Studying mental models is an excellent way to enhance one's thinking, and they can be particularly useful in decision-making. For investors, understanding the mental models—of which there are over a hundred—helps avoid traps set by our own minds.
The mental model "The map is not the territory" is a well-known idea introduced by Polish scholar Alfred Korzybski.
Even the best maps are not perfect. Any map is merely a snapshot of a real place at a specific moment. Similarly, there is no perfect "map" for investing. Each investment philosophy is simply a map.
It is essential that your philosophy aligns not only with your individual preferences but also with the current market situation. As your understanding of investing deepens, your map will improve.
"Fooled by Randomness"
The idea's author, American writer, Ph.D., former trader, and risk manager of Lebanese descent Nassim Taleb, believes that most events occurring in the world are the result of random occurrences.
We become "fooled by randomness" when we mistake the random for the systematic. If an individual strikes it rich by purchasing certain assets at the right moment, they tend to attribute the result to their brilliant strategy, while in reality, it may simply be a stroke of luck.
These are just a couple of examples among many intriguing thinking concepts that can assist investors in making the right decisions.
