Formal definition:

In chemistry, the energy required to change from one chemical state to another. You might also encounter a similar phenomenon in physical change called "latent heat" - the energy needed to complete a phase change from one physical state to another.

How it applies

It may seem at first glance that everything we experience is linear. For example, when we add heat to water, we see the temperature increase.

Activation energy, however, is a non-linear curve required to create some type of change. This energy isn't lost or wasted, but is required for the change to take place.

This applies to habit forming, as an example; once you take the first step towards exercising, you are more likely to continue. This is also where the phrase "the first step is always the hardest" comes from.

This could apply to career planning as well; getting your first job in an industry is likely harder than getting your second job.

See also: [[Conservation-of-resources]]

Formal definition:

When a transaction has asymmetric information, the party with less information is subject to adverse selection.

How it applies

Adverse selection doesn't have to be limited to scenarios where the decisionmaker has less information. The concept can also be applied to someone who is disadvantaged in another way. Consider asymmetric opportunity, as an example; Decisionmaking frameworks apply differently when the decisionmaker faces adversity, because there is generally a looser coupling between the decision and the outcome.

See also: Asymmetry of Information

An effect where the initial frame of reference has a major effect on later perspectives.

This is surprisingly often inescapable, even if the anchor is well-known to be a facade.

For example, a car lot using artificially high prices is not as silly of a tactic as it may immediately seem. Despite the cognitive understanding that the prices are indeed artificial, humans still have a hard time discarding the "anchor" price.

A term that describes something that gets better with stress.

Generally, living beings are considered antifragile.

In direct contrast, something fragile breaks easily under stress.

Of note, this designation is not the same as being resilient; resilient means remaining close to an equilibrium under stress.

Anti-fragility is marked specifically by improvement under stress.

Something being simply resistant to wearing out is not enough to be considered anti-fragile.

Asymmetric information occurs when one agent in a transaction has more information than another.

Generally, information can create advantageous positions for the person with the additional information.

However, there are some rare instances where less information may be better, for different reasons. For example, dealing with the overwhelm of having too much information could create a "beginner's luck" situation.

Also known as the availability heuristic. Whatever is most recently remembered, within reach of our cognition or spatial awareness, is likely to influence our cognition. This also has the effect of causing us to weigh our judgments most heavily based on that availability.

Interesting research has been done on this topic, specifically as it relates to memory science. For example, studies show that someone will remember encountering something they are familiar with far more often than something they are not familiar with.

Additionally, availability heuristic might overlap with framing biases. For example, wording a question like "how fast were the cars going when they smashed into each other" has been shown to affect the respondent's recall and resulting answer. When the question is worded differently, i.e. "how fast were the cards going when they bumped into each other", the reported speed was lower, despite the same information being provided about the event.

We tend to entrench ourselves in our existing belief (see confirmation bias), and when presented with contradictary evidence, we tend to reject it and entrench even further into our preexisting belief.

A base rate is how often something happens within some sample. For example, the base rate of hours of sleep for a given population may be 8 hours. You can have base rates for your own behaviors, too.

When evaluating frequencies of events and other statistical representations of information, it's important to do so in light of the base rate. For example, if I say that "someone will die of a lightning strike in the US in the next 30 minutes", am I predicting a likely future? The only way we can predict (given no specific weather information) is by using base rates.

In the lightning strike example, we can look at a base rate of yearly lightning strikes (in the US, 51 fatalities occur per year - that's a little less than 1/week - so 30 minutes has about a 1/340 chance of being correct. So how about likelihood of dying if you are hit by a lightning strike? How can we figure out this base rate? The annual injury rate of lightning strikes is around 240k globally, and around 6k of those are fatalities.

6k / 240k is less than 2.5% - in other words, being struck by lightning is safer than some surgeries.

If we didn't have base rates, we wouldn't know that 98 of 100 people survive lightning strikes.

Benefits of scale is illustrated simply by the phrase "you have to have money to make money." Multiple mechanics are at play for benefits of scale, and they are often multiplicative.

