Investing The Last Liberal Art by Robert Hagstrom

Summary

Hagstrom covers a few mental models from different fields – such as physics, biology and psychology – and how they can be applied to improve investment decisions. He neglected some important mental models and could’ve covered more ground. Seeking Wisdom provides more.

Key Takeaways

• We do not learn new subjects because we have somehow become better learners but because we have become better at recognizing patterns.
• Benjamin Franklin’s success as an educator was based upon three standing principles. 

1. The student must acquire the basic skill sets: reading, writing, arithmetic, physical education, and public speaking. 
2. The student was introduced to the bodies of knowledge.
3. The student was taught to cultivate habits of mind by discovering the connections that exist between the bodies of knowledge.

• Paradigm collision and the tactics for dealing with it are straightforward. 

1. Seek to discredit the new paradigm in any manner possible
2. Begin to repair the dominant paradigm so it better explains the environment.
3. Alternative, more subtle way, which can ultimately settle the matter – time.

• The two critical variables necessary for a collective to make superior decisions are diversity and independence.
• Self-organized criticality: large complex systems composed of millions of interacting parts can break down not only because of a single catastrophic event but also because of a chain reaction of smaller events.
• We still succumb to magical thinking because as pattern-seeking animals we need explanations even for the unexplainable.
• A tenet of philosophy does not exist for us until it passes through the cognitive filter of our interpretation, experience, and beliefs.
• Failure to explain is caused by failure to describe.
• We can all acquire new insights through reading if we perfect the skill of reading thoughtfully. This also improves our ability to think critically.
• St. John’s is a coeducational, four-year liberal arts college known for its Great Books program. The entire curriculum is devoted to reading and discussing the great books of Western civilization. They read classic works and discuss them intensely in groups of 18-20 students.
• Adler proposes that all active readers need to keep four fundamental questions in mind:

1. What is the book about as a whole?
2. What is being said in detail?
3. Is the book true, in whole or part?
4. What of it?

• The mental skill of critical analysis is fundamental to success in investing. Perfecting that skill – developing the mindset of thoughtful, careful analysis – is intimately connected to the skill of thoughtful, careful reading. Each one reinforces the other in a kind of double feedback loop. Good readers are good thinkers; good thinkers tend to be great readers and in the process learn to be even better thinkers.
• “We are never certain; we are always ignorant to some degree. Much of the information we have is either incorrect or incomplete.”
• To build good mental models, we need a general awareness of the fundamentals of various disciplines, plus the ability to think metaphorically.

What I got out of it

Having read the excellent Poor Charlie’s Almanack and Seeking Wisdom, and done my own deep dive into mental models, it’s difficult to really take something new away from Investing The Last Liberal Art or to recommend it to anyone.

I’m also unsure about considering Philosophy and Literature suitable areas to pick mental models from as they are products of their time – more so than other scientific disciplines – and thus difficult to base decisions on. We want to filter our decisions through models that are unlikely to change, after all.

But they were the two fields where I learnt the most from:

• St. John’s Great Books curriculum and education style
• Adler’s How To Read A Book
• Improving critical thinking by becoming better readers

All in all, it was a decent reminder of some concepts, but I think Hagstrom neglected some more important models and could have covered many more inside the 180 or so pages of this book. Read the above books (or my mental model guide) instead.

Summary Notes

A Latticework Of Mental Models

Investment decisions are more likely to be correct when ideas from other disciplines lead to the same conclusions. That is the topmost payoff – broader understanding makes us better investors. It will be immediately obvious, however, that the ramifications are much wider. Those who strive to understand connections are well on the way to worldly wisdom. This makes us not only better investors but better leaders, better citizens, better parents, spouses, and friends.

How does one achieve worldly wisdom? To state the matter concisely, it is an ongoing process of, first, acquiring significant concepts – the models – from many areas of knowledge and then, second, learning to recognize patterns of similarity among them. The first is a matter of educating yourself; the second is a matter of learning to think and see differently.

Benjamin Franklin’s success as an educator was based upon three standing principles. 

4. The student must acquire the basic skill sets: reading, writing, arithmetic, physical education, and public speaking. 
5. The student was introduced to the bodies of knowledge.
6. The student was taught to cultivate habits of mind by discovering the connections that exist between the bodies of knowledge.

