Mastering Mental Models

The economics of everyday life

This article kicks off by exploring some of the foundational economic principles — ones that help us navigate resources, desires, and choices. At the heart of economics is scarcity. Much is based on the fact that while human desires are limitless, our resources are finite. Picture a single pizza at a large party: its limited quantity boosts its value, and to make the most of it presents a number of challenges. How do we decide the best way to allocate limited resources like time, money, or materials? Scarcity often drives innovation as people find ways to stretch resources or curb demand, but it’s worth noting that technology rarely erases scarcity entirely. Supply and demand are closely connected to scarcity, as the push and pull affect not just prices but also the flow of resources, determining who can access what. It’s a self-regulating process, and a good example is the challenges brought on by the COVID-19 pandemic, which found many people hoarding bathroom supplies. In these situations, demand will prompt companies to innovate or increase production, which then brings supply back up. As a consumer, every purchase you make or product you choose influences this larger dance, subtly influencing market directions and priorities. Trade-offs, another key concept, shape every choice we make. To gain something, we often give up something else, like skipping a social event to study or choosing between risk and reward in investments. Some trade-offs are simple, like buying cheaper, unassembled furniture that requires assembly time. While careful planning can lessen trade-offs, they’re inevitable, and weighing opportunity costs helps us make choices that align with our priorities. Together, scarcity, supply and demand, optimization, and trade-offs provide a framework for understanding economic decisions. These interconnected principles reveal how individual choices drive broader trends and influence how we allocate resources, showing that each decision we make has an impact on the economic landscape.

Specialization, interdependence, and efficiency

Continuing our look into major economic models, we’re going to follow the thread from the previous section and talk about a few more concepts, including specialization and efficiency. Specialization, often equated with efficiency, allows individuals and economies to focus on areas of strength rather than attempting to excel in everything. By choosing depth over a broad but shallow range of skills, we can maximize productivity. However, relying too heavily on specialization can make us vulnerable when circumstances shift and new skills are required. Balancing specialized expertise with openness to learning from adjacent areas helps maintain adaptability. Specialization naturally leads to interdependence, as no person or company can meet every need alone, and few companies can produce a product all on their own. Leonard E. Read’s famous essay “I, Pencil” illustrates this through the layers of collaboration needed to create even a simple pencil. Interdependence is not just an economic principle; it’s also personal. We rely on others in ways we often overlook, and acknowledging this interconnectedness can help us build stronger support systems. Mutual reliance allows us to harness each other’s strengths and reminds us that we’re all in this together. The economic model of efficiency is closely linked to specialization and interdependence. In economic terms, efficiency minimizes waste, while in daily life, it means using time and effort wisely. However, pursuing efficiency without limits can backfire by reducing flexibility. For instance, producing only the bare minimum of a good can leave businesses exposed in times of crisis, like during a pandemic, when reserves are needed. Balancing efficiency with some degree of flexibility is essential to prepare for the unexpected. In the next paragraph, we’ll wrap up the economic half of this article before moving on into the realm of art.

Monopolies and creative destruction

It might be tempting to generalize and say that, when it comes to monopoly versus competition, competition is good and monopolies are bad. In a competitive market, everyone has options. Buyers can look for the best deals, and sellers compete for business, keeping prices reasonable. But when a single company controls a market — that’s when it becomes a monopoly. It’s like they control access to the only bridge over a river. Without rivals, monopolists can raise prices because consumers have nowhere else to go. Over time, such control reduces diversity and adaptability, restricting the innovation that competition fosters. When a monopoly becomes absolute, whether in a market or even in political power, it often weakens resilience and long-term success, showing the importance of competition to a thriving, adaptable economy. That said, sometimes monopolies are needed — like with public utilities, where upfront investments are huge and creating infrastructure can be a decades-long process. Another concept related to capitalism is creative destruction, which was introduced by economist Joseph Schumpeter. Schumpeter believed that for new industries to emerge, older ones must eventually fall, as seen when cars replaced horse-drawn carriages or smartphones replaced basic cell phones. This cycle of change, though disruptive, can drive ongoing innovation. Letting go of the old makes room for the new. Creative destruction is not just a business principle; it’s a reminder of the value of embracing change in every aspect of life. Keep in mind that our current ways of working, our technologies and traditions, will inevitably be outpaced. Though change can be uncomfortable, it’s essential for progress and resilience. Embracing creative destruction pushes us to rethink our methods and stay relevant. In short, all of these models offer different ways to explore the push-and-pull forces that shape economies. They show how human behavior, psychology, and incentives create both growth and risk. Markets are complex, emotional, and ever-changing, and understanding these dynamics will help us better navigate them in an uncertain future.

Audience, genre and contrast

In the second half of this article, we shift to explore core elements of art through the mental models of audience, genre, and contrast. These models reveal how art plays a role not just in creativity, but in daily interactions as well. When we consider the audience, we see that art is a two-way relationship. The audience isn’t just a passive observer — it’s a union of personalities between creator and viewer. Artists consider their audience as they shape their work, while audience responses, feedback, and habits influence future creations, making the audience a crucial part of the creative process. Recognizing the role of the audience reminds us that we’re often performing, even if subtly, for at least one other person. This awareness can refine our own communication, making it more intentional and significant. Genre, another key mental model, serves as a way to organize ideas and set expectations. Genres provide structure and a “contract” between creator and audience — horror promises suspense, mystery offers clues, and romance assures a love story. However, genres evolve, mirroring cultural shifts. Adhering too strictly to genre boundaries can stifle creativity, while experimenting with or challenging genre norms allows artists to redefine their art forms and prompt audiences to reconsider expectations. Contrast is a model essential for grabbing attention and making ideas stand out. Contrast involves placing opposites together — like calm before chaos or quiet after loud — to create focus and engagement. In visual art, contrast is light against dark; in music, it’s a shift from soft to loud. By highlighting differences, contrast draws attention and brings depth to our understanding. Beyond art, contrast shapes our experiences, helping us appreciate warm, sunny days more because of the cold, gray ones. Ultimately, these models of audience, genre, and contrast offer practical insights that extend beyond art itself. Whether you’re aiming to be creative or just trying to communicate more effectively, these frameworks allow us to see and engage with the world in sharper, more intentional ways.

