Summary: The Pareto Principle describes how in a variety of situations, 80% of a product or phenomenon’s output often comes from only 20% of the available input. For example, a business may receive 80% of its income from the sale of only 20% of the products available in their inventory. Originators: Vilfredo Pareto (1848-1923), Dr. […]
Inversion
Summary: Inversion is an assessment strategy that looks at problems backwards. Difficult problems often need to be considered from another angle. Instead of trying to figure out the correct or optimal answer to a question, inversion considers how to avoid incorrect or poor answers. Originators: Carl Gustav Jacob Jacobi (1804-1851), Charlie Munger (1924-Present) Keywords: […]
Feedback Loops
Overview: Feedback loops are cause-and-effect processes within organisms and systems. Negative feedback loops serve to maintain homeostasis or equilibrium. Positive feedback loops are used to intensify or change the status of a system. Originators: Karl Ferdinand Braun (1850-1918), Henri Louis Le Chatelier (1850-1936) Keywords: homeostasis, feedback, cause-and-effect system, circuit, circle, positive feedback, negative feedback, closed […]
The Tragedy of the Commons
Summary: The Tragedy of the Commons is an economic theory that describes how people often use natural resources to their advantage without considering the good of a group or society as a whole. When a number of individuals consider only their own welfare in this manner, it leads to negative outcomes for everybody, as the natural […]
Law of Diminishing Returns
Overview: The Law of Diminishing Returns is an economic theory that describes how at a certain point, increasing labor does not yield an equally increasing amount of productivity. In other words, when the amount of input increases over time, at some point the rate of output decreases for each unit of input. Originators: Anne Robert […]
Occam’s Razor
Summary: Occam’s Razor, also known as the Law of Parsimony, is a decision-making philosophy which emphasizes the rationality of simple explanations. If a problem has two possible explanations – a simple one and a complex one – Occam’s Razor rationalizes that the simple explanation is more likely correct. Originator: William of Ockham (1287-1347) Keywords: simplicity, […]