It’s easy to get carried away when making a decision. We look at the current situation and extrapolate what we consider to be the most likely future outcome. What we often fail to consider, though, are the complex ramifications of the decisions we make.
For example, you’re feeling hungry. The fast and easy decision would be to grab a snack. This is first-level thinking. The other more deliberate option is to wait until you can eat something more nutritious—an example of second-level thinking.
The term was coined by Howard Marks in his book The Most Important Thing, which is about his investment philosophy and his insights into navigating volatile markets.
“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.”
Howard Marks, Investor & Writer.
First-level thinking can have terrible consequences when we fail to consider the second and third order consequences of our decisions. The immediate outcome may seem good, but the cascading results may have an overall negative impact. On the other hand, second-level thinking can result in extraordinary performance.
With first-level thinking often come snapshot decisions. We just look at the information in front of us and other obvious indicators, and we make our choice. This is a perfectly natural reaction, but more often than not we don’t need to make decisions this quickly.
We can take the time to consider the second and third order consequences, taking into account our own biases, disentangling the signal from the noise, and using mental models and thinking systems to determine the most favourable decision.
Asking the right questions to cultivate second-level thinking
In his book, Howard Marks shares a few questions you can ask yourself to move from superficial first-level thinking and into more complex second-level thinking. I slightly edited them to make them applicable outside of investing.
- What is the range of likely future outcomes?
- Which outcome do I think will occur?
- What is the probability I’m right?
- What does the consensus think?
- How does my prediction differ from the consensus?
- How does the current situation align with the consensus view of the future, and with mine?
- What will happen if the consensus turns out to be right, and what if I’m right?
But you can also apply second-level thinking to personal decisions. In that case, comparing your prediction to what most other people think—the consensus—may not be as useful. Instead, you can use the 10-10-10 questions.
- How will I feel about it 10 minutes from now?
- How will I feel about it 10 months from now?
- How will I feel about it 10 years from now?
These are not rocket science but will force you to go beyond first order consequences and to consider the complex and sometimes unwanted effects of your choices. By cultivating this habit, you’ll end up making smarter decisions in the long run.