To accomplish first principles thinking in day-to-day life, one must look beyond acknowledging the problems and ask: What is the core issue? What is my goal? Why does it matter?
These questions must be asked even of your work. Munger talks of Carl Braun whose highly successful business implemented the rule of five W's—”you had to tell who was going to do what, where, when and why. And if you wrote a letter or directive in the Braun Company telling somebody to do something, and you didn't tell him why, you could get fired.” The psychological reasoning behind this is obvious: When you understand why, you work better.
The problem, however, is that we ignore the ‘why’ and disconfirm available evidence. This means that we develop a bias so strong that any contrary information is automatically filtered out.
Our failing to evaluate an unbiased position leads to, what should be a carnal business sin, irrationality.
Charles Darwin, for example, trained himself to consciously pay attention to any evidence that would disprove what he had worked on so far. He did what was the opposite of confirmation bias. In fact, he particularly paid more attention to the corollaries the better he thought his hypothesis was. Warren Buffett, much to Munger’s delight, is credited with similar psychological insight.
Therefore, mental models, although difficult to follow, have a potential to change our minds. We might all suffer from cognitive faults and shortcomings but a conscious effort to reject biases and adopt rationality can effectively transform how we think and act in life.
(This article is from Thrive Global)