# Second-order Thinking

> Follow a decision past its first consequence by asking what happens after that.

Chapter II, Decision making · 2.03 · Origin: Howard Marks, building on Frédéric Bastiat (2011) · Time: 15 to 30 min · Solo or group

**Use it when** a choice looks good today and you want to know what follows.

Interactive workspace: https://kogu.tools/tools/second-order-thinking

## Abstract

The first consequence of a decision is usually obvious, and everyone else can see it too. Second-order thinking keeps going: once that happens, what happens next?

Plenty of decisions that look good on day one carry costs that show up months later. Some that hurt now pay off over years. Laying the consequences out in layers, and noting roughly when each one arrives, lets you see that before you commit.

## Method

1. **State the decision.** Write down the choice in one sentence, as if you'd already made it.
2. **List the first-order effects.** Note the direct, immediate results. Most people stop here.
3. **Ask what happens next.** For each effect, ask what follows from it, then ask once more. Think about how other people will react.
4. **Mark the timing.** Tag each consequence as helpful or harmful, and note whether it shows up in minutes, months or years.
5. **Look at the whole picture.** Watch for early benefits paired with late costs, or the reverse. Then decide, or change the plan to keep the good effects and soften the bad ones.

## When to use it

- A choice looks like an obvious win, which is when it's most worth checking what follows.
- You're setting a price, an incentive or a policy that other people will react to.
- The decision would be expensive or impossible to reverse.

## Common pitfalls

- Stopping at the consequences everyone can already see.
- Branching forever. Two or three levels are usually enough.
- Listing only harms, which turns the exercise into an argument for doing nothing.
- Forgetting that other people will adapt to your move and change the outcome.

## References

- Bastiat, F. (1850). Ce qu'on voit et ce qu'on ne voit pas (That Which Is Seen, and That Which Is Not Seen). Guillaumin.
- Marks, H. (2011). The Most Important Thing: Uncommon Sense for the Thoughtful Investor. Columbia University Press.