Ladder of Inference In A Nutshell

The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.

Understanding the ladder of inference

Mental models encapsulate assumptions and generalizations and are unique to everyone. They explain why two people can witness the same event but experience it in two vastly different fashions. 

Fundamentally, the ladder of inference encourages informed decision making based on fact and not on personal biases that characterize mental models. 

By acting without bias, the individual or business experiences growth. Indeed, the ladder is often equated with the cycle of growth, where completion of each cycle results in improvement based on continuous learning.

Climbing the rungs of the inference ladder

The ladder of inference can be thought of as a visual representation of the decision-making thought process. 

Seven rungs exist, with each rung representing one of the seven stages of thinking.

Let’s look at each stage:

  • Stage 1 – available data. At the bottom of the ladder exists information about the reality and facts of daily life. This includes everything from the body language of a colleague to the results from a marketing campaign. 
  • Stage 2 – select data. Given the richness and abundance of available data, people cannot pay attention to all of it simultaneously. Instead, mostly subconscious choices are made regarding what data is selected and what data is ignored.
  • Stage 3 – paraphrase data. In the third stage, the individual adds meaning to the data based on unique past experiences, values, beliefs, or biases. Often, there is no consideration regarding whether the meaning applied is valid or true.
  • Stage 4 – name what is happening. Here, the individual names the situation based on a combination of interpreted fact and personal assumptions.
  • Stage 5 – explain or evaluate what is happening. Having just explained what is happening, the individual then seeks to explain why it is happening. This is performed by considering a list of causal theories that are judged as either good or bad according to the individual’s values.
  • Stage 6 – develop beliefs based on conclusions. These beliefs then shape future judgments in scenarios with similar contexts. The classic example is an employee who is consistently late to work in the belief that they will not be reprimanded by management. This belief then leads the employee to be late to meetings and other formal engagements.
  • Stage 7 – take action. In the final stage, the individual takes what they believe is the right course of action. Of course, their actions are always based on beliefs and assumptions.

Using the ladder of inference to make better decisions

Many assume that the ladder of inference is a systematic guide to making better decisions. However, the ladder merely outlines the natural thought process that every individual experiences.

To improve decision making, an individual must know where they sit on the ladder and adjust accordingly. Perhaps counterintuitively, it is preferable to occupy the lower rungs of the ladder or descend where possible.

An individual who tends to paraphrase data (Stage 3) to their detriment should be more selective about the data they select from their environment (Stage 2). An individual who tends to select data to suit their own agenda (Stage 2) should consider incorporating a broader subset of available data (Stage 1). 

In both cases, the individual is encouraged to question the validity of their assumptions and beliefs. This helps them break free of the reflexive loop – where assumptions and beliefs impact the data that will be selected in similar future scenarios. This can often lead to a toxic cycle where actions are reinforced by limited or flawed information and vice versa.

Key takeaways

  • The ladder of inference describes how people form and sustain mental models in the decision-making process.
  • The ladder of inference has seven rungs, with each rung representing a particular stage of decision making based on personal assumptions, beliefs, or biases.
  • The ladder of inference is not intended to provide advice on optimal decision making. Instead, it allows individuals to identify where their process is flawed and move down the ladder to correct it.

Connected Business Concepts

As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman since 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.
Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.
The crowding-out effect occurs when public sector spending reduces spending in the private sector.
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.

Read Next: Biases, Bounded Rationality, Mental Models.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"