Learning new concepts has less to do with a change in a person’s learning ability than with the existence of commonalities. We do not learn new subjects because we have somehow become better learners but because we have become better at recognizing patterns.

Innovative thinking requires us to master two important steps. 

1. We must understand the basic disciplines from which we are going to draw knowledge.
2. We need to be aware of the use and benefit of metaphors.

“Worldly wisdom is mostly very, very simple. There are a relatively small number of disciplines and a relatively small number of truly big ideas. And it’s a lot of fun to figure out. Even better, the fun never stops. Furthermore, there’s a lot of money in it, as I can testify from my own personal experience. What I am urging on you is not that hard to do. And the rewards are awesome…. It’ll help you in business. It’ll help you in law. It’ll help you in life.

And it’ll help you in love…. It makes you better able to serve others, it makes you better able to serve yourself, and it makes life more fun.” – Charlie Munger

Physics

What happens in the shop is governed by the rule of supply and demand, which in turn is a pure, classic example of the law of equilibrium at work.

Our ability to answer even the most fundamental aspects of human existence depends largely upon measuring instruments available at the time and the ability of scientists to apply rigorous mathematical reasoning to the data.

Equilibrium is defined as a state of balance between opposing forces, powers, or influences.

• An equilibrium model typically identifies a system that is at rest; this is called static equilibrium. 
• When competing forces are equally matched, a system reaches dynamic equilibrium. 

Physics has always held an enviable position within the sciences. With its mathematical precision and immutable laws, it seduces us with a sense of certainty and gives us the comfort of absolute answers. We should not be surprised to learn, therefore, that other disciplines generally looked first to physics in a search for answers, for order underneath nature’s messiness

Competition ultimately determines equilibrium price. If price is oscillating, it is because there is a temporary imbalance between supply and demand, but this is ultimately corrected by the marketplace.

Every complex adaptive system is actually a network of many individual agents all acting in parallel and interacting with one another. The critical variable that makes a system both complex and adaptive is the idea that agents (neurons, ants, or investors) in the system accumulate experience by interacting with other agents and then change themselves to adapt to a changing environment.

Biology

Whereas in nature the process of evolution is one of natural selection, seeing the market within an evolutionary framework allows us to observe the law of economic selection.

The originality of Darwin’s theory lay in the idea that the struggle for survival was occurring not only between species but between individuals within the same species. The central point of his whole life work is that capitalism can only be understood as an evolutionary process of continuous innovation and creative destruction. 

Schumpeter’s dynamic economic process was composed of three principal elements: innovation, entrepreneurship, and credit. At the heart of his theory is the idea that the search for equilibrium is an adaptive process. In that process, innovators are the change agents. All changes in the economic system start with innovation.

Without the entrepreneur’s desire and willingness to press forward, many great ideas could never be launched.

Paradigm collision and the tactics for dealing with it are straightforward. 

4. Seek to discredit the new paradigm in any manner possible
5. Begin to repair the dominant paradigm so it better explains the environment.

Although intense intellectual combat is the norm when two competing paradigms collide, there is another, more subtle way, which can ultimately settle the matter – time.

Darwin’s evolution was steady, slow, and continuous. Biologists call this gradualism. Likewise, a business owner who operates in the same industry year after year may not experience any change.

But in other cases, change can occur swiftly and dramatically. Biologists call this “punctuated equilibrium.” For a long period of time there is very little change, then suddenly a few huge changes can occur – perhaps the result of DNA mutations or a dramatic alteration of the environment. This is Schumpeter’s evolution. In his world, change occurs very rapidly then settles down again for a period of steady, slow, but continuous alteration.

No matter its pace, we must remember there is always change. And this is why we must leave Newton’s world and embrace Darwin’s.

Unshackling themselves from the classical teachings, the Santa Fe group was able to point out four distinct features they observed about the economy.

1. Dispersed interaction: What happens in the economy is determined by the interactions of a great number of individual agents all acting in parallel. The action of any one individual agent depends on the anticipated actions of a limited number of agents as well as on the system they cocreate.
2. No global controller: Although there are laws and institutions, there is no one global entity that controls the economy. Rather, the system is controlled by the competition and coordination between agents of the system.
3. Continual adaptation: The behaviour, actions, and strategies of the agents, as well as their products and services, are revised continually on the basis of accumulated experience. In other words, the system adapts. It creates new products, new markets, new institutions, and new behaviour. It is an ongoing system.
4. Out-of-equilibrium dynamics: Unlike the equilibrium models that dominate the thinking in classical economics, the Santa Fe group believed the economy, because of constant change, operates far from equilibrium.

