3.1.9.8. Case Application Exercise: Netflix and Applied Mental Models

Theory becomes meaningful only when it is translated into observable reasoning and concrete strategic choices. This exercise is designed to help you convert the conceptual work of this lesson into applied decision analysis using the Netflix case study. Your objective is not to retell the story, but to identify how mental models shaped a pivotal decision and to contrast this with how reactive, unstructured thinking might have behaved in the same moment.

Follow the sequence below carefully. Treat this as a practical laboratory for applying mental models — not as a narrative summary of Netflix:

1. Select a pivotal decision from the Netflix case.
   Choose one decision that clearly demonstrates a departure from industry norms, a refusal to react impulsively, or the use of structured reasoning under uncertainty. Examples include:
   
   • Transitioning from DVD rentals to streaming,
   • Committing to original content production, or
   • Pursuing global expansion with localized strategies.
   
   Write the decision in one clear sentence — without justification or explanation. Simply state what decision was made.
2. Identify the mental model(s) that influenced the decision.
   From this lesson, select one or more mental models that best explain the reasoning behind the decision. Examples include:
   
   • First Principles
   • Second-Order Effects
   • Opportunity Cost
   • Probabilistic Thinking
   • Inversion
   • Path Dependency
   
   List the mental model(s) by name and, if more than one applies, note how they interact (e.g., First Principles + Second-Order Effects).
3. Explain how the mental model improved the decision.
   In one focused paragraph, describe how applying the selected mental model(s) changed the quality of the decision. Emphasize reasoning, not outcome. Consider:
   
   • How the model simplified complexity or clarified what truly mattered,
   • How it prevented Netflix from reacting to short-term pressure or industry convention, and
   • How it helped leadership see beyond immediate comfort into long-term positioning.
4. List one explicit trade-off the decision required.
   Identify at least one meaningful trade-off that Netflix had to accept in making this decision. Examples include:
   
   • Investing significant capital ahead of clear returns,
   • Creating temporary uncertainty for customers, investors, or employees,
   • Shifting brand positioning away from a familiar identity, or
   • Disrupting internal processes and cultural expectations.
   
   State the trade-off in one or two precise sentences.
5. Contrast with a no–mental-model scenario.
   Write one sentence describing what would likely have happened if Netflix leadership had not used mental models at that moment. Focus on how the decision might have become reactive, short-term, or imitation-based. This contrast highlights the difference between structured and unstructured decision-making.

This exercise is not designed to judge whether Netflix “succeeded” or “failed” in any particular outcome. Its purpose is to strengthen your ability to see decisions through the lens of mental models — to notice where structure improved clarity, where trade-offs were consciously accepted, and how reasoning shaped long-term positioning under uncertainty.