Saturday, March 3, 2018

"Second-Order Thinking: What Smart People Use to Outperform"

From Farnam Street:
“Experience is what you got when you didn’t get what you wanted.”
— Howard Marks
Successful decision making requires thoughtful attention to many separate aspects.
Decision making is as much art as science. The goal, if we have one, is not to make perfect decisions but rather to make better than average decisions and get better over time. Doing this requires better insight or making fewer errors. One of the ways to gain insight and make fewer mistakes is the use of second-order thinking.
In most of life, you can get a step ahead of others by going to the gym or the library, or even a better school. In thinking, however, a lot of what you'd think gets you ahead is only window dressing.
Would be thinkers and deciders can attend the best schools, take the best courses and, if they are lucky, attach themselves to the best mentors. Yet only a few of them will achieve the skills and superior insight necessary to be an above average thinker.
But how do we become a better thinker in a world where everyone else is also smart and well-informed? How do we improve in a world that is increasingly becoming computerized?
You must find an edge. You must think differently.
Second Order Thinking Example

Second-Order Thinking

In his exceptional book, The Most Important Thing, Howard Marks hits on the concept of second-order thinking, which he calls second-level thinking.
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.
Second-order thinkers take into account a lot of what we put into our decision journals. Things like, What is the range of possible outcomes? What’s the probability I’m right? What’s the follow-on? How could I be wrong?
The real difference for me is that first-order thinkers are the people that look for things that are simple, easy, and defendable. Second-order thinkers push harder and don't accept the first conclusion.

“It’s not supposed to be easy. Anyone who finds it easy is stupid.”

— Charlie Munger
Marks writes:
First-level thinkers think the same way other first-level thinkers do about the same things, and they generally reach the same conclusions. By definition, this can’t be the route to superior results.
This is where things get interesting. Extraordinary performance comes from being different. It must be that way. Of course, below average performance comes from being different too — on the downside....MORE