A simple question that could fundamentally change your thinking.
“What are the second and third order consequences?”Ray Dalio
I was chatting with my cousin and his wife. They are both involved in the military. She mentioned that they were considering the second and third-order effects of a decision. It was not a concept I had heard before, but intuitively it felt right and I understood it straight away. Framing it like that crystallised the concept in my mind.
I have two habits that have significantly limited my grades over the years. I could convey concepts clearly verbally, then I would have a written exam and do well, but below the expectations of myself and my teacher/tutor/lecturer.
Firstly, at school, I often skipped joiner words when writing. Fortunately, a teacher highlighted this, which didn’t mean it went away, it is something I still do now, but with more awareness. I now compensate. Sometimes I find myself using
too many unnecessary words to over-compensate. Another trick I’ve learnt is to read a passage out loud.
The second self-driven handbrake that took three degrees and 90% of the way to becoming Chartered Accountant for it to click, is that I state an idea or a fact and assume that the argument is clear to others. It may have been, but the assumption is the problem. If the evaluator knew me, they’d complete the assumption, when they didn’t, I’d get justifiably penalised.
When completing a four hour Case Study exam, the best practice was to spend two hours planning and two hours writing. One method was a mind map and to meet the marking guide, we needed 4 ideas/facts, 2 of which got developed further. The mind map basically needed 2 more bubbles extending from the first.
The mind map model didn’t give me the optimum result, but the idea stuck. Where I’d normally write one sentence, I needed to write two more, to develop the idea. These weren’t directly secondly and third-order effects, but it does provide a useful analogy.
You may find it easier to call them consequences, as it’s easier to draw the connecting lines.
The problem with first-order thinking is not just that it limiting, often it has the opposite effect from what was intended.
“Changing some aspect of a complex system always introduces Second-Order Effects, some of which may be antithetical to the original intent of the change.”Josh Kaufman, the author of The Personal MBA
First Order – Obvious and Direct
The immediate (expected) result. For example, we give people bonuses to work harder.
Second Order – The alternative Consequences
The knock-on effect, often this is unintentional. Carrying on the example, People work as individuals, at times against other individuals.
Third Order – The implications or longer term
The result is not what is expected or desired. The company becomes a place people don’t want to work, the best talent tends to have options and they leave.
Another example in management
- 1st order – People won’t work if I don’t watch them, they are naturally lazy.
- 2nd order – They might be lazy anyway and just work when I watch them.
- 3rd order – I need them available, so don’t want them working all the time. Considering them lazy, may lead them to mirror that behaviour. Morale may drop, which leads to people not working. I should focus on the output.
I could have extrapolated further on the second and third-order effects. They tend to get more complicated and exhibit more potential for complications, contradictions and alternatives. Like playing chess. My move, their potential moves, multiple potential responses.
- Draw out the results – what potential knock-on consequences, unintended consequences – how can they be mitigated.
- Switch the viewpoint – We want these behaviours, so we will measure these KPIs, becomes we have these KPIs, what behaviours will they drive.
- Don’t just ask what something costs, ask what is costs not to do something – I usually include the option to do nothing. So if we are evaluating two alternatives, they may seem expensive, but I include the third option of doing nothing, this subtle difference often results in one of the first two being executed.