Using Mental Models for Forecasting

Sharing a great post from Farnam Street on mental models for problem solving. In my day job, I use a number of these methods for market and product forecasting. One of the most valuable methods is Second Order Thinking:

First-level thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority). All the first-level thinker needs is an opinion about the future, as in “The outlook for the company is favorable, meaning the stock will go up.” Second-level thinking is deep, complex and convoluted.

When working with technology vendors, they frequently can’t get past the first level. In their defense, the first order is what’s in front of them – often the next quarter of results. My end user clients, the folks writing checks for technology, are less concerned about the next 3-6 months, but the next 3-6 years. This is where second order thinking comes in. It’s often contentious and imperfect; predicting the future usually is, but this model gives a framework for approaching it.