An essential element of complex adaptive systems is a feedback loop. That is, agents in the system first form expectations or models and then act on the basis of predictions generated by these models. But over time these models change depending on how accurately they predict the environment. If the model is useful, it is retained; if not, the agents alter the model to increase its predictability.

In the markets, each agent’s predictive models compete for survival against the models of all other agents, and the feedback that is generated causes some models to be changed and others to disappear.

The long-term evolution of the market can be studied in terms of flows of money. Financial evolution is influenced by money in much the same way that biological evolution is influenced by food.

Sociology

Four basic principles of trading – as relevant today as they were 325 years ago:

1. Never advise anyone to buy or sell shares. Where perspicacity is weakened, the most benevolent piece of advice can turn out badly.
2. Take every gain without showing remorse about missed profits. It is wise to enjoy what is possible without hoping for the continuance of a favourable conjuncture and the persistence of good luck.
3. Profits on the exchange are the treasures of goblins. At one time they may be carbuncle stones, then coals, then diamonds, then flint stones, then morning dew, then tears.
4. Whoever wishes to win in this game must have patience and money, since values are so little constant and the rumours so little founded on truth. He who knows how to endure blows without being terrified by the misfortune resembles the lion who answers the thunder with a roar and is unlike the hind who, stunned by the thunder, tries to flee.

Smith argued that an economic system works best when it is based solely on its own natural mechanism, what he called the “invisible hand.”

Smith believed that division of labour is the cause of increased productivity and, ultimately, wealth for the owners of capital. He was not, however, unaware of the social consequences produced by division of labour: the decline of general skills and craftsmanship, the likely incorporation of women and children into the workforce, and the tendency to divide society into economic classes with opposing interests. He acknowledged that, over time, the owners of capital would seek to limit the wages of labour. Thus was set into motion a countervailing view of economics propounded by Karl Marx and other socialists: that capitalism was but a passing stage of development that would soon be replaced by a more humane economic system based on cooperation, planning, and the common ownership of the means of production.

Self-organization refers to a process whereby structure appears in a system that does not have a central authority or some other element that imposes its will by preplanning. We can observe self-organization in chemistry, biology, mathematics, and computer science. It also occurs in human networks or societies.

The second characteristic of complex adaptive systems – their adaptivity – is embedded within what is known as the theory of emergence. This refers to the way individual units – be they cells, neurons, or consumers – combine to create something greater than the sum of the parts.

Many individuals, all of them trying to satisfy their own material needs, engage in buying and selling with other individuals, thereby creating an emergent structure called the market. The mutual accommodation of its individual units coupled with the self-organizing behaviour of the system creates a behavioural whole, an emergent property that transcends its individual units.

Although scientists have had difficulty modelling the phenomenon of self-organization, they have made excellent progress modelling emergent behaviour.

Self-organized systems, explains Johnson, have three distinct characteristics. 

1. The complex global behaviour occurs by simple connected local processors. In a social system, the local processors are individuals. 
2. A solution arises from the diversity of the individual inputs. 
3. The functionality of the system, its robustness, is far greater than any one of the individual processors. Johnson believes that the symbiotic combination of humans and networks (Internet) will generate, in a collective, far better results than any one individual can do acting alone.

The essential characteristic a self-organizing system must contain in order to produce emergent behaviour: diversity.

The system, as long as it is adequately diverse, is relatively insensitive to moderate amounts of noise (by which he means any sort of discordant, disruptive activity).

The two critical variables necessary for a collective to make superior decisions are diversity and independence.

Information cascades (which can lead to diversity breakdowns) occur when people make decisions based on the actions of others rather than on their own private information. These cascades help explain booms, fads, fashions, and crashes.

Self-organized criticality: large complex systems composed of millions of interacting parts can break down not only because of a single catastrophic event but also because of a chain reaction of smaller events. To illustrate the concept of self-criticality, Bak often used the metaphor of a sand pile.

Psychology

All the customary behavioural finance terms we have come to know and understand:

anchoring, framing, mental accounting, overconfidence, and overreaction bias.

But perhaps the most significant insight into individual behaviour was the concept of loss aversion.

Under utility theory, value is assigned to the final asset. Under prospect theory, resting on its core notion of loss aversion, value is assigned to gains and losses.

