U NCOMMON V IRTUES #3: H IGHER -O RDER T HINKING

THE TENDENCY TO OVER-RATE FIRST-ORDER CONSEQUENCES

“People who overweigh the first-order consequences of their decisions and ignore the effects that the second- and subsequent-order consequences will have on their goals rarely reach their goals. This is because first-order consequences often have opposite desirabilities from second-order consequences, resulting in big mistakes in decision-making. For example, the first-order consequences of exercise (pain and time-sink) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable. Similarly, food that tastes good is often bad for you and vice versa, etc. If your goal is to get physically fit and you don’t ignore the first-order consequences of exercise and good-tasting but unhealthy food and connect your decisions with their second- and third-order consequences, you will not reach your goal.”
 
-- Ray Dalio, Founder of Bridgewater, the world’s largest and most successful hedge fund, in “ Principles ”
 
***
 
THE COBRA BREEDERS OF THE BRITISH INDIAN EMPIRE
 
Too often, these anecdotes sound like merely little moral lessons of a time gone by.
 
Imagine instead you were in the position of the British civil servant in India.
 
The British, the Victorian British, they had so many good and bad things about them. More good than bad, for my money; these were truly remarkable people.
 
But imagine you’re one of them.
 
It is the 1800’s, you’ve joined the British Empire’s India Department, you took a long journey over ship and land, and you’ve wound up on the Indian subcontinent.
 
You live somewhat isolated from the natives, you have a certain smug sense of British superiority – it is, on one hand, an insufferable quality that rubs many other people the wrong way.
 
On the other hand, you have supreme confidence in your ability to remake the world for the better. You and your colleagues are constantly improving roads, infrastructure, sanitation, military postings and garrisons, industry, infrastructure.
 
Periodically, you get together with whoever you’re reporting to in the chain of command – some mix of soldiers, administrators, a viceroy, whatever – and you discuss what problems you want to address.
 
Cobras are a problem.
 
The cobra, you know, it’s a nasty and dangerous snake.
 
We must admit that, not only is it dangerous, it’s somewhat beautiful.
 
This slithering beast is powerful, it flicks its little tongue up, it rises up and fans out its powerful head.
 
Maybe you’ve seen one of the victims who did not receive anti-venom brought in from the wilds – chalky skin, choked to dead, breathing stopped.
 
Cobra bite.
 
This little creature, so mysterious and glorious on one hand, but such a menace and so dangerous… this little slithering thing, such a menace to the civilization you’re trying to install.
 
Some innocent people can be moving through the bush, and then that dull hissing sound, and a SNAP! Cobra poison. The victim has 30 minutes to live.
 
“Well, we ought to do something about this.”
 
Reasonable enough.
 
The approach and policy are debated.
 
What would be the most efficient way to eliminate cobras?
 
How about we pay for dead cobras? Then, skilled wilderness men have an incentive to capture and kill these dangerous snakes.
 
This all sounds reasonable enough. The price is debated, some amount of schillings are fixed as the bounty for dead cobras, some disbursement scheme is set, announcements of the policy are promulgated, everyone is instructed –
 
Bring your dead cobras here, get paid in silver.
 
Marvelous! The march of civilization. You pat yourself on the back a little, and go off to have a drink at the club.
 
Dead cobras start trickling in, slowly at first, and then faster. Marvelous policy! Less snakes in the wild.
 
And then, oddly, the dead snakes start coming in in larger and larger amounts… far more than one would have thought possible.
 
A marvelous success!

Wait, what’s going on here?
 
Oh… some enterprising people are now breeding cobras for income?
 
This… this was not what was intended.
 
Damn.
 
Policy: pay money for dead cobras.
 
First-order consequence: cobras hunted and killed, less cobras.
 
Second-order consequence: cobra breeding starts taking place.
 
The way the story is told, when the British discontinued this policy, many cobra breeders just let their pets back into the wild, thereby increasing the cobra population.
 
Damn.
 
***
 
JIDOKA – AUTOMATION WITH A HUMAN TOUCH
 
Come, join me now backwards in history a half-century ago in Japan.

