today I wanna share with you the big different between some of the world's greatest thinkers and ordinary people. now this thing can really change your professional and your personal life. People like Ray Dalio but also very common in scientists as well and that's the power of higher order thinking.
Let me first give you an example what I might refer to this first order thinking.
For example your boss set you an aggressive sales target maybe up 30% and so you'll work your team through the night you achieve the target.
Second you admit it to a fantastic university by the skin of your teeth you just got in and you go take up the offer.
third well you're pretty tired in your current relationship you meet someone new and exciting so you dump who you've got and go out with a new person.
these three things I could describe as first order thinking. there was an immediate problem whether it's your love life, your sales target or getting into a good university and you solve it with the first solution. that's available to you.
however about 80% of people don't do this but the greatest thinkers try and think to higher order.
Let me go through those three examples again and describe some of the unintended consequences that people didn't think through.yeah, you achieve the sales target but the next quarter everybody resigned because they were too tired and then you miss all your subsequent sales target and you're fired. you get into one of the best universities but you only just got in there and it turns out actually everybody's much better than you, you end up close to bottom of your class whereas you could have gone to a smaller university come top and be much more employable, or third turns out the new person those feelings of freshness, well they disappear within six months too and you're left right where you started.
the point is this a lot of us just think about the immediate problem we wish to solve rather than the longer term problems. higher order thinking is about thinking through your decisions effectively. it's about asking and so what what next, it's a very simple way of doing it every time you make a decision you should map out the next few sequences in the events. so I made decision A could lead to B, C or D you consider BC or D carefully and you assign them probabilities. the point of second order thinking is then you choose thing that maximizes return over the long term whilst at the same time you take note of any particularly bad downside that you cannot accept that there are any circumstances no matter how low the probability might be.
Let me give you a few examples this is actually very common to use in investment context.
so, a company is particularly strong and doing very well, you think wow, this is a great company to put all my money into it. That's first order thinking. an investor however might think on a second or third order level wow this is a great company but everybody already knows that therefore is probably over or possibly over valued, therefore maybe I should be selling this company.
the second example that I really like was around electric car industry. now clearly the first order thinking around electric cars is that gasoline sales will decrease obviously. however if you were to look at this saying again from a second order perspective you may see other opportunities or risks. for example, in the states most cigarettes sold at petrol stations which presumably might go out of business if they don't convert electric and therefore maybe the sales of cigarettes would be significantly impacted.
this is what I mean by second order or higher order thinking, asking "and so what","what's next and assignment probabilities", can lead you to unexpected conclusions and therefore seeking areas of value that other people haven't noticed or avoiding possible downsides that you would have spotted if you thought sufficiently far ahead.
although I've used a couple of example for investors this is the same for many many successful people including scientists. imagine if Einstein are just trying to solve problems using first order thinking. he's the best example of multiple level thinking asking so what, what if, what are the other options, what are the alternatives.
in this new Chinese year I hope all of you can apply some high order thinking about 80% of people don't they just try and solve the problem exactly in front of you and their nose but if you're a strategic about things, you look to the second, third and fourth levels,you map out the different possibilities of your decisions and a probability of them occurring.I'm pretty sure that you have a much happier and more successful life.