For Better Decisions Use Better Models

Given our cognitive biases, the path to better decisions is to base them on better models.

When people make decisions, they typically use their “mental models,” sometimes augmented by other types of models like spreadsheets, to try and predict the likely outcomes of their choices, then select the optimal choice. Think of this as “mental simulation.” This works fine for simple problems, but as complexity increases, our mental models and our cognitive processes are not evolved enough to deal with issues like too much data (leading to bounded rationality), long time delays (we almost always overweight near-time phenomenon), non-linear behavior (where cause and effect are not proportional), and feedback processes (those that lead to self-reinforcing or self-modulating behaviors).

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