Have you ever made a decision that you were sure was foolproof, only to discover it had unintended consequences further down the line? A controversial example that is used to illustrate this kind of thinking is the example of a country that wanting to inspire regime change in another country, funds and provides weapons to a group of “moderate rebels.” However, in the process, those moderate rebels end up becoming powerful and then go to war with the sponsoring country for decades.
The ability to think beyond the obvious and avoid unintended consequences requires second order thinking — a powerful mental model that can radically transform our ability to make decisions.
What is Second Order Thinking?
Howard Marks, author and co-founder of asset management firm Oaktree Capital Management, wrote about first and second level thinking (also called first and second order thinking) in his 2011 book, “The Most Important Thing”. He introduces the topic with the following:
First-level thinking says “it’s a good company; let’s buy the stock.” Second-level thinking says, “It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.”
First-level thinking says, “The outlook calls for low growth and rising inflation. Let’s dump our stocks.” Second-level thinking says, “The out-look stinks, but everyone else is selling in a panic. Buy!”
First order thinking is quick and simple. It focuses on solving an immediate problem, with little or no consideration of the potential consequences. For example, getting a beer to quench your thirst because you are thirsty.
Second order thinking is difficult and complex. It is thinking in terms of interactions and time, understanding that despite our intentions, our decisions often cause harm. A question all second-order thinkers ask is, “and then what?” For example, thinking about the consequences of repeatedly drinking beer when you are thirsty, and using that to inform your decision. If you do this, you are more likely to choose a healthier beverage.
How To Use Second Order Thinking To Make Better Decisions?
Second order thinking is a deliberate and proactive process and will take some practice to get right. Here are two questions you can ask to apply second order thinking in your life and improve your decision-making today:
- Ask yourself “And then what?”
- Use the 10–10–10 Rule: What would the impact of this decision look like in 10 minutes? 10 months? 10 years?
Always make the decision where second and third order consequences are positive even though first may not be positive (short term pain in favour of long term gain). A lot of extraordinary things in life are the result of things that are first-order negative, second order positive.
Although second order thinking might be difficult and complex, your odds of success increase substantially based on the extent to which you consider second order and subsequent consequences.