Loss aversion, embedded in prospect theory, ultimately forced economists to rethink their basic assumptions of how people make decisions.

Why is anyone willing to hold bonds when we know that over the years, stocks have consistently outperformed? The answer rested upon two central concepts from Kahneman and Tversky.

1. Loss aversion. 
2. Mental accounting: the methods people use to code financial outcomes.

Myopic loss aversion reflects a combination of loss aversion and the frequency with which an investment is measured.

How often would an investor need to evaluate a stock portfolio to be indifferent to the historical distribution of returns on stocks and bonds? The answer: one year.

Information overload can lead to an illusion of knowledge.

Measuring stock performance in one-hour increments generated the worse negative utility for investors.

Walter Mitty effect: when the market is doing well, they become brave in their own eyes and eagerly accept more risk. But when the market goes down, they rush for the door.

Psychologists tell us that our ability to understand abstract or complex ideas depends on carrying in our mind a working model of the phenomena. These mental models represent a real or hypothetical situation in the same way that an architect’s model represents a planned building and that a colourful doodah made of Tinkertoy pieces can represent a complicated atomic structure.

People are processors of information and they construct mental models of reality to help anticipate events. With a small-scale model of external reality and of possible actions we are able to try out various alternatives, conclude which is the best of them, react to future situations before they arise, utilize the knowledge of past events in dealing with the present and the future, and in every way react in a much fuller, safer, and more competent manner to the emergencies which [we] face.

Ongoing research has shown that, overall, our use of mental models is frequently flawed. We construct incomplete representations of the phenomena we are trying to explain. Even when they are accurate, we don’t use them properly. We tend to forget details about the models, particularly when some time has passed, and so our models are often unstable. Finally, we have a distressing tendency to create mental models based on superstition and unwarranted beliefs.

We still succumb to magical thinking because as pattern-seeking animals we need explanations even for the unexplainable. We distrust chaos and disorder, so we demand answers, even if they are a product of magical rather than rational thinking. That which can be explained scientifically, is. That which cannot is left to magical thinking.

Our brains are belief engines that naturally look for patterns, which are then infused with meaning. Not surprisingly, we look for information that confirms our beliefs while ignoring information that contradicts them. Shermer calls this “belief dependent reality.”

Charlie warns us against taking mental shortcuts. He thinks we jump too easily to conclusions, we are easily misled and prone to manipulation. “Personally, I’ve gotten so that I now use a kind of two-track analysis. First, what are the factors that really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain at a subconscious level is automatically doing these things – which by and large are useful, but often misfunction.”

Philosophy

A tenet of philosophy does not exist for us until it passes through the cognitive filter of our interpretation, experience, and beliefs.

The word philosophy is derived from two Greek words, usually translated as “love” and “wisdom.” A philosopher, then, is a person who loves wisdom and is dedicated to the search for meaning. The pursuit of wisdom is an active, unending process of discovery. The true philosopher is filled with the passion to understand, a process that never ends.

We can separate the study of philosophy into three broad categories. 

1. Critical thinking as it applies to the general nature of the world is known as metaphysics. When philosophers discuss metaphysical questions, they are describing ideas that exist independently from our own space and time. Examples include the concepts of God and the afterlife.
2. The investigation of three related areas: aesthetics, ethics, and politics.
   1. Aesthetics is the theory of beauty. 
   2. Ethics is the philosophical branch that studies the issues of right and wrong. It asks what is moral and what is immoral, what behaviour is appropriate and what behaviour is inappropriate.
   3. Closely connected to the idea of ethics is the philosophy of politics. Whereas ethics investigates what is right or wrong at the societal level, political philosophy is a debate over how societies should be organized, what laws should be passed, and what connections peoples should have to these societal organizations.
3. Epistemology, the third body of inquiry, is the branch of philosophy that seeks to understand the limits and nature of knowledge.

When philosophers think about knowledge, they are trying to discover what kinds of things are knowable, what constitutes knowledge (as opposed to beliefs), how it is acquired (innately or empirically, through experience), and how we can say that we know a thing. They also consider what kinds of knowledge we can have of different things.

Once one accepts that complex systems are only complex as described, there is always the possibility that some alternative description – some redescription – of the system will yield regularities that are simpler and can be handled by science. If there is order behind complex systems, and if complexity is remediable by alternative descriptions, doesn’t it follow that some redescription will make that order apparent while others will not?

