The ability to make quick and accurate decisions in our daily life is premised on being able to recognize patterns and knowing how to react to them. Otherwise the brain would have to start from scratch and spend time categorizing the input that it sees. When a pattern is recognized the brain can focus on a more in-depth analysis. For example, traders see trends in the graphs of their stocks, lawyers know how to best handle witnesses, and programmers know where to look for bugs.

The value of models is that it allows a person to simplify a lot of information down to something which can be retained in an individual’s head. By “freeing up space” they can focus on the next set of information. This allows a person to retain much more data than they could otherwise. More data leads to a better decision.

The additional benefit of a model is that when another person knows the model, communication is much crisper and clearer. The other person does not have to churn on categorizing what you are saying, but instead can focus on what your point is.

Models also allow a person to jump up the experience ladder when thinking about a situation. They can do an accurate strategy analysis for the first time using SWOT. Not using a model would require years of experience to do just as well.

In MBA school, I learned a ton of models. For the most part, they were worthless because they we too complex for me to keep straight in my head, or else they were too specialized to be applicable in the majority of situations.

A truly great model has the following attributes:

• Simple - 3 or 4 categories tops
• Covers the majority of case - There will always be corner cases which models miss
• Others can understand it quickly - If you need to teach it, it’s quick
• Requires little experience to apply

A great model will not cover the every situation, but it will certainly reduce the need to start from scratch in decision making.

Next time I will cover my favorite models and touch on some of the worse models.