For example, with large enough scale, you may no longer have to spend as much of your resources on recruiting talent, advertising your brand, or establishing a production pipeline.

Scale is also important particularly for litigation; because a single lawyer or small team of lawyers can represent a huge corporation in a given legal case, the resources needed to fight individual suits are often miniscule in comparison to the resources brought by the prosecution.

The mental picture of the benfits of scale is an exponential graph, where opportunity is exponentially correlated with capital scale.

Big and small number biases are fundamentally difficult to grasp. But to gain an intuition, try to visualize a stack of 1,000,000,000,000 quarters. Now visualize a stack of 1,000,000,000,000,000 quarters. If you are like most people, the height of each of these stacks is initially quite similar. In reality, the second stack is 1000x higher than the first stack. (Of course it is! But our brains don't see those numbers accurately.)

Similarly, imagine a cup of water. Now try to imagine pouring all but 0.00003% of the water out. How much exactly would be left? Trying to visualize this, most people would say a few drops, or just enough to keep the bottom layer of the glass wet. In a 16oz cup, .0000048oz, or about 136 micrograms. That's less than the weight of 3 grains of salt.

These biases extend further into our perception. For example, when we see "99.999% chance", we perceive it to be further from 100% than 99%. We're less likely to spend resources to improve life saving treatments from 93% to 96% effectiveness than we are from 99% to 100%. This "cure" effect is similar to the "possibility" effect: we buy lottery tickets because our chances of winning the lottery are non-zero ("possible").

A "black swan" event refers to an unexpected or rare event that has an outsized effect on the system the event occurs in. Because of their rare occurrence, a learning system may not prepare for the event, making the effect even more pronounced.

Example: How do you prepare for an earthquake? Looking at all previous earthquakes and preparing for the strongest of that set ignores the highly improbable (but still possible) event of an earthquake that exceeds previous records, thus rendering preparation null.

First explained by Nassim Taleb in his book of the same name, Black Swans pose a threat primarily because they are so unpredictable. Therefore, Taleb recommends practicing counterfactual reasoning.

Blowback, or unintended consequences, are an important mental model to understand. We can't foresee every interaction our decisions will have with future states. This effect becomes even more pronounced the further into the future we try to project.

Understanding that blowback exists can change the way we think about decisions. Trying to determine what blowback might occur is a higher-order type of thinking. When making decisions, what second-order or third-order effects might occur as a result? Which ones are important?

The notion that when a metric becomes a target, it ceases to be a good metric, often leading to unintended and dysfunctional consequences.

The suppression of free expression, speech, or inquiry due to perceived legal or social repercussions.

A theory in economics positing that externalities can be efficiently internalized through bargaining, provided transaction costs are low.

When an attempted solution to a problem exacerbates the problem due to unforeseen consequences.

Unintended negative outcomes, often harm to non-combatants in military contexts, resulting from an action.

This model deserves (and has) its own entire industry, because it is so powerful.

Think about this model with this in mind: "Systems that gain from themselves."

Compounding and exponential growth models are particularly relevant for financial decisions, but the same kind of model can be applied when trying to build new habits, cultivate better relationships, or create value for customers.

Compounding and exponential growth happens when the growth rate is determined by some basis, and that basis is in turn affected by the growth.

In other words:

This is a very rough understanding of the idea, but you can quickly see that the interest factor compounds (combines) with the basis to increase that same basis.

So, the more you grow, the faster you grow. The faster you grow, the more you grow.

(Note: "Basis" may also be called "principal" in this rough model of thinking.)

Related concepts include network effects, levers, and collaboration models.

The act of settling differences by mutual concessions to reach a beneficial or acceptable outcome.

Statistical measure that provides a range within which the true population parameter is likely to fall.

The tendency to favor information that confirms one's existing beliefs or values.

The mistaken belief that a conjunction of events is more probable than a single constituent event.

The principle that resources are limited and should be managed wisely, often in an ecological context.

The mental or physical arrangement of elements to highlight differences and facilitate comparison.