We’re visiting a Toyota assembly line in the 1970’s.
 
Something remarkable is about to happen.
 
Well, first something unremarkable is about to happen – a minor defect is about to happen in an automobile. The glass windshield is about to be sealed imperfectly on a new car.
 
Somehow, the error is not noticed immediately at its station, and it passes on to the next step in the production line.
 
This is, of course, not so remarkable. Errors in manufacturing happen, and all around the world, inspections and re-work are done at the end of the process to ensure defective products do not get into the hands of the consumers.
 
But no, slow down, observe, something remarkable is about to happen.
 
An assembly line worker, making the equivalent of somewhere from $30,000 to $60,000 per year, who is not working on windshields and sealing, is about to notice the poorly sealed glass – even though it is not explicitly his responsibility.
 
Now, the stage is set for the remarkable thing.
 
The worker, noticing the defect, now flips a signal that stops the entire assembly line at every single stage, costing Toyota over a half million dollars of lost production.
 
Imagine that – you have a finely tuned factory producing automobiles rapidly. An assembly line worker, noticing a single mistake that is not his responsibility, turns the entire assembly line off.
 
So…
 
Action: The lever is pulled to signal the defect.
 
First-order consequences: The entire assembly line stops to correct the defect.
 
Second-order consequences: Over a half million dollars of production are lost to this massive disruption in process.
 
On this surface, this seems insane. Stopping an entire assembly line to correct a relatively minor error should be fatally expensive to an industrial manufacturer.
 
But, we must now follow the policy to the logical conclusion.
 
Knowing that every assembly line stoppage is disastrously bad for productivity and business, everyone at the factory takes it very seriously. Workers, engineers, supervisors, managers, and executives take the case exceedingly seriously.
 
The individual defect is corrected, but moveover, steps are taken to design things so that this type of mistake never happens again at Toyota.
 
Third-order consequences: Toyota winds up with the highest quality rates, lowest defect rates, and most efficient factories in the world.
 
This would be borne out over the comings years – after decades of this pattern, Toyota became a more valuable company than every other automobile manufacturer in the entire world.
 
You didn’t read that wrong – the entire value of General Motors, Ford, Chrysler, Peugeot, Ferrari, BMW, Mercedes, etc etc – all of these combined, combined , were worth less than Toyota by itself.
 
The worker on the line was empowered to stop production in a way that would cost Toyota somewhere around 10x his entire annual salary , to correct just a single mistake .
 
The first-order and second-order consequences of this policy seem like a massive overreaction, almost insanity.
 
But they prompted third-order consequences  of having overwhelmingly the best quality, effectiveness, and efficiency in industry over time.
 
This is remarkable, no?
 
***
 
A BURGLING IN IOWA
 
We do not know exactly what Marvin Katko would do with the money he was to make from his burglary.
 
The “NO TRESSPASSING” sign was of course no deterrent to Marvin the Burglar; he was coming to burgle, and he would burgle regardless of the farmhouse owner’s feelings on the matter.
 
It was Edward Briney’s farm, though it’s likely that Marvin Katko did not the farm belonged to Briney; Marvin, it seems to me, was not against Briney so much as just wanting to burgle.
 
So there, the old farmhouse is boarded-up, locked down, the sign instructs Marvin not to trespass – Marvin does not care; Marvin is going to trespass and burgle; his point is burglary; he will burgle, sign be damned.
 
How did Marvin Katko break into the farm? The historical record probably captured the particular details, but I don’t have those at hand. Perhaps he used a crow-bar to break open the front door.
 
His adrenalin, I imagine, would be going slightly as Marvin came to do his burgling.
 
The front door is broken into now, perhaps from a crow-bar.
 
Marvin slinks into the house, he will burgle now.
 
Marvin moves through the house, no one seems to be there.
 
Marvin opens the bedroom door – BOOOOM!
 
His ears explode with ringing, he falls to the ground, screaming in pain.
 
Marvin the Burglar is bleeding heavily from his legs.
 
The farmhouse owner, Briney, had rigged a shotgun booby-trapped to go off if anyone broke into the property.
 