We cannot create order where there is none.

A fractal is defined as a rough or fragmented shape that can split into parts, each of which is at the least a close approximation of its original self. This is a property called self-similarity. Fractals are easily found in nature; they surround us, and we observe them every day. Examples include: clouds, mountains, trees, ferns, river networks, cauliflower, and broccoli. The recursive nature of each of these is somewhat obvious. The branch from a tree or a frond from a fern is a miniature of its whole. Below the surface we have discovered that blood vessels and pulmonary vessels are a fractal system.

Failure to explain is caused by failure to describe.

The words we choose give meaning (description) to what we observe. In order to further explain and/or defend our description, we in turn develop a story about what we believe is true.

Pragmatism holds that truth (in statements) and rightness (in actions) are defined by their practical outcomes. An idea or an action is true, and real, and good, if it makes a meaningful difference. To understand something, then, we must ask what difference it makes, what its consequences are.

Pragmatism is the exact opposite of most earlier schools of philosophic thought, which hold that their version of truth (however they theorize it) is absolute and unchangeable. But James believed that we can never expect to receive absolute proof of anything.

The great use of beliefs is to help summarize old facts and then lead the way to new ones. After all, all our beliefs are man-made. They are a conceptual language we use to write down our observations of nature, and as such, they become the choice of our experience.

How do we get from old beliefs to new beliefs? According to James, the process is the same as that followed by any scientist: the new idea is adopted while the older truths are preserved with as little disruption as possible. The new truths are simply go-betweens, transition-smoothers, that help us get from one point to the next.

Pragmatism, in summary, is not a philosophy as much as it is a way of doing philosophy. It thrives on open minds and gleefully invites experimentation. It rejects rigidity and dogma; it welcomes new ideas. It insists that all possibilities should be considered, without prejudice. We learn by trying new things, by being open to new ideas, by thinking differently. This is how knowledge progresses.

Search for those explanations that work. “Stretch them enough to make them admit the novelty but conceiving in ways as familiar as the case leaves possible.”

Literature

We can all acquire new insights through reading if we perfect the skill of reading thoughtfully. The benefits are profound: Not only will you substantially add to your working knowledge of various fields, you will at the same time sharpen your skill at critical thinking.

But what books, on what topics, and in what order? How do we choose, and how can we be sure we are reading appropriately to make the ideas our own? What to read, and how, and why.

St. John’s is a coeducational, four-year liberal arts college known for its Great Books program.

The entire curriculum is devoted to reading and discussing the great books of Western civilization; there are no separate disciplines or departments, no electives. Over the four years, the Johnnies, as St. John’s students are called, will read classic works in literature, philosophy, theology, psychology, physics, biology, government, economics, and history, and discuss them intensively in seminars of eighteen to twenty students.

The curriculum design follows an approximate chronological sequence. 

• In the freshman year, students focus their attention exclusively on the great thinkers of ancient Greece. 
• The second year covers the Roman, medieval, and Renaissance periods and includes classical music and poetry. 
• In the third year, students read the major works of seventeenth-and eighteenth-century thinkers. 
• Seniors move on to the nineteenth and twentieth centuries.

The students at St. John’s receive the kind of broad liberal arts education that Benjamin Franklin promoted 250 years ago. All of them said that the number one thing they learned in college was how to be a better thinker.

As freshmen, everyone is eager to make their own points, they don’t really listen; they just wait for someone to take a breath so they can jump in. But by the third and fourth year, we all learned how to listen carefully, to weigh what someone else is saying, and to explain our viewpoint in a respectful, nonconfrontational way. I use that every day of my life.

The psychological quicksand threatening our ability to make good investment decisions is communication – the transmittal of accurate and complete information, free of noise. The entire communication chain must be noise-free:

• Starting with the original information being transmitted. 
• Ideally, that information will be accurate and true (otherwise all we are doing is correctly transmitting error)
• It will be reasonably relevant to the matter at hand (otherwise we are spinning our wheels)
• And it will address the underlying question (otherwise we are merely regurgitating data and not increasing insight).

There is a simple way to tell the difference between collecting information and gaining understanding. Any time you read something and find you can easily “get it,” chances are you are just cataloguing information. But when you come across a work that makes you stop, think, and reread for clarification, chances are this process is increasing your understanding.