The shared expectations and rules that guide behavior within a particular group or culture.

Strategies or actions aimed at minimizing risk or uncertainty in a given situation.

The distinction between understanding the conceptual basis (derivation) versus solely relying on set formulas.

Taking a position you don't necessarily agree with for the sake of debate or to explore other viewpoints.

The phenomenon where each additional input yields smaller and smaller outputs.

The tendency to scrutinize and discredit information that contradicts one's beliefs more than information that confirms them.

The difference between variables that can only take specific values (discrete) and those that can take any value within a range (continuous).

The urge to take action, even when doing nothing might be the better choice.

Resistance encountered when moving through a fluid medium, often air or water.

An environment where one's beliefs or opinions are amplified or reinforced by communication exclusively within a closed group.

The minimum speed needed for an object to escape the gravitational influence of a celestial body.

Processes or systems designed to perpetually renew or sustain themselves.

Effects of a decision that affect parties not involved in the decision, which may be internalized through mechanisms like taxation or regulation.

The presentation of an issue as if only two extreme choices are available, when in fact a range exists.

A misguided feeling of safety or reduced vigilance due to deceptive indicators.

Personalized online environments that isolate individuals from opposing viewpoints.

The practice of breaking down complex problems into basic, self-evident principles for better understanding and solution formulation.

A technique for identifying the root cause of a problem by repeatedly asking 'Why?' until the underlying issue is uncovered.

The way information is presented or framed can significantly affect how it is perceived and acted upon.

Benefiting from a service or resource without contributing to the cost or effort of its provision.

The tendency to attribute others' behaviors to their character rather than to situational factors.

The ability to move smoothly and effortlessly, often used to describe aerodynamic or hydrodynamic efficiency.

Goodhart's Law is very important for managers to understand. At it's core, Goodhart's Law can colloquially be summed up with this:

Give someone a score, and they will try to make it go up.

The more formal version:

Once a measure becomes a target, it no longer is a reliable measure.

The main thesis here is that a measure is likely to be gamed when it becomes a strategic target. This is especially true if there are consequences tied to the changes of that measure.

Imagine that you are measuring "number of sales calls completed" as a way of determining your overall sales base effort, and you have a stated interest in increasing that number to some particular target point. In this scenario, your sales associates may be incentivized to game the measure by simply rushing their sales calls. The measure is no longer useful, and in fact has unintended negative consequences.

The principle of assuming ignorance or error before malice when interpreting others' actions.

The concept of headwind comes from aviation. A headwind is a prevailing wind in the opposite direction of travel that results in an identical airspeed but a slower groundspeed.

This model is a useful way of thinking about progress of a team. A team may be performing as usual, but a force outside of their control is making progress much slower than if the force was not present.

Similarly, a tailwind is the opposite; an external force that allows lower effort for equivalent progress.

Finally, a crosswind is a force that creates a discrepancy between your heading and your direction of travel. In order to maintain a particular course, you may have to "correct" for the crosswind.

All of these models are useful when thinking about where energy is being spent, what prevailing forces are present, and how they are managed.

A form of immunity that occurs when a large portion of the population becomes immune to a disease, indirectly protecting those who aren't.

A position of superiority or advantage in a debate, discussion, or situation.

Formal definition:

From the Greek legend of Hydra. When one head was cut off, Hydra grew another; this counter-intuitive result came from a well intentioned effort to fix the problem, but instead multiplied the problem.

How it applies

Software engineers may experience this problem when they "eliminate a monolith" and move to microservices. In fact, issues caused by the monolithic codebase may then return, or mutate to match the new structure.

Similarly, some management styles may try to silence dissent by removing individuals from a team; this may backfire and cause others to take note of the silencing act, further increasing dissent from the remaining members of the team.

Related

Streisand effect - efforts to censor information can lead to that same information being highlighted further, increasing awareness. This could be considered a specific variant of the Hydra effect.

The study of how incentives influence human behavior and decision-making in economic contexts.

