Using Second Order Thinking in Life and Everywhere Else

They have always said “Think before you act”. They could have said it better “Consider the second and third order consequences before acting”.

How do you define Second order thinking (also known as second-level thinking)? Before we define second order thinking, let us understand the definition of first order thinking.

First order thinking is the thinking which leads you to act without considering the consequences of your actions. If you did consider the consequences, you may have acted differently.

The definition of second order thinking is inherent in the definition above. Let us see what the legendary investor Howard Marks has to say about second level thinking in his book “The most Important Thing

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, as in “The outlook for the company is favorable, meaning the stock will go up.” Second-level thinking is deep, complex and convoluted.

First level thinkers do the things everyone else is doing and arrive at the same conclusions and results. In order to achieve better results in life, thinking in term of second order consequences is a must. However, second order thinking is a skill which is acquired through deep thinking, wide reading and processing ideas differently. Second order thinking is deep, complex and committed.

I hope the difference between first order and second order thinking is clear here. If not, this illustration from a post by Farnam Street on second order thinking is quite self-explanatory.

Thinking in second order and third order will enable you to examine various consequences of your decisions. We will take up examples separately below.

There is another way of examining second order thinking. That is through cause and effect relationships. Think of a long chain reaction of causes and effects. Each cause yields an effect (which inturn becomes the cause) which yields one or more effects. Consider this illustration below to understand better.

Let us consider a very easy example. You have an option to eat clean or eat junk.

Scenario 1 – First Order Thinking

You eat Pizza everyday. Or a Burger. Or a Sandwich. You do not notice any immediate effects of eating these foods on a daily basis. However, over a period of one year, you tend to notice that you have gained weight and become less productive.

Over a period of ten years, you continue your habit of eating junk because you are making a lot of money and spending a lot of time earning it. However, you end with diabetes. For a couple of years you are careful with what you eat but you do not start working out because you did not consider the long term consequences yet. For now, you keep diabetes in control.

Now, if you haven’t stopped eating junk, if you haven’t started working out and haven’t stopped stressing less, you end up tangled in the chain of cause and effect relationships.

You bad lifestyle became the cause which yielded in obesity. Obesity became the cause which yielded diabetes. Now diabetes is the cause which could yield multiple diseases and a life-long prescription of medicines.

Scenario 2 – Second Order Thinking

Let’s keep it short here. Before considering junk vs. healthy food, you weighed the long-term consequences of each. You noted that by eating healthy, you would remain fitter, more active, and you would not contract any sort of diseases. Hence, you ended up living a longer and healthier lifestyle.

Second order thinking is mostly about considering the long-term consequences of your actions. It requires you to think in years and decades. Where as first order is concerned about now only.

First weigh the considerations, then take the risks – Field Marshall Helmuth Von Molkte

Let us consider a few more examples on first order vs. second order thinking –

First Order – I have a family of four, I at least need 3 cars.
Second Order – I am the sole bread earner in the family. If i have 3 cars, my maintenance and insurance expenses will multiply by 3. We could use public transport and save the differential. We could put the money to better use and i could save some headache.

First Order – My kids must score 90% in their class.
Second Order – Do my kids really need to score 90%? Would it not be better for them to spend time of learning life skills? They will do good in life with 70% too.

First Order – What a fantastic bike! I must buy it on EMI even though i do not have enough cash.
Second Order – This bike costs more than 10% of my net-worth. I would come back and buy it when it costs less than 0.5% of my net-worth. Till then, i would focus on creating wealth.

Lastly, consider these checklists from Shane Parrish and Howard Marks which will help you in learning to think better.

Let me know how you are using second order thinking to live a better life.

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