Index

Mental Models

Circle of Competence

Your circle of competence is the domain where your mental models are tested by feedback and hold predictive power.

This model improves decisions by forcing clear boundaries around what you truly understand.

Core question

Am I making this call from evidence-backed expertise or from borrowed confidence?

Example

An investor strong in B2B SaaS avoids biotech picks she cannot evaluate deeply, even when narratives are compelling.

How to apply

  1. 1.Map domains where you have repeated feedback loops.
  2. 2.Label adjacent domains as uncertain.
  3. 3.Reduce position size or seek expert input outside your circle.
  4. 4.Expand the circle deliberately through study and practice.

Pitfalls

  • ·Making the circle so narrow that you stop learning.
  • ·Expanding it based on confidence rather than track record.
  • ·Confusing familiarity with true competence.

Questions

How do you know if something is outside your circle of competence?

If you cannot explain key drivers, failure modes, and base rates without jargon, treat it as outside your circle.

Should you avoid all decisions outside your circle?

Not always. You can still act, but with smaller bets, slower pacing, and stronger external validation.

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