The loss of productivity or increased costs incurred during a transition between tasks or systems.

The mathematical framework for measuring and quantifying information.

A model that represents the adoption and diffusion of a new technology or innovation over time.

The ability of different systems or components to work together, typically through established protocols or standards.

The ability to understand something without the need for conscious reasoning.

The practice of considering the opposite of what you want to achieve in order to identify barriers to success.

The idea that some systems or processes are so complex that they cannot be simplified without losing essential properties.

Approaching problems as isolated incidents rather than connected components of larger systems.

The observation that increased efficiency in resource use may lead to increased consumption of that resource.

An innovative fix or work-around used to solve problems with limited resources.

The belief that the world is fair, and therefore people get what they deserve, good or bad.

Specific and measurable metrics used to track performance in a particular area or toward a particular goal.

The energy possessed by an object due to its motion.

The difficulty of completing the final steps of a process, often the most costly or complex part.

The theorem stating that as the number of trials of a random process increases, the percentage difference between the expected and actual outcome decreases.

The fundamental principles that describe the behavior of energy and matter, including the conservation of energy and the direction of natural processes.

In chemical equilibrium, if a change is made to the concentrations of reactants or products, the system shifts its position to counteract that change.

A psychological condition where a person feels unable to change a situation that they perceive as uncontrollable, often leading to passivity.

Using a small initial investment or effort to gain a disproportionately large return or impact.

The cost of producing one additional unit of a product or service.

The additional satisfaction or benefit gained from consuming one more unit of a good or service.

Situations where the free market does not allocate resources efficiently, prompting the need for external intervention, often from the government.

The use of supply and demand interactions to set the price of goods and services in a free market.

The psychological practice of treating money differently depending on its source or intended use.

When the mental model used to approach or understand a problem is not aligned with the actual nature of the problem.

The concept that models are simplified representations of reality and are therefore inherently limited in their accuracy.

The risk that one party changes their behavior due to the perception that they will not bear the full consequences of their actions.

The practice of interpreting others' statements in the most positive or respectful way possible.

Minimum Viable Product, the most pared-down version of a product that still meets its core functionality and customer needs.

The phenomenon where narrowly avoiding a loss or disaster can either make people more cautious or more reckless in future situations.

A system where a change in some variable triggers a response that counteracts the initial change, promoting stability.

The increase in value of a product or service as more people use it.

The financial theory that asserts it is virtually impossible for an investor to consistently beat the market.

The practice of subtly guiding choices through changes in the environment without restricting options.

The impact of the act of observation itself on the thing being observed.

The principle that the simplest explanation is usually the correct one.

The principle that, when presented with competing hypotheses, the simplest one is most likely to be correct.

The act of intentionally leaving out crucial information, effectively deceiving without lying.

The loss of potential benefits from other options when one option is chosen.

The tendency to overestimate the likelihood of positive outcomes.

In statistical modeling, the mistake of fitting a model too closely to the training data, leading it to perform poorly on unseen data.

Coined by James Clear on Twitter, the Overreaction Paradox simply states that sufficient preparation for potential disaster might prevent that disaster all together, making the preparation seem like overkill.

A fundamental change in approach or underlying assumptions in a field.

The observation that roughly 80% of effects come from 20% of causes.

The principle that roughly 80% of outcomes result from 20% of causes.

Work expands to fill the time available for its completion.

The influence of past decisions and events on current and future choices and outcomes.

An incentive structure that creates addictive or compulsive behaviors through conditioning.

People judge experiences largely based on how they were at their peak and at their end, rather than based on the total sum or average of the experience.

The evaluation of scientific, academic, or professional work by experts in the same field to ensure quality and credibility.

When incentives produce unintended negative consequences, often the opposite of the intended outcome.

The theoretical smallest length that has any meaning in physics, approximately 1.6 x 10^-35 meters.

Designing products with a limited useful life to encourage frequent repurchase.

When political institutions or politicians fail to solve societal problems or meet the needs of their constituents.

Analytical techniques used before, during, or after a project to identify and learn from successes and failures.

