Simplifying Complexity
Using Mental Models to Enhance Understanding and Decision-Making in Public Finance
Reality is complex; mental models simplify it. A mental model is a tool that helps us make sense of the world and manage complexity and large amounts of information. For example, in public finance, thinking of reserves or rainy-day funds as a government’s savings account is a mental model. This approach simplifies the complex idea of fund balances by comparing it to something familiar from everyday life. Everyone uses mental models, although we might not always realize we’re using them. Just like some maps are better for navigating roadways than others, some mental models are better for navigating reality than others. Public finance officers often wish their audiences were better informed about public finance. Providing them with mental models can serve as a shortcut to help the audience become more informed, make better decisions, and gain a shared understanding of public finance.
Mental models often compare favorably to traditional methods of informing non-experts, such as providing them with facts and figures. Facts and figures are like a pile of bricks. It is up to the recipient to fashion those bricks into a viable structure. This doesn’t always happen. Mental models act like a structural frame. Other materials, such as walls and ceilings, hang on this frame. This structure helps organize and support the information.
A good mental model provides a strong base and can accommodate a diverse set of facts and figures, helping the user make sense of the information and incorporate it into their decision-making. In this paper, we will illustrate mental models that are well-established decision-making tools in both personal and professional financial settings. This will help familiarize you with the basic concepts of mental models. Then we’ll go into examples of public finance mental models. Ultimately, you’ll want to develop your own models.
To build useful ones, we need to know what strong models have in common. We’ll describe design principles for creating mental models and show how generative artificial intelligence (AI) tools, like ChatGPT, can help you create them. Finally, because mental models simplify reality, they also have limitations. We’ll discuss the blind spots of mental models.
Mental models can serve as a shortcut to help the audience become more informed, make better decisions, and gain a shared understanding of public finance.
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Here's an example of the Tragedy of the Commons.
Mental Models, Personal and Professional
Mental models come in many forms and can be specific to public finance. But let’s start with a few models that work well in both personal and professional settings as effective decision-making tools.1 These models often take the form of proverbs, but mental models can take other forms, as we will see later. Sunk cost fallacy.
This mental model advises us to only consider the potential future benefits of additional investments of time or money into a project, asset, etc., and to forget past investments. This is because past investments are gone, while future investments are yet to be made. The emphasis should be put on decisions that will create the most benefit in the future, regardless of where past investments have been made. The sunk cost fallacy is summed up by the proverb: “Don’t throw good money after bad.”
Conclusion
Using mental models is a powerful way to convey deep knowledge and understanding in a small package. They enhance decision-making by bridging the gap between expert knowledge and practical application in a political environment. They do this by providing a structural frame for the user to absorb new information and to incorporate it into their decision-making.
Public finance officers can develop and share better mental models to help their audience make better decisions. In this paper, we not only examined a series of models, but we also provided design principles for creating new ones. As you create new models, please share them with GFOA so we can build a repository of better mental models for public finance. Together, the profession can build a better toolset for informed decisions that support thriving communities.