What Are Mental Models & Why Are They Important (With A Simple Example)

This is an introduction to mental models and how they can be used in decision making. A simple example of the Goldilocks rule is provided along with 3 applications and 1 case where it doesn’t apply. Keywords to include: Mental Model

What Are Mental Models & Why Are They Important (With A Simple Example)
“…you can’t really know anything if you just remember isolated facts. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience on this latticework of models…” – Charlie Munger
There is plenty of literature around Mental models. They are an important tool to do well in life and in business.
And when someone like Charlie Munger puts so much emphasis on them, it becomes all the more important for the rest of us to understand mental models better.
But the way mental models are explained these days is in a lot of business-speak, more in the context of investing and finance.
More for Wall-Street than for the man on the street.
This post is an attempt to deconstruct the idea of mental models for the lay person. To make it very simple and intuitive to understand and use mental models in daily life.
To use them in important life decisions such as choosing a career or choosing a life partner, not just choosing an investment vehicle.
Let’s go.

What are Mental Models?

Mental models are maps of the world in our heads.
A mental model can be something as simple as a metaphor, or something as complex as a networked system of thinking.
Mental models are a set of beliefs and frameworks through which we make sense of the world.
There are many mental models we already use. We use them intuitively without realizing it.
And often they are all flawed.
Mental models can be something as simple a – “boys are better at mathematics than girls” or that “left-handers are more creative than right-handers”.
They are incorrect, not based on any scientific research, far away from reality, but we still use them in our head, because we don’t know any better.
The pursuit of Wisdom is about upgrading our mental models continuously and getting our understanding of the world as close to reality as possible.
That’s why Mental Models are important.

Why are Mental Models Important?

Our brain can’t store all the information it receives.
But it can’t also live everyday like the first day of existence. Previous information is crucial to our continued survival.
So the brain hacks itself.
It stores patterns instead of information.
That way it can optimally use its storage capacity while also dealing with repeated problems on a day to day basis.
Over thousands of years of evolution, our brain has become a pattern matching monster.
It craves patterns in everything it sees. It doesn’t matter if these patterns are accurate or not, as long as it’s able to string together a narrative and an explanation for an event, it will store that pattern.
That’s where the flawed models that we talked about earlier come into play.
And that’s why having a solid foundation of mental models is important. So that we can upgrade our thinking, and upgrade our understanding of the world.
If we have accurate models in our mind then we can use them to come to rational conclusions. And if don’t make an effort to get to accurate models then we will keep making irrational, incorrect decisions all our life.
That’s why we must build a large bank of mental models in our minds. A bank where each model works parallel with another, or sometimes even against another.
That’s why this bank is called a latticework of mental models.
It takes practice to be able to pick the right mental model for the right job.
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Sources of Mental Models

There are hundreds of mental models defined, studied, analyzed by now. And they can be from any discipline.
The real value of a mental model is in our ability to learn it in one field and apply it to many other areas of life successfully.
Here’s a non-exhaustive list of sources of mental models:
  1. Physics
  1. Chemistry
  1. Biology
  1. History
  1. Probability
  1. Numeracy
  1. Economics
  1. War
  1. Human nature
  1. Telecommunications
The beauty of mental models is that you can pick a model from one area and can apply it to make better sense of another area.
For example, the idea of “leverage” is a concept of physics, but it applies in economics, war, human nature, and judgment.
We can also derive mental models from children’s stories, and apply it to space exploration.
That’s what we will do today.
We will illustrate a simple mental model that everyone gets. See how it can be used to think better about a different set of problems.
And even look at cases where it cannot be applied.

The Goldilocks Rule – A simple Mental Model

Most of us are familiar with the story of Goldilocks.
She was a little girl who went to the house of a bear family when they were out. She tried to eat their porridge, sit in their chairs and sleep in their beds.
When she wanted to have porridge, she didn’t like the one which was too hot, or too cold. She had the porridge that was just at the right temperature.
When she wanted to sit in a chair, she didn’t like the one which was too big, or too small. She sat in the one which was just right for her.
And when she wanted to sleep, she couldn’t sleep in the bed which was too big or too small. She slept in the bed which was just the right size for her.
Cool story for kids right?
But a great model for adults as well. Let’s see how👇

