We consider a model to be a framework for organizing information, or more philosophically speaking it is an abstraction of reality. We find models everywhere in today's world especially in the world of finance. [[Mental Models]] have been popularized in philosophy and self-help circles and advanced statistical models are increasingly being applied to new domains such as artificial intelligence and portfolio construction. The traditional definition of a model comes from the domain of mathematics and it describes a probabilistic relationship between two variables. This narrow idea of a model is best exemplified by models such as those from Newton and Maxwell that have helped mankind understand gravity and send vehicles beyond our atmosphere. Other examples of models such as the [[Efficient Markets Hypothesis]] are just assumptions about human behavior. The risk is that we confuse these two types of models which devalues the former and elevates the latter to a status it cannot maintain. While mathematics has conferred rigor on economics its inherent inflexibility is ill-suited to deal with the real world irregularity of the economy and the markets. We use models to handle the regularity that we find in life and the markets to make room for real thinking and [[Decision Making]]. Explore Further: Tags: #indices Your support for Cedars Hill Group is greatly appreciated <form action="https://www.paypal.com/donate" method="post" target="_top"> <input type="hidden" name="hosted_button_id" value="74PGN8ZXHQVHS" /> <input type="image" src="https://www.paypalobjects.com/en_US/i/btn/btn_donate_LG.gif" border="0" name="submit" title="PayPal - The safer, easier way to pay online!" alt="Donate with PayPal button" /> <img alt="" border="0" src="https://www.paypal.com/en_US/i/scr/pixel.gif" width="1" height="1" /> </form>