This is a good explanation and probably close to how it works. However, the "build a model of the other person in your head" method isn't foolproof. In fact, the longer you consider it, the less sense it seems to make. Your model can never be accurate to what that person is thinking (might as well not even have the person if you can already simulate their entire mind in yours). It would be dangerous to think that you have an actual model of someone's mind (as opposed to a model of your own perceptions of someone's mind).