The Pursuit of Happiness & Peak Performance

In the book Flow, author Mihaly Csikszentmihalyi talks about happiness as a state of being in flow when performing a particular task.
To get into flow, the task should satisfy two criteria:
  1. It should be difficult enough that we feel challenged.
  1. It should be not so difficult that we get overwhelmed and just give up.
It should be right in the sweet spot of difficulty to keep you interested and challenged at the same time.
If it’s too easy or too difficult then we are not likely to get in to flow or derive any happiness from the task.
You can use the Goldilocks rule when trying to pick a career, or when pivoting in the middle of your career.
But it’s not just about work.
This concept applies to any task we do. Be it at our work or at in our personal habits.
This is how we visualized it when we dissected the phenomenal book Atomic Habits.
The secret to continuously building life changing habits is our ability to stay in the Goldilocks Zone with each new habit.
As we get comfortable with one habit, we must elevate its difficulty and improve our performance with it. Stay in the green zone and our life will improve.
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The Pursuit of Love

The Goldilocks rule can be applied to building relationships as well.
When looking for a partner, it’s best to find someone with overlapping yet varied interests.
You want:
  1. A common set of baseline values that both people agree on.
  1. A divergent set of passions and interests to always keep the relationship lively.
You don’t want the other person to be too similar to yourself otherwise boredom will set in quickly. But you don’t want them to be too different from yourself as well, otherwise harmful friction will set in.
You want the relationship to be “just right.”
Right in the Goldilocks Zone.

The Pursuit of the Ideal Market

As an entrepreneur, figuring out the right market size can be difficult.
Even more or so if you are a solopreneur, an indie hacker, or creator without any venture funding.
If you are a venture funded startup you would ideally want to capture a large market. To recoup all the investments.
But if you’re not.
If you are bootstrapping, you CANNOT think of capturing a large market.
You can’t think of even entering a large market. You run the risk of getting crushed by companies many times larger than you.
And you can’t enter a very small market either. You run the risk of not having a sustainable business.
Here we can learn a lot from bootstrapping genius Arvid Kahl. He built and sold his SaaS company in 2 years.
The company was doing $55000 monthly recurring revenue at the time of his exit. And he sold it for a “life changing” sum of money.
According to him, his bootstrapped business could do so well because it was in the Goldilocks Zone of market size:
  1. It wasn’t too big for large corporations to enter the market.
  1. It wasn’t too small to not be able to build a sustainable business.
Read more about Arvid Kahl’s story in an earlier post we did about him:

The Pursuit of Extra Terrestrial Life

Space researchers theorize that life can be found on other planets in the solar system.
But such planets have to satisfy a very specific set of environmental conditions for life to flourish. These conditions are for various parameters.
But for our understanding let’s look at a single parameter : temperature.
If a planet is too far away from it’s Sun then it will be too cold and won’t support life.
And if a planet is too close to it’s Sun then it will be too hot to support life.
A planet must be at just the right distance from its Sun and have just the right temperature for life to flourish on it. Earth is the only planet that satisfies these conditions. It is the only planet that lies in the Goldilocks zone.
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Where it doesn’t work

So far we have seen the Goldilocks rule work in three very different scenarios.
And that’s the beauty of mental models. They are “transferrable knowledge’ by definition.
But true Wisdom lies in knowing where NOT to apply a mental model.
Because every mental model doesn’t work in every scenario.
The Goldilocks rule will not work in high risk – high gain scenarios.
Domains with extreme returns, both positive or negative.
Let’s look at two such examples:
  1. Crypto Investments : You cannot apply the Goldilocks rule to decide whether you want to invest in Bitcoin or Dogecoin or not.
  1. Founding a Startup : Entrepreneurship is hard. Raising funds, inventing a new product, taking it to market, selling it, capturing the market and eventually taking the company public. It’s another game of extreme risk and extreme returns. And the Goldilocks rule doesn’t work here.
But there may be other mental models that work in such extreme cases. We will look at related models like the barbell strategy and the 80-20 rule in future posts.


Mental models are a way of thinking about something. A way to make decisions in a more rational and logical manner.
But they aren’t foolproof. They aren’t flawless.
And that’s why you need as many as you can understand and keep active in your mind.
That’s why you need a latticework of mental models.
So that you can apply different models in different situations and make prudent decisions.

Thank you for reading🙏
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