Mental Models & Product #5: Second-Order Thinking

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Ever had something occur and realized that you should have used the information you had at the time to make another type of decision other than the one you made? I do that all the time. Hindsight may be 20/20 but how do you put the checks and guards in place to ensure that you’re making the best decision at the time?

What is Second-Order Thinking?

Introducing second-order thinking, where you think about how your decisions will influence your future decisions instead of immediate ones. It’s a great tool to help us think beyond initial benefits by considering second-order consequences (aka. hidden consequences) to help make better decisions for the long-run.

There are three different types of “levels” for consequences:

1. First-order: the most immediate feelings or results of a decision
2. Second-order: the longer-term effect of the decision
3. Third-order: the significant long-term impact of the decision and eventual outcome

Using second-order thinking as a mental model means understanding and analyzing the implications of the first-order consequences.

“We can be blind to the obvious, and we are also blind to our blindness.” — Daniel Kahneman

As seen in Daniel Kahneman’s book “Thinking Fast and Slow”, first-order thinking is intuitive and fast, which may lead to us having many blind spots within our cognition. These blind spots are significant because it ignores judging probabilities and understanding statistical trends, which may result in negative consequences for everyday thinking.

Let’s use a fun little example:

Alice just got back from a long run. After pounding the pavement in the -15 degree weather, she could either take a hot shower or do some deep stretching. If she bases her decision on two different first-order consequences, she would be evaluating between:

1. Not having a runny nose after.
2. Having a runny nose after and sneezing all day.

If she chooses to take a hot shower, the second-order consequences include:

• Reduce the risk of runny nose and sneezing throughout the day.
• Have a greater risk of tight muscles.
• Have a greater risk of post-run soreness and cramping.
• A third-order consequence would be the increase of risk of overuse injuries such as tendonitis and increase risk of muscle strains.

If she chooses to do some deep stretching, the second-order consequences include:

• Have a greater risk of runny nose and sneezing throughout the day
• Since her muscles are warmed up, they are more pliable that will improve her flexibility and range of motion.
• Decrease the risk of muscle strains.
• A third-order consequence would be the increase of stride length, speed, and overall running efficiency.

As seen in the example above, first-order thinking usually involves instant gratification. It’s fast, it’s easy. It solves the immediate problem without considering its consequences.

Second-order thinking involves slowing the process down and takes into account factors like time and effect. It emphasizes the concept of compounding. By mapping out the non-visible, it encourages us to think outside the box and understand the cascading effects of our actions.

“The road to out-thinking people can’t come from first-order thinking. It must come from second-order thinking. Extraordinary performance comes from seeing things that other people can’t see.” — Shane Parrish

And it’s incredibly difficult.

Our brains are constantly surrounded by a ton of information — more than they can handle. So, to cope with that, our brain defaults to sensory gating where it filters our redundant or unnecessary stimuli in the brain from all possible environmental stimuli.

(source: wiki)

As a result, we form many cognitive biases that create a “subjective reality” regarding specific decisions and consequences. In Daniel Kahneman’s book above, he draws on the analogy of the Müller-Lyer illusion.

The Müller-Lyer illusion is where a central aspect of a simple line image (for example, length or its straightness) appears distorted in comparison to other aspects of the image (like other background or foreground lines).

(source: illusions index)

Even if we have measured the lines and found them to be equal, and on top of that having the neurological basis of the illusion explained to us, we will still think that one of the lines is shorter than the other.

Ideally, if we use our slow-thinking, analytical mind, we will recognize the illusion and convince ourselves not to trust our immediate instinct. However, day-to-day life isn’t as simple as two lines. We have biases that are hardwired which are not spotted through instinct. To spot the illusions and understand the second-order consequences, we need to actively take steps to not participate in acting on biased thoughts and faulty thinking.

“Confirmation bias — probably the most pervasive and damaging bias of them all — leads us to look for evidence that confirms what we already think.” — The Atlantic

How can we identify biases and apply second-order thinking to product?

In product, our jobs are focused on anticipating customers’ needs and problems. We need to identify real problems for real people. And similar to Clayton Christenson’s book “Competing Against Luck”, extraordinary performance comes from seeing things that other people can’t see.

The key question in uncovering second-order consequences is “and then what?”. From there, mapping out the potential consequences and impacts of the different decisions through time benchmarks, similar to the probabilistic thinking’s framework:

1. Current = first-order consequences
2. Near-term = second-order consequences
3. Long-term = third-order consequences

Beyond looking through a timeboxed lens, second-order thinking involves out-of-the-box thinking. This involves system 2 thinking (terminology defined by Kahneman’s book) that is deliberate and logical. It involves potentially collaborating with various decision-makers to really understand the potential impact of the decision made in the future, as its consequences are dynamic, complex, and uncertain.

To reduce the uncertainty though, we should practice First Principles Thinking to learn more about the decision and identify the risks associated that may impact others/the broader ecosystem. For example, asking questions like:

• What is the impact of the outcome? Is it incremental or will it cause a ripple effect across the organization?
• What would it do to our brand and company reputation?
• How will it impact our customers and their existing behaviour?
• Will there be impacts on our site performance? How about our data or codebase?
• Are there any other potential risks that we’re not noticing?

Upon gaining a deeper understanding of the various consequences, then we can choose the decision where the second and third-order consequences are positive. Remember that the first-order consequence does not have to be positive: as they say — short-term pain leads to long-term gain.

Another way to think about second-order thinking would be similar to feedback loops, where positive or negative results of the decision will compound over time. To avoid a negative result from escalating, it is important to apply probabilistic thinking to understanding the probability of a decision being made (either from observation or what the consensus may choose to override) and understanding the range of likely future outcomes.

By predicting all the possible moves that could be made, we can come up with a countermeasure (also known as a contingency plan) for them. The idea to develop the “countermeasure” muscle is to iterate quickly and effectively, where we can use similar scenarios to make decisions over and over again. Then, we can self-correct by pivoting when something goes wrong (and understanding what went wrong).

Whenever we are put between a rock and a hard place, it is about being transparent with stakeholders about the different routes/options that we can take. Outlining what the options are, why those options are the most rational next steps, and what the recommendation is. If we were able to include the impact/consequences of selecting those options and clearly showing the consideration of immediate and second-order consequences before making a decision, our decision-making process will be more reputable and trustworthy in the ecosystem.

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