The Big Ideas

“Truly big ideas in each discipline, learned only in essence, carry most of the freight.  And they are not so numerous, nor are their interactions so complex, that a large and multidisciplinary understanding is impossible for many, given great amounts of talent and time.” -Charlie Munger

Munger has often discussed the 90+ mental models he uses daily to evaluate capital allocation decisions, manage and motivate people, solve complex problems, make quality decisions, and live better.  He has noted that it’s not enough to simply learn these models rote, but to utilize them constantly in a check-list style approach when analysing worldly issues.  Moreover, it’s when a confluence of these models are strung together in a latticework that true lollapalooza outcomes are possible.

My study of these big ideas is ongoing.  I’ve written many summary notes and examples for myself, which has helped solidify my thinking on some of these topics.  I realize, however, that these ideas will not become second nature until I incorporate them into my daily life and writings.  For the time being, I’ve simply included a list of the models below and have not provided descriptions and accompanying examples.  I will be discussing many of these models through real cases in my blog posts.  Furthermore, readers will be best served by creating their own lists and notes, for it will better solidify the concepts in their minds.  A large majority of these ideas have been lifted from Charlie Munger’s interviews and speeches (many of which can be found in the book, Poor Charlie’s Almanack), Peter Bevelin’s Seeking Wisdom (a masterpiece), the internet, and my own research.

This list is still in process.  If there are key ideas which you believe should be added, please contact me.

Psychology

“Human evolution started about 4 to 7 million years ago and today’s modern human brain appeared on the scene 150,000 to 200,000 years ago.  For most of that time, our ancestors lived in primitive hunter-gatherer societies.  These societies existed until the end of the last Ice Age, around 13,000 years ago.  Soon thereafter, some 10,000 years ago, agriculture was developed.  This means that humans have spent more than 99% of their evolutionary history in the hunter gatherer environment.” -Peter Bevelin, Seeking Wisdom

  • Reward and punishment
    • Operant conditioning
    • Classical conditioning
  • Incentive-caused bias
  • Liking / loving tendency
  • Disliking / hating tendency
  • Doubt-avoidance tendency
  • Inconsistency-avoidance tendency
  • Idealogical bias
  • Curiosity tendency
  • Kantian fairness tendency
  • Envy / jealousy tendency
  • Reciprocation tendency
  • Mere association
    • Persian messenger syndrome
  • Simple, pain-avoiding psychological denial
  • Excessive self-regard tendency
  • Overoptimism tendency
  • Deprival superreaction tendency
  • Social-proof tendency
  • Contrast-misreaction tendency
  • Automaticity tendency
  • Stress-influence tendency
  • Availability-misweighing tendency
  • Framing bias
  • Use-it-or-lose-it tendency
  • Status-quo and do nothing syndrome
  • Impatience
  • Drug-misinfluence tendency
  • Senescence-misinfluence tendency
  • Authority-misinfluence tendency
  • Twaddle tendency
  • Reason-respecting tendency
  • Say-something syndrome
  • First conclusion bias
  • Parkinson’s law
  • Survivorship bias
    • Alternate histories

Microeconomics

  • Competitive advantage
  • Ecosystem niche / local market advantage
  • Franchise value / informational advantage
    • Brand value
  • Supply / demand
  • Pricing power (tapped / untapped)
  • Minimum efficient size
  • Economies / diseconomies of scale
    • Advertising
    • Distribution
    • Research / design
    • Complex manufacturing
  • Specialization / experience curve
  • Network effect
  • Switching / search costs
  • Habitual purchasing (psychology / economics)
  • Patent protection / technology advantage
  • Winner-take-all tendency
  • Cancer surgery formula
  • Surfing the wave
  • Nuclear analysis
  • Impact of technology (helps / harms)
  • The institutional imperative
  • Opportunity cost
  • Creative destruction
  • Gresham’s law
  • First mover advantage
  • Thiel’s last mover advantage
  • Scarcity
  • Marginal cost
  • The invisible hand
  • Tragedy of the commons
  • Tobin’s q
  • Diminishing marginal utility
  • Cost / benefit analysis
  • Winner’s curse
  • Competitive games
    • Prisoner’s dilemma
    • Entry / preemption
    • Bargaining / cooperation

Mathematics

  • Number sense
  • Compound interest / exponentials
  • Permutations
  • Combinations
  • Jacobi’s inversion theory
  • Proof by contradiction
  • Thinking in extremes
  • Mathematical induction
  • Scale (volume / surface area)
  • Pareto principle (80 / 20 rule)
  • Law of 72
  • Correlation / causation
  • The second derivative

Statistics

  • Fermat / Pascal probability theory
  • Power law distribution
  • Normal distribution
  • Distribution analysis / distortion by outliers
  • Decision tree theory
  • Black swans (positive / negative)
  • Relevant sample size / law of small numbers
  • Small probabilities / high probability of impact given time
  • False positives / negatives
  • Bayes theorem
  • Central limit theorem
  • Measures of central tendency
  • Regression analysis
  • Reliability of case evidence

Physics

  • Systems thinking
    • Unintended consequences
  • Critical thresholds / mass
  • Limits
  • Constraints / weakest link
  • Small changes / large impact given time
  • Inertia
  • Momentum
  • Equilibrium

Engineering

  • Quality control
  • Breakpoints
  • Feedback loops
  • Redundancies

Biology

  • Evolution
  • Red queen effect

Chemistry

  • Autocatalysis
  • Thermodynamics
  • Kinetics

Finance / Investments

  • Risk vs. uncertainty / volatility
  • Cloning
  • Margin of safety
  • Mr. Market

Thinking Toolkit

  • Models of reality
    • Man with a hammer syndrome
  • Simplification (signal / noise)
  • Rules / filters
  • Checklist procedures
  • Goals
  • Alternatives
  • Quantification
  • Consequences
  • Risk
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