There are many ways in which you can visualize the concept of equilibrium, but one of the simplest comes from Boombustology where a ball sits on a simple curved shape. A situation in which equilibrium is possible is one in which over time, if left to its own devices, the ball will find one unique [...]
Mental Model
Very little is known about the life of Thomas Bayes. We don’t know whether he was born in 1701 or 1702 and we don’t know if the picture commonly associated with him has been misattributed. We do know that, despite his poor publication record, Bayes was elected as a Fellow of the Royal Society. But [...]
Our insensitivity to base rates emanates from the representativeness heuristic and is a common psychological bias. From Smart Choices: A Practical Guide to Making Better Decisions: Donald Jones is either a librarian or a salesman. His personality can best be described as retiring. What are the odds that he is a librarian? When we use [...]
“Game theory is the study of how people behave in strategic situations. By “strategy” we mean a situation in which a person, when choosing among alternative courses of action, must consider how others might respond to the action he takes. Strategic thinking is crucial not only in checkers, chess, and tic-tac-toe but in many business [...]
The Red Queen is a fictional character Lewis Carroll’s Through the Looking Glass. In the novel, Alice finds herself running faster and faster but staying in the same place. Alice never could quite make out, in thinking it over afterwards, how it was that they began: all she remembers is, that they were running hand [...]
The prisoners’ dilemma is the best known strategy game in social science. The game shows why two entities might not cooperate even when it appears in their best (rational) interest to do so. What is rational for the individual in certain circumstances is not rational for the group — that is, pursuing a strategy that [...]
Why are we so optimistic in our estimation of a projects cost and schedule? Why are we so surprised when something inevitably goes wrong? Because of the human tendency to underestimate disjunctive events. According to Daniel Kahneman and his long-time co-author Amos Tversky (1974): “A complex system, such as a nuclear reactor or the human [...]
