Canonical · Mental Models · Memo

Circle of Competence

Warren Buffett · 1996

"It isn't the size of the circle that counts, but knowing where its edge is."

The idea

Everyone has a domain in which they can reasonably assess risk and reward — their circle of competence. Outside it, they're guessing. Buffett's rule: know where your circle ends, and don't step over the line just because opportunities look interesting.

Why it works

The takeaway — recall it first

The OODA Loop: How Fighter Pilots Make Fast and Accurate Decisions

"Fast, high-stakes decisions are best made through a repeating four-step loop — Observe, Orient, Decide, Act — where speed and comfort with uncertainty matter more than exhaustive analysis, and where 'orienting' (stripping away your own cultural and cognitive biases) is the decisive, most-overlooked step."

Farnam Street, after Col. John Boyd · EssayContinue→