The burglar, Marvin, is badly wounded; his legs are a mess of wounds from the buckshot discharged from the shotgun.
 
Marvin gets himself to the hospital, gets treated. And then, in a case that is still regularly discussed to this day, files a lawsuit against Edward Briney.
 
***
 
KATKO V BRINEY, IOWA SUPREME COURT
 
We don’t need dramatic buildup here – the outcome is counterintuitive:
 
Marvin Katko, Marvin the Burglar, wins his lawsuit against Briney.
 
Yes, Marvin was there to burgle, to break the law; the Iowa judges do not care.
 
The ruling – if you set a booby trap and it goes off against someone, you are liable. Marvin the Burglar wins a $30,000 lawsuit against Briney.
 
***
 
ON THE NATURE OF GOLDEN SOULS
 
In modern days, the Ancient Greek philosopher Plato is rather revered – perhaps for good reason, or perhaps not.
 
At his best, he is a terrific poet, storyteller, recorder of thoughts and dialogs of Socrates and his contemporaries. At his worst… well…
 
One of the more enduringly controversial ideas Plato advanced in The Republic was that every citizen should be told a “noble lie” that the everyone had a certain type of metal in their soul – the rulers of society would be those with gold souls, the silver-souled would be soldiers and auxiliaries, and those with baser metals in their soul would just obey but not try to rule or influence the state.
 
This is, of course, a whole lot of nonsense. You can see why people look at it and frown, especially in Modern America.
 
I, of course, think it’s a whole lot of nonsense.
 
But, like a lot of other nonsense grounded in thought experiments, and from no observation of the world – the Cave Allegory is another one – it can be fun, maybe even illuminative to reflect on.
 
Plato has his fictional Socrates muse on what attributes make up a gold-souled person – they’re not ruled by their lower passions, they don’t lust for power, they consider the good and the enduring good, rather than the shadow of good, when they make decisions.
 
As I reflected on this, I thought to myself – if I only had a single attribute with which to select “gold souled” people, it would be higher-order thinking .
 
Selflessness or temperance alone certainly isn’t the answer: I genuinely believe the Prohibition-era reformers that successfully banned alcohol in the United States really were genuinely working against what they believed to a great societal evil in alcohol and alcoholism. They observed many people being ruined by alcohol, they observed drunkenness leading to both domestic violence and random brawling out in society, they saw many people ruining their lives on drink.
 
So, they ban drink. Hurrah!
 
Oh, now we have a mafia class producing all the alcohol. Oops.
 
First-order consequences of Prohibition: alcohol is made illegal, legitimate producers of alcohol go out of business, decrease in drinking.
 
Second-order consequences of Prohibition: alcohol starts getting produced by organized crime, the law starts getting flaunted, a thriving black market in alcohol emerges.
 
Third-order consequences of Prohibition: the law is repealed, the status quo is restored – but with the organized crime that bootstrapped itself off alcohol still existing.
 
Boo; hiss. Bad outcome.
 
It is nowhere near enough  to want to be a good person or to moderate one’s own ambitions and appetites. To truly be able to govern – to govern oneself, to govern and manage an institution or in business, to govern a city or country – you need to be able to study, understand, reflect on, anticipate, and adjust to second-order consequences, third-order consequences, and so on.
 
If I were forced to pick just one attribute that would make someone “gold souled,” it would be simply that – the ability to see all the cascading consequences of immediate actions.
 
***
 
UNCOMMON VIRTUES #3: HIGHER-ORDER THINKING
 
In Chapter 1, we explored “Mere Competence” – we contrasted it against luxurious virtues, and investigated why people do not embrace and cultivate competence when it is so obviously critical and hugely beneficial.
 
In Chapter 2, we charted a course through “Aristotelian Friendship” – friendship that is built not on pleasure or advantage, which is fragile, but on a love of the best attributes of the characters of those around us. Truly, good friendships are one of the greatest things in the world.
 
In this chapter, we are tackling another one of those “seemingly obvious things which is hiding in plain sight” – higher orders of thinking.
 
