Second-Order Thinking

Most people are adept at first-order thinking, anticipating the immediate effects of their actions. It’s an essential skill we must develop in adolescence. First-order thinking is simple and quick. There are sometimes benefits to speed in decision-making. But it’s immensely limiting, and often counterproductive, to move swiftly without much regard for direction.

Second-order thinking is a mental model that takes thinking to the next level. It considers the effects of the effects of our actions. To do this, we have to look further out into the future, seeking connections to our decisions and ascertaining the probability that they will happen. By doing this exercise, we create small feedback loops that improve the quality of our immediate decisions.

Consider second- and third-order consequences, not just first-order ones. The outcome you get as a first-order consequence might be desirable, while the second- or third-order consequences could be the opposite. So focusing solely on first-order consequences, which people tend to do, can lead to bad decision making. For example, if you asked me if I’d like to not have rainy days, I probably would say yes if I didn’t consider the second- and third-order consequences.

– Principles, by Ray Dalio

Second-Order Thinking Sets You Apart

Not only is it dangerous to ignore the effects of the effects of your actions, but it also keeps you from standing out. In a society that defaults to immediate gratification and quick, low-effort decision-making, first-order thinking leads you to the same results as everyone else.

Second-order thinking is a competitive advantage. It’s a skill that requires practice and effort. When you take the time to develop this skill it helps further your career, strengthen your relationships, and improve as a leader.

From a career-boosting aspect, think of senior professionals in a field. They seem to know what is going to happen way ahead of anything actually taking place. It’s not that they have a crystal ball. They’ve merely experienced many consequences and feedback throughout the years they’ve been working. Through this experience, and by reflecting on it, they’ve gained insight into what could happen and what is likely to happen.

With relationships, having consideration for the future is usually a good thing. Second-order thinking equips you to be more considerate by thinking about how your actions affect a friend directly and indirectly. And then consider what the knock-on effects could be. Should you still do what you were planning on?

As a leader, your vision must zoom ahead in time and pan over different areas to assess where your team is, where it’s going, and what obstacles there may be impeding the way. Second-order thinking prompts you to ask your team questions that improve thinking processes and considerations of opportunities and risks. Employing such questions collects the best thoughts from the team as a whole and helps each member understand the impacts of their roles.

Everything is Interconnected

We live in an endlessly connected universe. An action that you take impacts others around you, which in turn affects how they act. Their actions then impact others, and the process repeats again and again, growing exponentially.

You can never merely do one thing.

– Living Within Limits, by Garrett Hardin

One of the most well-known theories around interconnectedness is about butterfly wings. Coined the butterfly effect, this idea postulates that trivial events may ultimately result in something with outsized consequences. The butterfly effect was coined by MIT meteorology professor Edward Lorenz to describe massive deviations in future weather outcomes from similar starting conditions. Lorenz argued that long-range weather forecasting wasn’t possible because we don’t have the ability to measure and analyze nature’s complexity. There are too many factors that have profound impacts on the direction of weather.

That’s the same for all complex systems. And life is a complex system.

This isn’t to say that there is no point in trying to be proactive and contemplate future potentialities. We have thus far argued for the utility of second-order thinking. But as you push further into future thinking, the returns diminish. Each iteration (third-order, fourth-order, etc.) becomes exponentially more complex, and generally only second-order (and occasionally third-order) thinking is productive.

The point is that every event creates its own offspring, which impact the world in their own special ways.

– “Deep Roots”, by Morgan Housel

Unintended Consequences

By its very nature, second-order thinking mitigates unintended consequences. By mentally zooming into the future to consider what may be the byproducts of future consequences, you are shining a light on an otherwise shadowy thing. Unintended consequences derive from ignorance; second-order thinking forces you to intentionally chip away at ignorance.

Here are some examples where second-order thinking was absent and unintended consequences caused severe issues.

Julius Caesar and the Roman Empire

In ancient Rome, a group of men worried that Caesar was going to make his rule permanent and establish a monarchy. So they assassinated him in the name of the Republic. They didn’t anticipate what precipitated from their actions. Chaos and instability ensued. In this volatility, Caesar’s great-nephew Octavius rose to power and did precisely what Caesar’s conspirators feared: he established a monarchy.

After Caesar’s death, it became apparent that Caesar never intended to create a monarchy. The irony is that the Senators brought about the exact outcome they were intending to prevent in the first place by relying on first-order thinking.

Snakes in India

While India was under British rule in the nineteenth century, authorities offered a financial reward for every cobra residents killed. This was an attempt to remove the venomous snakes from Delhi streets, which improved the city’s safety. The locals, incentivized by turning in the highest number of dead cobras, began to breed the snakes so they could increase their bounty. When authorities caught on to the local’s antics, they canceled the incentive system. The snake breeders, stuck with worthless, poisonous snakes, released them, thereby more than doubling the number of cobras initially in the city.

Prohibition in the U.S.

In 1920, the eighteenth amendment was passed, which prohibited the production and sale of alcohol. Nearly 100 years prior to the U.S. banning alcohol, religious revivalism began spreading across the country. Alcohol—and the environments in which people drank it—was viewed by many as sinful.

This was also when machinery was increasingly used in factories. Those factory owners supported prohibition because they believed it would lead to safer, more productive work environments with fewer accidents.

The intention of Prohibition was temperance. But as we all know, legally banning alcohol had the opposite effect. Instead of curtailing alcohol use, Prohibition accelerated its consumption.

Production and transportation moved underground, creating infrastructure for highly organized criminal outfits. Bribery and corruption thrived. Speakeasies popped up all over the country as paid-off officials looked the other way. And businesses that relied on alcohol sales, such as restaurants, had to close up shop, which made the struggling economy of the early 1930s even more dismal.

Spectators at an Event

While seated at an event, everyone can see the spectacle. But when one person rises to stand for a better view, the people behind them can no longer see. So they stand too, causing blocked vision for the people behind them. This continues until the entire audience is standing, arguably worse off now that they have to stand for the same view they had while sitting.

Conclusion

Life is a complex, dynamic system. And as such, our actions have ripple effects. We cannot do just one thing. But like ripples in water, the magnitude of the wave lessens the further out you get. The same goes for our ability to ascertain numerous derivatives of outcomes. With each larger concentric ring, the returns diminish.

Ripples need to be considered and evaluated individually and as part of the greater whole. It’s not uncommon for the first ripple to be positive but the other ripples are negative. If we only employ first-order thinking in those negative-first, positive-second situations, we’d regret our decision down the road.

Prohibition, as noted earlier, is a great example of this. On the surface, removing alcohol curbs alcoholism, alleviates stress on the healthcare system, and saves consumers money. The second-order effects of the ban actually had the opposite effects of the ban’s intentions.

On the flip side, many extraordinary things have a negative first ripple and positive following ripples. Think of saving money. The first-order effect is that you don’t buy as much stuff or travel as much, which isn’t immediately desirable. But second-order effects are that you’ll have more money in the future to provide financial stability and optionality.

So remember this: if the immediate outcome (first order) is negative, don’t stop there. Dig deeper. The second and following orders may be positive, making the endeavor worthwhile. And know that by doing this, you enter rarefied space with less competition and better outcomes.

First-level thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority). All the first-level thinker needs is an opinion about the future . . . Second-level thinking is deep, complex, and convoluted. The second-level thinker takes a great many things into account.

– The Most Important Thing, by Howard Marks