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No. 138 · Work · Economics

Leverage

A small force in the right place can move a great weight, for better or worse.

Leverage is the ability to achieve more with the same effort by applying it in the right place. A lever, a borrowed dollar, a reusable tool or a keystone habit can all multiply what you put in.

But leverage magnifies in both directions. Look for places where one action pays off many times over, and before borrowing or betting big, ask what happens if things move against you. Size your leverage to what you could survive losing.

In the Almanac

“Archimedes and the lever”, c. 250 BC · “Archegos Capital”, 2021

Both stories in full, three ways to use it and where it misleads.

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Leverage

Questions

What is Leverage?

Leverage is the ability to achieve more with the same effort by applying it in the right place. A lever, a borrowed dollar, a reusable tool or a keystone habit can all multiply what you put in.

How do you use Leverage?

But leverage magnifies in both directions. Look for places where one action pays off many times over, and before borrowing or betting big, ask what happens if things move against you. Size your leverage to what you could survive losing.

When does Leverage matter?

Leverage is one of the 43 mental models for work, the situations where you ask: How do I get the right things done? Within that, it belongs to “Focus and priorities”, alongside Bikeshedding, Law of Diminishing Returns and Manager’s Schedule vs Maker’s Schedule.

What is an example of Leverage?

Two stories show it at work: Archimedes and the lever (c. 250 BC) and Archegos Capital (2021). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.

Which mental models are related to Leverage?

Margin of Safety, Pareto Principle and Fat-Tailed Distributions. Leverage itself comes from economics.