Last week, I talked about how first principles thinking fails. This week, I go deep into one specific example: commoncog.com/blog/cash-flow
(Yes, the title is not a mistake ;-)
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The piece is long because I had to bootstrap an intuitive understanding of cash flows. If you have a finance background, you'll find this rather boring (and terribly basic!)
But I wanted to demonstrate that not understanding a SINGLE axiom might lead to a mistaken conclusion.
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A surprising number of comments about the post are on logic problems with the original argument (‘Startups Shouldn’t Raise Money’).
Two points:
1) if you steelman the argument, it’s actually quite reasonable. I can see where the author is coming from.
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Maybe I lack experience...
But, as a mental model, first principles thinking helps you solve problems by
1. Understanding a problem down to its basic elements
2. Use the understanding to find an alternative solution
Does experience negate step 1?
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Yup! At least whenever I've tried it, I've found it totally possible to break things down to the 'wrong' set of 'basic elements'.
The blog posts always make it seem straightforward. But in practice, it's a lot trickier to know how to break things down.
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I guess one way to think about it is that reality is fractally complex. You can break things down in dozens of ways, not all of them as useful. Experience tells you at which level of abstraction to stop; testing is how you verify you've got the right frame.
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(Yes, I know 'first principles' implies you can't break it down further, but in practice, I've found that there are nearly always multiple levels you can stop at. The argument can quickly become about which level is the 'right' level of abstraction. No silver bullets!)
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