Psychology & Mental Models Glossary

Behavioral economics is a field combining psychology and economics that studies how psychological factors — biases, emotions, cognitive limitations, and social influences — affect economic decisions. It challenges the classical assumption that humans are rational actors, demonstrating instead that human decision-making is predictably irrational.

A cognitive bias is a systematic pattern of deviation from rationality in judgment — a predictable error in thinking that affects all humans regardless of intelligence. Cognitive biases arise because the brain prioritizes speed and energy efficiency over perfect accuracy.

Confirmation bias is the tendency to search for, interpret, favor, and recall information that confirms or supports your pre-existing beliefs or values. It operates at three levels: what information you seek out, how you interpret ambiguous evidence, and what you remember afterward.

The Dunning-Kruger effect is a cognitive bias where people with limited knowledge in a domain overestimate their competence. Conversely, highly competent people often underestimate their ability relative to others. The effect occurs because the same skills needed to perform a task are also needed to evaluate one's performance at it.

First principles thinking is a method of reasoning that involves breaking a problem down to its most fundamental, irreducible truths and rebuilding a solution from those foundations — rather than reasoning by analogy from what others have done before.

Hanlon's Razor is a cognitive heuristic that states: never attribute to malice that which is adequately explained by incompetence, negligence, or oversight. It is a tool for reducing paranoia, improving relationships, and responding more accurately to events.

Inversion thinking is a problem-solving approach that involves deliberately thinking about what you want to avoid rather than what you want to achieve. Attributed to mathematician Carl Jacobi and popularized by Charlie Munger, it argues that the path to success is often most clearly seen by mapping the path to failure.

Loss aversion is the psychological tendency to feel the pain of losses approximately twice as intensely as the pleasure of equivalent gains. Identified by Kahneman and Tversky in the 1970s, it is one of the most reliably documented cognitive biases in behavioral economics.

A mental model is a simplified representation of how a system or concept works — a cognitive framework used to understand, predict, and navigate reality. Mental models are the thinking tools that allow you to reason across domains without re-learning from scratch each time.

Micro-learning is a learning strategy that delivers educational content in short, focused sessions — typically 3 to 10 minutes per unit. Research shows that micro-learning improves information transfer to long-term memory by 17% compared to traditional long-form learning methods.

The OODA Loop is a decision-making framework developed by military strategist Col. John Boyd. It stands for Observe, Orient, Decide, Act. The core insight is that in competitive environments, the participant who can cycle through the loop faster gains a decisive advantage — creating disorientation in slower-thinking competitors.

Second-order thinking is the practice of considering not just the immediate consequences of a decision (first-order effects), but the downstream consequences of those consequences. It asks: "And then what?"

Spaced repetition is a learning technique where information is reviewed at increasing intervals over time. First documented by Hermann Ebbinghaus in 1885, it exploits the brain's forgetting curve — each review resets the curve and makes the memory more durable.

The sunk cost fallacy is the irrational tendency to continue a behavior because of previously invested resources that cannot be recovered — even when future prospects are poor. Sunk costs are gone regardless of future action and should have zero influence on forward-looking decisions.

Survivorship bias is the logical error of focusing on subjects that have passed a selection process while overlooking those that did not — typically because failures are invisible. It produces false patterns and misleading lessons because the data set excludes the most informative cases: the ones that didn't make it.