February 2018

Abundance Mentality vs Scarcity Mindset -Mental Model 100

The Core Mindset of Capitalism

An abundance mentality sees there are enough resources and successes to share with others. A scarcity mindset thinks that if someone else is successful it means you lose.


Example: Imagine you’re a lawyer who just graduated law school. With a scarcity mindset, you will see your graduating classmates only as competition for the legal work available in your city. You will not want to work with them.


But with an abundance mindset, you will recognise that there is likely a growing amount of legal work in your city, and if not, there is definitely more legal work available in nearby cities. You will see your graduating classmates as resources, who can help you deliver a better legal service, and whom you can help. While your portion of the business profits will be smaller, the overall businesses profits will be larger—and you will make more money.


Wisdom: “Let not your mind run on what you lack as much as on what you have already.” — Marcus Aurelius


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Short-termism -Mental Model 099

The Attitude That Led To The 2008 GFC

An excessive focus on short-term results at the expense of long term interests.


Example: Short-termism was a key cause of the 2008 Global Financial Crisis. Large financial institutions wanted to sell as many home loans as possible, which was possible as banks were able to graning ‘NINJA’ loans— mortgages for people with No Income, No Nob, No Assets.


In the short term, the increasing number of people buying houses meant that housing prices skyrocketed. This made the financial institutions balance sheet look very healthy. But the growth was built on a house of cards.


The housing market crash. Homeowners handed back their keys and financial institutions became the ‘proud’ new owners of thousands of homes they didn’t want and couldn’t sell. Their stocks plummeted.


Wisdom: “Everyone who has worked with American management can testify that the need to satisfy the pension fund manager’s quest for higher earnings next quarter, together with the panicky fear of the raider, constantly pushes top management toward decisions they know to be costly, if not suicidal, mistakes.” — Peter Drucker


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Catalyst -Mental Model 098

The Rosa Barks Reaction

A substance that increases the rate of a chemical reaction.


Catalyst Example:

Rosa Parks arrest was the catalyst for the civil rights protests against segregation.



“The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.” ― Albert Einstein

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> Catalyst on Wikipedia.


Trade-offs -Mental Model 097

Why Sacrifice Matters

A situation where you lose something in order to gain something else.


Example: If you buy $1,000,000 worth of stock in Google, you gain a high expected rate of return, but lose the safety of having your money in bonds or the bank.


Wisdom: “I think it’s a false trade-off to say quality time versus quantity – you have to have both.” — Hillary Clinton


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Curse of Knowledge -Mental Model 096

Why Experts Make Poor Teachers

A difficulty in imagining what it is like for someone else not to know something that you know.


Example: A brilliant professor often forgets the difficulties that a young student encounters when learning a new subject, and thus communicates at a level more complex than the student can understand.


Wisdom: “Anyone who wants to lift the curse of knowledge must first appreciate what a devilish curse it is. Like a drunk who is too impaired to realize that he is too impaired to drive, we do not notice because the curse prevents us from noticing.” — Steven Pinker


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Streisand Effect -Mental Model 095

The Barbara Streisand Effect

An attempt to hide, remove, or censor a piece of information has the unintended consequence of publicizing the information more widely.


Example: In 2003, Barbara Streisand attempted to suppress photographs of her residence in Malibu, California. Before her attempt to squash the photograph, it had only been downloaded from the internet six times, two of which were by her attorneys. After her lawsuit, the image became a phenomenon and was viewed by more than 420,000 people the following month.


Wisdom: “When you tear out a man’s tongue, you are not proving him a liar, you’re only telling the world that you fear what he might say.” ― George R.R. Martin


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Hindsight Bias -Mental Model 094

How The Atomic Bomb Dropped In WWII Went From Saving 20,000 Lives To 1.5 Million Lives

Seeing a past event as predictable, despite there being no objective basis for predicting it.


Example: The fourth-quarter comeback to win the game. The politician who had secretly accepted bribes. The lump that turned out to be a tumour. We don’t predict these events. But once they do happen, we feel as if we knew all along they were going to occur. As Steve Jobs said in his famous Stanford Commencement Speech, “You can’t connect the dots looking forward; you can only connect them looking backwards.”


Wisdom: “If you feel like you knew it all along, it means you won’t stop to examine why something really happened.” — Neal Roese


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Preserving Optionality -Mental Model 093

An Unexpected Upside Of Procrastination

Waiting as long as possible to nail down the factors, decisions, or variables that are hardest to undo once they’ve been settled on.


Example: The term ‘Preserving Optionality’ was created by Robert Rubin when he worked for Goldman Sachs in risk arbitrage. The job of someone working in risk arbitrage is to correctly bet on whether a corporate event will occur, such as a merger.


Corporate events are dynamic, due to competition, regulation and internal politics. They are influenced by many factors and are highly uncertain. While practicing risk arbitrage, Rubin learnt that by waiting until the absolute last minute to make a decision, he was more likely to make the correct bet. Why? He had more time to gather information which would influence his decision.


Rubin went on the be US Treasury Secretary under President Clinton, where he put off his decisions as long as possible, and was very successful in his position.   


Wisdom: “People overestimate their knowledge and underestimate the probability of their being wrong”. — Nassim Taleb


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High-context vs Low-context Culture -Mental Model 092

Why Westerners Seem More Expressive Than Easterners

In a higher-context culture, many things are left unsaid, letting the culture explain them. In a low-context culture, communication is more explicit.


Example: Higher-context cultures are more likely to be found in the Eastern cultures of Asia, where the group is valued above the individual. Low-context cultures are more likely to be found in the Western culture of America, where the individual is valued above the group.


The context of culture affects people’s facial expressions. An experiment by the University of Glasgow shows the difference between (low-context culture) Western Caucasians and (high-context culture)  East Asians. The results showed that Western Caucasians express their emotions across their entire face, including eyebrows and mouth, while East Asians use their eyes to express most of the emotions, especially by changing the direction of their gaze.


In a high-context culture people don’t need to be as explicit, as the context does much of the communication. But in a low-context culture, the context does less communication so the individual must be more explicit in their communication.


Another example of high-context vs low-context culture is evident in the scientific fields. The ‘hard science’ fields like physics have lower-context cultures, compared to other scientific fields like sociology. As physics is dealing with knowledge closer to objective reality, they must be more explicit so they communicate exactly what they mean, as a tiny misunderstanding will mean they are completely wrong. Sociology is more subjective and less precise, which means that information is more ambiguous, and understanding it requires a shared subject perception, or a higher-context culture.


Wisdom: “Words and word choice becomes more important the higher-context the culture, as a few words can communicate a complex message very effectively to an in-group.”


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Precautionary Principle -Mental Model 091

Why San Francisco Measures The Potential Impact Of Its $600m Annual Spending

If an action or policy may cause harm to the public or the environment, in the absence of scientific consensus, the burden of proof that it is not harmful falls on those taking action.


Example: On the 18th of July, 2015, the City of San Francisco passed a Precautionary Principle Purchasing ordinance. It requires the city to weigh the environmental and health costs of its $600 million in annual purchases—from everything from cleaning supplies to computers.


Wisdom: “Precaution is better than cure.” — Johann Wolfgang von Goethe


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