The 3 mental models — An open letter to Model 2 practitioners

Growing up I have insatiate appetite for almost any human knowledge.

Trained as a classical electrical engineers — who like almost every such engineer struggled in college with the 4 succinct equations by James Clerk Maxwell — I applied the scientific method and engineering discipline to the studies of economics, finance, languages, history, philosophy, politics, cultures and even cuisines.

I was fortunate enough to be in love with so much of what human beings have crafted over thousands of years and accelerated over the past couple hundreds of years — and be able to at least have a decent grasp in all of them.

This allowed me, for example, to pass all 3 levels of CFA exams within 18 months — at the age of 39, despite never having been trained officially in finance.

Some might wonder why I bothered to do the CFA exams at such an advanced stage of my career but that’s exactly the point. I just love absorbing and systemizing knowledges. I want to understand things.

But I also live in the same daily life like everyone else. I have families and friends. I have studied with, played with, lived with and worked with people from different backgrounds across 3 different continents: Asia, America and Europe.

Many people I know don’t live the same way I live. They have great, satisfying lives with their families and friends (and sometimes jobs). They read news and care about major events, but they’re not interested in figuring out the systems behind those observed events.

Entirely respectably, they care about feeding their children, taking care of their parents and keeping their bosses satisfied about their work. Systems are but some intriguing concepts in the Matrix movies.

Then Trump came along in 2016. Like many people similar to me, I tried very hard to figure out what happened in the past 3 years by picking up previously neglected disciplines such as psychology and anthropology.

Then I realized that “nothing happened” in 2016. It’s actually the normality. My trajectory of knowledges absorption is not.

I, and the people that I look up to, are the outliers.

I consider coming to accept this the biggest personal progress I’ve made in this decade. And I have 45 to thank, ironically.

I also came to this very simple set of 3 mental models that I’d like to discuss in the following paragraphs.

Note that I have obviously no related domain expertise in building these models, but then again 45 and his supporters have proven to us that maybe domain expertise is overrated when people don’t want to and don’t need to hear from you.

Model 1: A => B / causation

This is the dominant system of most human beings living on earth and throughout the history.

Note that I’m not talking about “logic” here, which is why I refrain from using the well-known “p” and “q” nomenclatures.

No, I’m referring to something very simple. Call it the animal instinct if you like but it’s nothing more than observable causation.

I called it the A=>B system. You can read “A-to-B” if you want.

In the A=>B system, life is beautiful. There’s nothing you cannot understand.

• My bike got stolen because I forgot to lock it.
• The apple pie was burnt because it’s in the oven for too long.
• Cousin Sam bought a big house because he makes more money than I.
• My children don’t like to study mathematics because they’re lazy.
• I didn’t get the promotion because my boss doesn’t like me.
• Apple’s share price kept climbing because they had the best products.
• Oil prices crumbled because demand falls short.
• We should go outside in the sun because the sun kills the virus.

Everything is A=>B. Very simple. There’s nothing that cannot be explained. There’s no action that cannot be taken.

There’s nothing wrong about the A=>B system. It’s the most common mental model that most people employ in daily lives. Even only equipped with this, a vast majority of human beings will be able to live till the age of life expectancy within 3 standard deviations.

Note that relying on A=>B system has nothing to do with intelligence or lack of.

For example, my dad, whom I love and respect deeply, is definitely an intelligent person. However, he’s also a Model 1 guy. Born as the first child of a very poor family, the first part of his life was all about helping the entire family (including my grandparents, two uncles and one aunt) out of poverty.

He achieved that, which was remarkable and I respected a lot. But that also meant he did not have the luxury — that I had— to receive formal scientific or engineering training. He spent his entire career first as a teacher then as a government employee. Both were safe as bank as a job. Neither required scientific and engineering thinking.

Make no mistakes: my father is a voracious reader throughout his life and definitely tried to absorb as much knowledge as possible. Actually I shall owe part of my appetite to him (and my mom). However, without a scientific thinking in his thought backbones, a lot of the complicated subjects were simply too difficult to fully grasp for him.

As I grew into the systematic monster that I am today, he and I got into debates about all kinds of topics from time to time and the A=>B system (Model 1) is just no rival to systematic thinking (Model 2, see below), especially if the later is held by your beloved son.

My father is proud of me for being able to digest so many different things. But when I learned that he and my mom seemed to have voted for the candidate dubbed as the Taiwanese Trump during the mayor election in 2018 and later maybe the presidential election earlier 2020 I realized that “winning arguments” with him over the years was meaningless. It did not change his reliance on the simple and convenient A=>B mental model (Model 1).

That’s the same reason why 45 still has a very high approval rate and his base seems to like him even more during this grave mishandling of the Covid-19 pandemic.

