Many investors and thoughtful decision-makers will often reference the fact that they made a decision based on first principles. What exactly are first principles?
First principles are the foundational facts upon which knowledge in a certain field is built upon. For example, first principles in physics: inertia, momentum, gravity, etc. Often you will hear people refer to an “a priori” or “ex ante” statement. Generally speaking, this just means that it is something deduced from first principles.
Elon Musk is often touted for his ability to reason from first principles. Another (less-known) thinker who is also quite good at reasoning from first principles is Nick Kokonas, as evidenced through his reasoning about the restaurant industry.
However, reasoning from first principles isn’t necessarily a free lunch. As Cedric Chin from Commonplace writes, reasoning from first principles may fail if:
- you have flawed assumptions
- you make an incorrect inference step
- you start from the wrong set of principles/axioms/base facts (or an incomplete set of assumptions) (this is probably the most common mistake)
It’s always an enlightening exercise to try to think through the first principles of any given field. Often, you’ll find that a “foundational principle” that you held to be true was merely an accepted assumption. These are the areas that are very interesting to think further about.