The challenge in covering Higher-Order Thinking is that people think  they know it when they hear about it, but they are wrong and do not do it very often.
 
The junk food example – Dalio’s – is one of the more common. People think they know it. “Yeah, of course I know that. Duh.”
 
No; please do not make that error.
 
I personally have spent many years trying to investigate second-order and third-order effects of everything, and I’m staggered on a regular basis by how often I miss the hidden parameters and outcomes of my behavior, both on a very personal levels (habits and behavior), on organizational levels (management, culture building, workflows, etc), and on how I interact with the world at large (developing skills, making money, spending money, making friendships and relationships, etc).
 
And the same skillset applies to a great many professions, even when it’s invisible.
 
The challenge of Higher-Order Thinking is that it sounds obvious  even when most people are woefully untrained in it. Just a tiny little bit of study and practice in this virtue is hugely life-enhancing, but most people are unaware of how great of a difference-maker it would be for them.
 
***
 
IN PRAISE OF THE IOWA BRINEY DECISION
 
I remember the first time I came across that Katko v Briney  legal decision. I think the vast majority of American-trained lawyers would have heard of this, and probably many international lawyers, but the non-lawyers have likely not heard of it.
 
At first, I found the whole thing vaguely offensive. Marvin Katko came to burgle, to commit a crime, he didn’t care at all about Edward Briney, and now Briney has to pay him money after Katko got hurt during the commission of his crime by that shotgun booby-trap.
 
But if you think a little closer on Katko v Briney , you can see a deeper reasoning of the Court’s, which is –
 
Do not set booby traps on your property. It is not okay no matter what. 
 
The first-order consequence is that Briney, that poor fellow who had to deal with Marvin’s burgling attempt, now has to pay the burglar money. Yes, on some level this is offensive.
 
But the second-order consequence is that knowledge of that decision spreads through Iowa and all of American society, and property owners are on notice not to set traps.
 
Why does this matter?

This is where you think for a moment – who else would go into a farmhouse without permission?
 
We can think of a few people immediately – the first one to come to mind are firefighters and first-responders.
 
If a farmhouse started to burn down and firefighters break in to try to put out the blaze, it’s really not okay  for the property owner to have set up a trap that grievously wounds the firefighter.
 
Additionally, if some neighbors ever got caught out in a “storm of the century” and broke into a seemingly abandoned property in order to ensure they’re not washed out or frozen out… we can debate whether it should be considered a serious crime to trespass in the event of a life-threatening emergency, but is the appropriate response to get shot by a shotgun blast in those circumstances?
 
The Court says: no, hell no, of course not.
 
We can think of a few more applications: what if there is a manhunt in the area and the police, seeing that the front door was already broken into, sweep Briney’s farm? Again, booby traps are unacceptable.
 
And finally, what if some young children decide to be a little stupid and break in for a rush? Certainly, plenty of children aged 8 to 16 years old occasionally do dumb things to prove themselves and explore the world. Is it alright for a 12-year old to get shot, perhaps in the stomach, and bleed to death while trespassing?
 
Maybe some people believe yes; perhaps some people would think so, but the Court does not believe it. The Court does not want booby traps set. You could wound or kill firefighters, police, tax appraisers, children who are exploring, people who are caught out in a storm and seek shelter, or even one’s own descendants if Briney passed away and the booby-trapped farmhouse was inherited.
 
This is Higher-Order Thinking: when I came across it, it was vaguely offensive to me that a property owner had to pay a criminal who got hurt in the commission of a crime… but as you think it through more, the second-order and third-order consequences mean less hazards to human life in abandoned buildings that would indiscriminately hurt anyone  without any judgment or remorse.
 
The Court acknowledged that if Briney had been in the building when Katko broke in, shooting him personally with a shotgun would have been acceptable – the man is committing a crime and his intentions are bad or unknown. Their problem was the booby-trapping – once a trap is set, you can not control how it goes off.
 
This is Higher-Order Thinking: it goes beyond Briney and Katko, and thinks about the wide-ranging consequences.
 