The stored energy an object has based on its position in a force field, often gravitational.

A medical condition that existed prior to obtaining health insurance or receiving medical treatment.

The act of making performance improvements in code before the real bottlenecks are known, often complicating future changes.

The tendency to either over-simplify problems by using basic types or to avoid using third-party solutions in favor of in-house development.

Formal definition:

Also known as the "agency dilemma." An agency is motivated to act in their own interests, which is often competing with or in direct contradiction to the interests of the principal.

How it applies

This is one of the most important models to understand, because it has broad-sweeping effects. We'll list a handful of examples here.

• Realtor and home-seller - The realtor's upside is much smaller than the home seller's. Leaving a house on the market for an extra few weeks is less attractive than taking a sub-optimal deal, as the guarantee of the majority of the upside is often a stronger incentive than the small delta for the optimal deal.
• Contractor and Consumer - Especially if the contractor's work is based on hourly rates, the contractor is incentivized to spend a longer amount of time on a project than is necessary to complete the work. The customer is incentivized to shorten the project as much as possible. This often leads the contractor to provide insurance by a guaranteeing a ceiling. (Note: Assuming the ceiling isn't based on an artifically high estimate, this extra risk for the agent can be compensated for by charging a higher hourly rate.)
• Pharmacies and Patients - At a macro-level, the pharmacy industry is incentivized to promote the effectiveness of a given drug, and simultaneously not eliminate the need for their drug (by entirely curing the given disease). (Note: with this said, pharmaceuticals have drastically improved life expectancy and quality of life for the majority of people who have access to them.)

The use of probability for predicting the likelihood of future events, often updated with new evidence through Bayes' Theorem.

The act of delaying or postponing tasks, often leading to negative outcomes.

Information, often biased or misleading, used to promote a particular cause or point of view.

The immediate event or condition that brought about an outcome, as opposed to more distant or underlying causes.

A commodity or service that is provided without profit and is accessible to all members of a community.

Goods that are non-excludable and non-rivalrous, benefiting all members of a community whether they contribute to its provision or not.

The practice of exchanging things with others for mutual benefit.

Irrelevant or misleading information presented as if it were crucial to an argument.

The concept that organisms must continually evolve and adapt just to maintain their relative fitness in a constantly changing environment.

A set of coordinates used to measure the properties of an object, often relative to another frame of reference.

Changing the way an issue or situation is presented or thought about to create a different interpretation.

The statistical phenomenon that extreme outcomes are likely to be followed by more moderate outcomes.

A type of machine learning where an agent learns to make decisions by receiving rewards or penalties for actions.

The continuing and spreading effects of an action or event.

The identification and analysis of potential risks in order to avoid or mitigate their impact.

The principle that greater potential returns come with greater risk.

The fundamental reason for the occurrence of a problem, as opposed to its more superficial manifestations.

The economic principle that resources are limited, leading to trade-offs in how they are allocated.

A solution or focal point that people tend to choose by default in the absence of communication.

A mental framework for organizing and interpreting information.

A systematic approach for acquiring knowledge based on empirical evidence, experimentation, and hypothesis testing.

The technique of answering a difficult question by replacing it with an easier one that approximates the original.

The tendency to attribute success to one's own actions and failures to external factors.

The tendency to reject new evidence that contradicts established norms or beliefs.

In diagnostics, sensitivity refers to the ability to correctly identify true positives, while specificity refers to the ability to correctly identify true negatives.

A measure of the information content in a signal, often used in information theory.

The "Ship of Theseus" is a philosophical thought experiment that questions the identity of an object as its components are individually replaced.

The practice of viewing issues from a narrow or single-point perspective, often due to organizational boundaries.

A metaphor for complex behavior arising from simple rules, originally described by computer scientist Herbert A. Simon.

The comparison between optimizing a system based on a single variable versus multiple variables, with the latter often leading to more nuanced solutions.

The ability to accurately perceive your environment and react appropriately.

The tendency to consider an action or belief valid if it is accepted by a social group or proven by authorities.

