Make Better Decisions with 2 Models

If you want to make better decisions you have to models for how the world works. 

The more models you can hold or understand the more lenses you have with which you can view your decision-making. 

Two models come to mind for me when evaluating investment decisions. 

The 80/20 Principle and The Lindy Effect. 

The reason these two models work together is they give you a framework for evaluating good judgements when allocating capital. 

The 80/20 principle - Preato Optimal - tells us 80% of our results will come from 20% of our efforts. 

The trick with this mental model is understanding which 20% of results are worthy. 

This is where the Lindy Effect comes into play. 

The Lindy Effect tells us the longer something has been around the more likely it will remain to be around. 

That is the things that have longer staying power are more likely to retain that staying power than newer flashier items. 

While these are now laws etched in stone they are more guiding principles for evaluating decisions. The important thing to remember here is institutional favorites do fail - see Black Swan events - and new items can take flight to become huge successes - see the network effect.