Adler proposes that all active readers need to keep four fundamental questions in mind:

1. What is the book about as a whole?
2. What is being said in detail?
3. Is the book true, in whole or part?
4. What of it?

The mental skill of critical analysis is fundamental to success in investing. Perfecting that skill – developing the mindset of thoughtful, careful analysis – is intimately connected to the skill of thoughtful, careful reading. Each one reinforces the other in a kind of double feedback loop. Good readers are good thinkers; good thinkers tend to be great readers and in the process learn to be even better thinkers.

Mathematics

How certain are you that there are indeed birds in the bush? When will they emerge and how many will there be? What is the risk-free interest rate? If you can answer these three questions, you will know the maximum value of the bush – and the maximum number of birds you now possess that should be offered for it. And, of course, don’t literally think birds. Think dollars.

It matters not whether you apply the above fable to stocks, bonds, manufacturing plants, farms, oil royalties, or lottery tickets. Buffett also points out that Aesop’s “formula” survived the advent of the steam engine, electricity, automobiles, airplanes, and the Internet. All you need to do is insert the correct numbers and the attractiveness of all investment opportunities will be rank-ordered.

Math concepts investors should know: cash flow discounts, probability theory, variances, regression to the mean, and uncertainty vis-à-vis risk.

John Burr Williams’s theory of discounted cash flow is the best model for determining value.

Buffett uses the risk-free rate, defined as the interest rate on the ten-year U.S. Treasury note, whereas modern portfolio theory adds an equity risk premium to this risk-free rate.

Buffett’s mathematical principles of investing are straightforward. He has often said he can do most business-value calculations on the back of an envelope. 

1. Tabulate the cash. 
2. Estimate the growth probabilities of the cash coming and going over the life of the business. 
3. Discount the cash flows to present value.

Bayes’s theorem is strikingly simple: When we update our initial belief with new information, we get a new and improved belief.

A decision tree is only as good as its inputs, and static probabilities – those that haven’t been updated – have little value. It is only through the process of continually updating probabilities with objective information that the decision tree will work.

Two caveats to the Kelly criterion that are often overlooked: You need (1) an unlimited bankroll and (2) an infinite time horizon.

To avoid “gambler’s ruin,” you minimize the risk by underbetting – using a half-Kelly or fractional Kelly. That underbet provides a margin of safety in portfolio management; and that, together with the margin of safety we apply to select individual stocks, provides a double layer of protection and a very real psychological level of comfort.

Most of us have a tendency to see the world along the bell shape curve with two equal sides, where mean, median, and mode are all the same value. But as we have learned, nature does not always fit so neatly along a normal, symmetrical distribution but sometimes skews asymmetrically to one side or the other. These distributions are called either right or left skewed depending on the direction of the elongation.

What causes a distribution to skew either left or right? In a word, variation.

The most important lesson investors can learn from Gould’s experience is to appreciate the differences between the trend of the system and trends in the system. Put differently, investors need to understand the difference between the average return of the stock market and the performance variation of individual stocks.

Why is forecasting so difficult? The frustration comes from three sources. 

1. Reversion to the mean is not always instantaneous. Overvaluation and undervaluation can persist for a period longer – much longer – than patient rationality might dictate.
2. Volatility is so high, with deviations so irregular, that stock prices don’t correct neatly or come to rest easily on top of the mean. 
3. Most important: in fluid environments (like markets) the mean itself may be unstable.

A “black swan” is an event with three attributes: 

1. it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.
2. It carries an extreme impact.
3. In spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

“We are never certain; we are always ignorant to some degree. Much of the information we have is either incorrect or incomplete.”

Decision Making

Foxes have three distinct cognitive advantages.

1. They begin with “reasonable starter” probability estimates. They have better “initial-guidance” systems that keep their initial guesses closer to short-term base rates.
2. They are willing to acknowledge their mistakes and update their views in response to new information. They have a healthy Bayesian process.
3. They can see the pull of contradictory forces, and, most importantly, they can appreciate relevant analogies.

To build good mental models, we need a general awareness of the fundamentals of various disciplines, plus the ability to think metaphorically.

Think of the competitive advantages they could gain from a course on critical thinking, which would give them techniques for analyzing arguments in both natural and statistical language.

“The good education of youth has been esteemed by wise men in all ages as the sweet foundation of happiness.” – Benjamin Franklin