***
 
THE CHALLENGE OF GETTING BETTER AT HIGHER-ORDER THINKING
 
I’ll say it again – I think most people are not great at higher-order thinking, even if it “sounds obvious” at a first glance.
 
I also think it’s surprisingly hard to learn and execute well.
 
Take the Toyota assembly line example: it’s not at all obvious  that stopping the entire production line for a small defect, incurring a half million dollars of costs and stopping the entire factory, will lead to a company that is the most profitable and effective.
 
Yes, if you read about the practice and the final outcome, you can nod. You can say, “Okay, that makes sense.”
 
But I contend it was not at all obvious  when they first did it.
 
And yet, if you can grasp these abilities and get better at them, you can make radically better decisions – even more, you can make radically better decisions that are very hard to copy  because others do not want to take the upfront cost/damage that comes from the First-Order Consequences.
 
It’s powerful. But that’s already part of the reason why it’s hard.
 
It’s not hard to do actions that have positive first-order, second-order, and third-order consequences. If something is pleasurable, enjoyable, and beneficial on all timescales, those decisions are going to get made easily.
 
Learning to go against that grain, to seize advantages that only come to fruition after multiple cycles, this is legitimately hard to do.
 
***
 
COMPONENT PIECES: THE CLOSE COUSIN OF THIRD-ORDER THINKING
 
The first building block of third-order thinking is being able to break things into component pieces.
 
Some people do this naturally – it tends to come very naturally to engineers and programmers, for instance – but it is not a natural way of thinking for most people.
 
Take that “eat junk food or not” decision. Some of the components of that decision are –
 
*Taste and pleasure
*Food cost
*Time required to procure/eat food
*Blood sugar levels
*Other biochemical reactions to the food
*Macronutrient mix
*Micronutrient mix
*Secondary effects on mood from eating and digestion, both immediately and over the coming hours
*The effects on salience (how significant things are) going forwards; EX, the more you eat pleasurable branded junk food, the more you notice it going forwards
*Social/interpersonal factors: going out to eat or not when invited by friends, colleagues, etc.
*And a whole lot of other factors.
 
It is actually somewhat difficult, and again, not entirely obvious what all the components of eating a certain type of food are. It’s really not all that damaging for a very healthy person who gets a triple-burger, gigantic fries, and gigantic soda at McDonald’s once every month or two.

The damage comes when the short-term factors start to overwrite and conquer the long-term factors. The taste, pleasure, cheap cost, convenience, immediate mood/biochemistry boost from the low-fiber carbs and fat and salt are indeed pleasurable and beneficial.
 
If you only did this very rarely, it would not be so bad for you. But as you start to eat that stuff more, the chain gets more salient  to you. You start to get hungry and crave a little when you see a McDonald’s, or similar chain, if you eat there and enjoy it.
 
This makes it a little easier to go to McDonald’s next time. Meanwhile, as your energy and mood crash while you digest the food and when the insulin rush wears off, later in the day you feel kind of low – and a natural and easy temptation is to go have more junk food.
 
***
 
REGULARLY CONSIDERING AND PRIORITIZING COMPONENET PARTS
 
Another example – getting an undergraduate degree. Components include –
 
*The direct lessons from the classes you take (EX, learning double-entry accounting in an Accounting 201 class)
*The indirect lessons around how to think critically
*The indirect lessons and shaping of behavior on how to study, prioritize, etc.
*Being able to make friends, mentors, and connections at the undergraduate institution you’re in
*Having a “rite of passage” in society
*The credential from getting the degree
*Professional licensing, if applicable
*Getting access to the alumni network of your school
*Having time and space, when young, to explore a lot of different ideas and ways of living
*A sort of contained experience with which to learn how to live on one’s own, away from your parents – cooking, laundry, etc.
*Other on-campus resources
*It answers a number of identity-related and profession-related questions for a few years. (“What do you do?” – “I’m a student, I’m studying Economics.”)
*And a whole lot of other components.
 
There’s also potential downsides to going – the cost of getting a degree, the loss of freedom that comes from student loan debt, the opportunity cost of doing different things with your time, the general career trajectory that you’re stepping onto when getting a degree if that particular degree fails to output some of the resources and components you want.
 