The art of storytelling

In this paragraph we’ll get into some of the mental models that have to do with storytelling, and show how these concepts of art can have a major impact on our daily lives. Framing is an important mental model, because when we take a step back, we can see that everything comes to us framed in one way or another. Just as with a camera lens, the frame dictates what is included and what is left out. This applies to everything we encounter, from news to history to conversations. Framing affects our interpretation, and can even steer public opinion. In life, we’re continually interpreting framed information, often unconsciously. Often, time can expand a frame by providing new information that was withheld or unknown at first. So it never hurts to ask yourself what’s missing from any given frame. With this approach we can gain a more complete perspective. After all, in art, every choice means something. This is why representation is a key concept. Representation helps us look beyond appearances and dive into purpose. Representation isn’t about creating a perfect likeness; it’s about creating something with meaning. Indeed, every choice being made tells us about the culture and beliefs of the time it was created. As with most mental models, representation isn’t fixed. It changes over time as cultural values shift. Look at the game of chess. What does the queen represent? If you look back over the history of the game, the queen evolved from being one of the weaker pieces on the board to the most powerful one, reflecting the rising influence of female rulers in the world. Then again, representation isn’t always positive. When we highlight certain aspects, we often obscure others in the process, which can lead to propaganda and other works that distort reality for nefarious purposes. This is where narrative, or plot, comes in. Plot gives order to events. It makes sense of cause and effect — this happened because that happened, and so on. A good plot has a good structure. It guides readers through a series of stages using exposition, rising action, climax, falling action, and resolution. Plot gives us a meaningful sequence of events rather than a random series of things happening. Looking at the mental model of a plot, we can see it as a very human thing. We like things to make sense. But this can lead to biases, like mistaking random occurrences for causally linked events. This is why plot is a mental model, because life doesn’t always unfold in a perfect sequence. So, while being aware of the power of a strong narrative can help us find meaning and direction, it can also help us to avoid the trap of assuming false connections. Plot is appealing because we often like to see ourselves as characters, which is the next mental model. Characters drive stories, but they also give us someone to connect with. What’s more, they provide different perspectives and emotions, allowing us to step into different lives. Compelling characters — be they in film, literature, or in our understanding of history — are dynamic and complex, with motivations, flaws, and room for growth. Great characters don’t go through the motions; they evolve through conflicts and choices. They both shape events and are shaped by them. And yet, some of the characters we’re most drawn to might be purely based in representation. Consider Barbie. This toy doll doesn’t have the deepest character arc, but it evolved over time and became such a potent symbol that it gained a transcendent level of “realness” that draws people to it. Understanding character helps us see how powerful stories can be when we’re emotionally invested. Through character, we can empathize, learn, and understand both real and fictional worlds.

Setting and performance

The final mental models covered in this paragraph are setting and performance, each offering insight into how environments and interactions shape outcomes. Setting goes beyond mere backdrop; it works as a framing device, influencing what can and can’t happen. When you choose a setting, you’re also choosing specific freedoms and limitations for characters, as well as the plot. For instance, if you set a story in 1975, you’ll be excluding technologies like smartphones, which makes a big difference in terms of options available to the characters and the story. When we apply setting as a mental model, we can see that it applies to our decisions and actions in life as well. Since settings define our constraints and influence our choices, it stands to reason: If we want to change our behavior or achieve different results, there’s a good chance we need to change our environment, too. Performance, our last mental model, focuses on the dynamic, interactive nature of live encounters — among performer, space, and audience. In art, performance is more than sticking to a script; it’s about adapting in real time, making each experience unique. Cultures worldwide hold diverse performance traditions, from Japanese Noh drama to Western theater, but in all cases, the emphasis is on presence, adaptability, and connection rather than perfection. Each performance is shaped by the interaction among the performer, the audience, and the surrounding space. Applying the model of performance to life reminds us of the importance of preparation and improvisation, and of the awareness of our impact. Like live theater responding to audience cues, our actions shift in response to feedback from our surroundings and the people we interact with. Performance, as a mental model, teaches us to read our environment, adapt when necessary, and continuously improve. It underscores the value of understanding others’ responses and modifying our actions to create better outcomes. Together, these mental models of setting and performance illuminate how both our environments and our interactions shape the narrative of our lives. By using all of the models presented in this article thoughtfully, we can navigate complex situations with more awareness, adjusting our approach to transform outcomes.

In this article , you’ve learned that there’s great value in understanding the underlying principles of economics and art that shape our decisions. Economic systems, whether they are markets or organizational structures, are governed by incentives, scarcity, trade-offs, and a great deal of interconnectedness. By grasping these concepts, we can make better choices in both our personal and professional lives. We can think beyond immediate consequences and consider the long-term impact of their decisions. Economics isn’t just about money; it’s a way of understanding trade-offs in everything we do, from how we spend our time to how we prioritize goals. Likewise, art isn’t just a collection of aesthetic creations, but a dynamic process that can be applied in various fields to solve problems, tell stories, and evoke emotions. When we understand the importance of setting, framing, representation, and plot, we get a better understanding of the power of storytelling. Art is a powerful model that allows us to influence, persuade, and communicate effectively. By recognizing the interplay among creator, audience, and environment, we can better understand how art reflects and shapes reality, helping us adapt and innovate in our own lives and work.