An implicit agreement among individuals in a society to cooperate for mutual benefit.

The influence of others on an individual's thoughts, feelings, or actions.

The idea that differences in IQ scores between different ethnic or racial groups are primarily due to differences in general cognitive ability.

The theory that the laws of physics are the same for all non-accelerating observers.

Unintended consequences of an action that affect other areas or lead to additional outcomes.

Ranking entities based on multiple factors to create a composite score.

The resistance of wages to change, even when economic conditions call for adjustments.

A concept often used in systems thinking to describe variables that either accumulate (stock) or flow through a system.

Misrepresenting or exaggerating an opponent's position to make it easier to refute.

The phenomenon where an attempt to hide or remove information leads to greater public awareness of it.

The misconception that previous investments in a course of action should influence the decision to continue, even when future prospects are bleak.

The basic economic principle that the price of a good or service is determined by the interaction of supply and demand.

The willingness to accept the internal logic of a fictional or hypothetical world for the sake of engagement or analysis.

A risk analysis model that likens human systems to multiple slices of swiss cheese, stacked side by side, where holes represent weaknesses.

The quality of being made up of exactly similar parts facing each other or arranged around an axis.

The creation of a whole that is greater than the sum of its parts, often used in the context of teamwork or mergers.

The act of creating a simplified representation of a system to analyze its behavior and make predictions.

A holistic approach to problem-solving that focuses on how individual parts of a system interact and relate to one another.

The future cost of correcting shortcuts and workarounds in software development.

The idea that your environment shapes your thoughts and behaviors, similar to how a fish tank shapes the life of a fish.

A situation where a minor or subordinate part of a system disproportionately influences the whole.

The practice of seeing issues in a spectrum of possibilities rather than categorizing them as black or white.

A conflict resolution technique where a neutral third story is created to reconcile different perspectives.

The use of hypothetical scenarios to explore concepts, theories, and ideas.

The critical point at which a relatively small change can lead to a significant effect, causing an outcome to become irreversible.

Situations where you must sacrifice one thing to gain another, often used in economic and systems thinking.

A condition where there is excessive congestion in a transport network, often due to high volume of vehicles.

The depletion of a shared resource by individuals acting in their own self-interest, despite the long-term detriment to the group.

Strong loyalty to one's own social group, often to the detriment of others.

The tendency to focus narrowly on a single issue, ignoring broader perspectives.

A security measure requiring two different forms of identification before granting access.

Tyranny of small decisions is what happens when individuals make decisions that seem rational for themselves, devoid of how those decisions may affect a shared interest.

This is particularly relevant when talking about climate change. Each small decision a person makes to reuse a plastic bag or take public transit doesn't have an enormous appreciable affect on the state of our climate. However, in sum, these decisions do have an enormous effect.

In quantum mechanics, the idea that the position and momentum of a particle cannot be precisely known at the same time.

A mistake or failure that is solely the result of one's own actions, rather than external factors.

An ethical theory that the best action is the one that maximizes overall happiness or utility.

A measure of the satisfaction or benefit derived from consuming a good or service.

A series of activities that organizations undertake to create or deliver a product or service.

Costs that change in direct proportion to changes in production volume or activity.

Concepts in ethical and political philosophy that ask individuals to consider decisions from a position of ignorance about their own circumstances.

The act of holding the victim of a crime, accident, or any type of harmful event responsible for the event itself.

A computer architecture based on the separation of data storage and processing, named after mathematician John von Neumann.

A cybersecurity professional who performs ethical hacking to find vulnerabilities and improve security.

A complex problem that is difficult or impossible to solve due to incomplete or contradictory information, and interconnected and changing requirements.

A situation where all parties involved benefit in some way.

The preference for reducing a small risk to zero over a greater reduction in a larger risk.

A situation where one participant's gain or loss is exactly balanced by the losses or gains of other participants.

A situation where one person's gain is exactly balanced by another person's loss.

The mental and physical tiredness experienced from excessive video calls.