For whatever reason, it’s not natural for most people to think this way, but I contend it’s one of the critical steps in higher-order thinking.
 
I’ve spoken at and met a number of professors and students at the top-rated universities in a number of countries, including the USA and China.  I’ve also spoken at and met professors and student at solid middle-tier institutions, the ones that are not as famous or prestigious.
 
You might disagree with me – and that’s fine – but my impression is that Top 10 universities do not offer much  better learning and instruction. There are some exceptions – certainly, in every field that are a few professors who are really on the forefront of what they’re doing and are exceptionally good at teaching.
 
But in general, I think the quality of Accounting 201 is really about the same at a state university and an Ivy League university.
 
Thus, if you were a student choosing between a full scholarship at a solid state university, or $150,000 in student loan debt at a Top 10 American university, the question comes down to: what do you want?
 
That means considering all the components of getting an undergraduate degree and prioritizing them.
 
***
 
ANALYZING COMPONENTS
 
Let’s take another example that’s dear to my heart.
 
If you know anyone that works in any sort of contracted service business – whether it’s remodeling kitchens, designing websites, doing graphic design, landscaping, or whatever else – you’ve no doubt heard horror stories about when clients do all kinds of dumb things.
 
In this type of profession, one of the largest reasons for friction and problems with clients is when they change their mind after the process has started.
 
So you’re remodeling someone’s kitchen, and it’s one-third done, and they change their mind and say, “Wait, I don’t want linoleum; I want tile.”
 
Or you’re making a website for a client, you’ve gotten the basic functionality down, and they say: “Wait, I just want this little change…”
 
This can be very aggravating and massively screw up a project, leading to bad feelings all around.
 
The temptation for many, at first, is to write draconian contract terms.
 
“If you make changes mid-process, your job will cost 50% more.”
 
Or,
 
“We will not make changes after we’re passed an approved stage.”
 
This addresses one problem – changing the scope mid-project – but it neglects a number of other components.
 
So again, let’s break down some of the components you want to have happen in a project.
 
*Project gets completed on-time.
*You get paid on-time.
*The client is very happy afterwards.
*The client does repeat business with you.
*The client refers more business to you.
*The client gives you a happy testimonial.
*The client trusts you and lets you do your best work.
*Low stress and friction in the process of doing the job.
*Many more components.
 
You might find that contractual terms like, “Changes are not allowed, period” actually result in clients getting upset and refusing to pay. At the very least, handling it that way greatly decreases the likelihood that they’re happy, that they do repeat business with you, that they send referrals to you.
 
The first-order problem you’re trying to solve is clients changing their mind – but there’s many more second-order and third-order effects to consider. Start by figuring out all of the components.
 
One easy contractual term that doesn’t seem draconian is to set your payment terms that they pay for whatever next step once you’ve both agreed to what that step is.
 
This sounds small, but is actually a pretty big deal.
 
A lot of jobs include a “paid on completion” aspect, or get paid after some amount of work is finished.
 
So you cheerfully go on to the next stage, it’s all prepped and ready to go, you do some of the work, but then the client changes their mind. Then, perhaps they don’t want to pay. This is bad.
 
Changing the timing of when they pay to be concurrent with agreement on the design direction for the next step makes them think things through much more – it’s easy to ask your contractor or designer to “just do some stuff” without realizing it’s a lot of work, but actually writing a check or wiring money feels much more significant; they’ll think about it more.
 
Meanwhile – and this is odd, but true – if someone pays simultaneously as they make a decision, it feels much more understandable to them that they need to pay more if they want that work re-done.
 
Alternatively, you could raise your prices and offer more room for changes and adjustments. But until you’ve figured out the list of components that matter to you, it’s easy to fight first-order consequences (haphazard requests to change decisions) while ignoring the higher-order consequences in client happiness, referrals, etc.
 
***
 
PRIORITIZATION AND SACRIFICE
 
It’s easy to want everything, but not possible to have everything. At some point, there’s just tradeoffs.
 
