In his book The Most Important Thing, Howard Marks writes, “First-level thinking is simplistic and superficial, and just about everyone can do it... All the first-level thinker needs is an opinion about the future.” Here, by “first-level thinking” he refers to “first-order thinking,” and we are here to go beyond it.
Mental Model #2: Second-Order Thinking
Our minds are tuned to solve problems quickly and take the path of least resistance. We do not look beyond the immediate consequences and jump to conclusions. This is us reacting, and it is the default mode of operation for most people, especially when pressed for time, stressed or emotional.
On the other hand, second-order thinking asks, “Then what?” It is a deeper inspection of the situation, considering the interactions of our actions in the long term. It accounts for consequences set in motion by our immediate action.
First-order thinking is short-term while second-order thinking is long-term. And to make better life choices, we should always use second-order thinking, as many times what appears to be positive immediately often entails negative effects in long run.
Let’s say you are hungry and there is a chocolate bar lying around. Your immediate thought might be to eat it as it is both tasty and filling. But if you slow down and think, “Then what?” you will realize that chocolate is dense in sugars which can cause an energy crash later as well as make you fatter, without providing balanced nutrition. Once you see the long-term harm it can cause, you are bound to make better food choices.
Billionaire investor Ray Dalio says, “Failing to consider second and third-order consequences is the cause of a lot of painfully bad decisions, and it is especially deadly when the first inferior option confirms your own biases. Never seize on the first available option, no matter how good it seems, before you’ve asked questions and explored.”
Not So Easy
From the chocolate example, first-order thinking may sound silly enough that no smart person would ever fall for it, right? Not so simple. Things get difficult when, as Dalio pointed out, the “inferior option confirms your own biases.”
For example, we all know that to achieve big goals we need to work hard and not over-indulge in pleasures, but how many people follow this? People keep telling themselves, “bit fun will not harm” until they realize they have wasted their whole life and all they have left is regret.
Want a real story? Let’s go back to the 20th century.
After World War 1 ended with Germany on the losing end, it was asked to pay reparations of US $33 billion (more than $500 billion in today’s value) to Britain and France for the damage suffered. As Germany was not in a good condition, paying this amount ruined its economy over the years, eventually leading to the rise of the Nazi ideology and finally World War 2.
Had the victorious Allied Nations used second-order thinking before pushing Germany to pay such huge reparations, the outcome could have been much different. All they had to do was ask, “Then what?” Probably, World War 2 could have been avoided and millions of lives spared.
Practice Makes Perfect
To practice second-order thinking, try these steps:
Question everything: Do not settle for assumptions. Ask, “then what?”
Grow perspectives: Discuss with others to get alternative perspectives
Think in time steps: Consider what the consequences can look like in 5 minutes, 5 months, and 5 years.
Remember, if you don’t use it, you lose it. Keep practicing.