Note that I’m not criticizing the A=>B system. I just want to make the point: Model 1 is the dominant mental model in homo sapiens. We cannot change that easily and should not expect that winning an argument by employing Model 2 will change people’s mind.

Causation and correlation

Model 2: Systematization

This metal model is the one that evolved from the original Renaissance thinking, bringing us Enlightenment, nurturing modern democracy, fueling industrial revolution and modern science, culminating in the seeming victory of modern capitalism.

I call it systematization.

Maxwell’s equations, which I mentioned tortured me and many of my peers in college, are the perfect depiction of this mental model.

Maxwell’s equations

For those of you who never had to be tortured by these equations, suffice to know that these 4 equations comprehensively describe all scientific rules in electromagnetism.

Everything we enjoy today in the form of electronics: iPhone, Macbook, Netflix, e-commerce, 4G mobile communication, Snapchat app, Twitter, Tesla e-vehicles, cable TV, Fox News… etc, they all owe it to these 4 equations.

So what are these 4 equations?

Well, that’s a 1-year course in the sophomore year that a lot among us electrical engineers never want to revisit. If you’re interested, there are plenty of on-line resources today that could give you a taste. I won’t waste your time here.

Through centuries of perfecting Model 2 and apply it to technology developments, we get to enjoy all the modern conveniences, which continue to evolve fast and furious.

And not just electromagnetism or other disciplines of natural science, the same systematization also exists in all disciplines of social science: economics, finance, history, philosophy, etc.

This is the mental model that many professionals and I employ in most of our careers. It allows us to handle complicated systems and phenomena. It brings prosperity to human societies.

We have thought that this is the mental model that every human being should and would want to learn to employ.

45 and the past 3 years have proven us conspicuously wrong.

Model 3: Fat tail / Black Swan

If Model 2 is my main mental model, Model 3 is my contrarian mental model to keep me sane.

This model is the famous Black Swan model, but the less misleading term should be fat tail.

Model 3 is almost like a mockery to Model 2 when one first learns about it. Because of the effort over the years to master Model 2 in different disciplines and professions, most Model 2 practitioners initially find it hard to accept Model 3.

The most famous case is Nobel Prize laureate Robert Merton refusing to accept Model 3 (or something akin to it) back when LTCM exploded, citing the triggering event a one-in-the-millionth outlier event.

While Model 2 is beautiful and extremely useful in building new technologies and (wistfully) new social systems, Model 3 seems more like Cassandra in Greek mythology. It’s very hard to accept for people who are proud of mastering Model 2.

Unfortunately, even though Model 2 seems to form the main structure of modern societies, Model 3 dominates the massive payoff events, both negative and positive.

By now people are at least familiar with all the massive negative payoff events, or negative Black Swans. These are the Asian financial crisis in 1997, the burst of the dot-com bubble in 2000, the September 11 attack in 2001, the financial crisis in 2008, and maybe the current Covid-19 pandemic.

But there are also positive Black Swans which yield massive positive payoffs, such as some founder-driven companies like Amazon, Google, Facebook and Apple. Or those at the top of the pyramide of Things That Scale such as Michael Jordan, Madonna, Beyoncé and J.K. Rowling.

What matters the most is both positive and negative Black Swans exist and dominate the value distribution and mental health of our modern societies. Treating them as statistical outliers and removing them from the unrealistic bell curves have been proven to be disastrous. As counter-intuitive as it is, it’s a must in the modern world and the future to learn Model 3.

There’s no short-cut to get a grasp of Model 3 though. For starters, one should at least finish the main works by Nassim Taleb, grouped as Incerto:

• Fooled by Randomness (2001)
• The Black Swan (2007)
• The Bed of Procrustes (2010)
• Antifragile (2012)
• Skin in the Game (2018)

Those who desire more should also branch out to Benoît Mandelbrot’s works, though some Model 2 practitioners like me probably have already touched on some of his works in fractal theories during our training years. Philosophically also read Karl Popper, which serves as the spirit underlying these remarkable efforts to describe Black Swans, though if you already hate philosophy you’ll hate it even more after picking up his masterpiece The Open Society & Its Enemies.

Final note

Ironically enough that at this point of my life, I feel Model 1 practitioners are the happiest if you measure the entire life span.

The most unhappy ones in this crazy moment are obviously Model 2 practitioners who don’t understand Model 3 while looking down on Model 1 people.

But if it’s just being unhappy, it’s not a big deal. There’s no unhappiness that won’t temporarily go away for at least 4 minutes upon listening to Michael Jackson’s « Love Never Felt So Good ».

The problem is practicing only Model 2 without an understanding of Model 3 is dangerous today, as we are more and more exposed financially to Black Swan events.

Don’t be a sucker, my fellow Model 2 people.

Also, be nice to Model 1 people because after all life is too short. Treasure the people you love and respect, whether they understand something or not. Hold them close to you because you might not get another chance.