What I'm reading: How to use Occam's razor to simplify problems and solve them quickly and efficiently
Occam’s razor is one of the most misunderstood 'mental models'.
But it's arguably one of the most useful.
If you need a way to solve problems more quickly and efficiently...
Here’s how to use it.
Also known as the "law of parsimony", Occam's razor is the best known example of a philosophical razor - used to 'shave off' unlikely explanations in any given situation.
Simply put, when faced with competing explanations for the same phenomenon, the simplest is likely the correct one.
And since I opt for simplicity over complexity wherever possible, this tool is in my mind a lot.
So much so, that I actually have it inscribed on my office wall!
After all, simple theories are easier to verify and simple solutions are easier to execute.
This tool can be used widely, as a way of making super quick decisions and finding truths without empirical evidence.
You can use it to make initial conclusions before more information is gathered.
You can see the value of this everywhere.
Particularly in the world of science and maths.
If a person repeats the same action regularly in response to the same cue and reward, it becomes a habit (as a neural pathway is formed).
From then on, their brain will use less energy to complete the same action. This is the principle of minimum energy and demonstrates the value of simplicity.
It's also used in medicine (when doctors look for the simplest explanation for a patient's symptoms) and even in crime and punishment.
But where did it come from?
William of Ockham, a 14th-century friar, philosopher, and theologian is credited with the concept.
History states that his characteristic way of making deductions inspired others.
However, the concept itself is much older.
Aristotle in fact, said,
“We may assume the superiority, other things being equal, of the demonstration which derives from fewer postulates or hypotheses.”
Scientists have also commented over the years.
Albert Einstein created his own version:
“Any fool can make things bigger, more complex, and more violent. It takes a touch of genuins - and a lot of courage - to move in the opposite direction.” Or, “Everything should be made as simple as possible, but not simpler.”
Stephen Hawking mentioned it in A Brief History of Time:
"We could still imagine that there is a set of laws that determines events completely for some supernatural being, who could observe the present state of the universe without disturbing it. However, such models of the universe are not of much interest to us mortals. It seems better to employ the principle known as Occam’s razor and cut out all the features of the theory that cannot be observed."
The list goes on.
For me, after 18+ years of structuring wealth and planning for affluent families - I know the genius resides in simplicity.
I also opt for a simple investment strategy, one which I know is backed by reams of evidence and Nobel prize-winning science.
This is in stark contrast to the complex web of toxic products, tax wrappers, active and esoteric funds I see peddled by the traditional financial services industry.
But no mental model is foolproof - all should be used with care.
Any conclusion must be backed by evidence - and we need to avoid falling prey to the many human biases we all possess.
We live in a complicated world.
Take for example, the NASA moon landing which some still believe was faked, because that's the simpler explanation.
The simpler explanation, although having a higher chance of being correct, is not always true.
With Occam's razor, we're not replacing our critical thinking, but rather trying to make the process more efficient.
Perhaps my favourite summary comes from author Harlan Coben (not least because it's simple):
"The real meaning, what the Franciscan friar William of Ockham really wanted to emphasize, is that you shouldn’t complicate, that you shouldn’t “stack” a theory if a simpler explanation was at the ready. Pare it down. Prune the excess."
Apply it to your financial planning and investment strategies, and I promise you'll feel far greater clarity, confidence and control.
If you want to chat it through - please reach out and contact me.