Mental models and wrong path

How much time does it take for you to realize you are on wrong track. Now supposing you were one of the perpetually bearish participant in the " prominent blogger" sentiment poll, at some stage in one year, you should have realized that week after week, I am wrong in predicting market direction. If you were interested in profiting from market or genuinely interested in improving your forecasting ability, you would have done something different, changed your models, methods or assumptions. But that seldom happens.

What happens instead is externalization of problem. You blame others for being irrational, you invent conspiracy theories,you blame poll methodology, you blame Fed Chief. You in essence wish for alternative reality. That alternative reality is hard wired in to your mental model.

Mental models are deeply held mental images, beliefs, and assumptions. The mental models play a very important role in dealing with world around us. We interpret the world according to our mental models. Two people with different mental models react and interpret same data and same situations differently. Mental models include what a person thinks is true but not necessarily what is actually true.

That is really the key, because mental models are not necessarily based on true knowledge but assumptions and belief, a cycle of behavior continues till the mental model changes. That is why you will find in all walks of life people who have a particular mental model continue to behave in a particular manner for entire life time. Few people are conscious of their own mental model.

Supposing your mental model is hard wired to thinking all govt data is manipulated, or your mental model holds erroneous assumptions about how inflation should be measured, unless that mental model changes, you will continue to behave in that manner.

Lot of TV pundits pout economic theories and conspiracy theories, which are not based on economics as it is practiced as science or proven by statistics. In fact many of the pundits will not pass basic course in economics in any respectable University, if they advocate such pseudo intellectual stuff. But in mass media and especially on TV, content is not important, but delivery and entertainment is.

Mental models become even more critical, if you are not a leader and just a follower. Followers derive their mental models from leaders. In most cases followers by their very own nature lack the critical ability to form their own views, that is why they follow others, so unless they abandon the original leader, they continue to have wrong mental models. Followers have even more difficult mountain to climb when it comes to changing mental models.

Successful people in most walks of life have different mental models than mediocre people. You will also notice conspiracy theories are very common amongst under achievers and mediocre people. Such peoples mental model is hard wired to externalize problem. By externalizing the problem, it helps them avoid taking the first step to correcting the problem. Most successful people are very quick to realize when they are wrong and change their mental models.