The Russian Kalashnikov rifle, the AK-47, is famous for being very fault tolerant. It handles gun jams, lack of maintenance and cleaning, sand, muck, and grime better than the vast majority of rifles.
 
But it’s not the highest-precision or highest-accuracy rifle by any means.
 
If you were a military official doing weapons procurement, it’s not-at-all obvious what you should prioritize for different military units. Do you want higher-precision rifles that are more liable to fail under the harshest conditions, or do you want lower-precision weapons that keep working but at a lower level of accuracy?
 
One of the reasons that Higher-Order Thinking is hard to do is the natural tendency of people to say “I want it all.”
 
Obviously, you should get all the fundamentals and easy gains.
 
For a factory that’s on the brink of death with no spare cash reserves, they might not be able to afford to take the relatively drastic step of stopping the production line for any single defect.
 
But Toyota had the cash reserves, workers, management, and executives where they could accept the heavy short-term loss of production in pursuit of the highest quality and best process.
 
There are a number of ways to prioritize and rank priorities that are beyond the scope of this chapter – the simplest would just be ranking things in roughly what order they matter to you.
 
You could classify things as “must,” “want,” or “nice-to-have” where the musts are absolute constraints, the wants are what you try to make happen, and nice-to-haves don’t matter as much to you.
 
You could try different ways of ranking priorities that other organizations use – you might look up  Goldratt’s Theory of Constraints  to aid in this process, or you might consider the American military’s  CARVER Matrix , which you could read up on and see if it applies.
 
How  you do it is less important than that  you do it. A simple must/want/niceties analysis (which is what I do when leading negotiations), assigning a score from 1-10 to each component on its importance, or just putting the list in order – any of these is far, far superior to not thinking about it.
 
***
 
THE FINAL PIECE OF THE PUZZLE: PARANOIA
 
Paranoia?
 
Well, if we want to put in a nicer way, we could say “curiosity” instead.
 
Another Toyota innovation was going through an analysis of “5 Why’s” –
 
When something goes wrong, you ask “why” repeatedly to go beyond the surface level issues.
 
Wikipedia has both a good overview, and a good example –
 
The vehicle will not start. (the problem)
1. Why? The battery is dead. (first why)
2. Why? The accelerator is not functioning. (second why)
3. Why? The alternator belt has broken. (third why)
4. Why? The alternator belt was well beyond its useful service life and not replaced. (fourth why)
5. Why? The vehicle was not maintained according to the recommended service schedule. (fifth why, the root cause)
 
When looking at how and why things happen in the world, you want to cultivate a deep curiosity. Ask “why” repeatedly. This helps you figure out the broken alternator is merely a symptom of a general problem of a lack of maintenance.
 
Paranoia is sort of like a forwards-looking curiosity.
 
It’s asking,
 
“Why could go wrong here?”
 
“What else matters here?”

“What are we missing if anything?”
 
“How could this affect stuff we weren’t anticipating?”
 
“Are we leaving any huge gains on the table?”
 
“Are we taking any risks here that we don’t want to take?”
 
There’s no magic to curiosity or paranoia – you just do it, thoroughly.
 
I recommend both doing it alone and on paper (to get the rough idea of the problem), and then doing it in dialog with other smart people.
 
Both offer different perspectives. If what you’re doing is significant to your life, you really ought to regularly do both of them. You’ll undoubtedly uncover a lot of second-order, third-order, and higher-order consequences that you were unaware of.
 
***
 
CONCLUSION, AND TRAINING FOR THE LONG TERM
 
Higher-Order Thinking  is one of the defining abilities of people that are able to make really great things happen. It applies to everything from your smallest personal habits, to the largest multi-billion and multi-trillion dollar investments in infrastructure and international affairs.
 
Our method of doing it is relatively simple –
 
1. Break down decisions into the component parts and outcomes.
 
2. Prioritize what matters. This doesn’t need to be advanced; any  thinking-through of priorities gets most of the gains here. (Though for whatever reason, people resist prioritization.)
 
3. Get very curious and/or paranoid to unearth hidden consequences, implications, root causes, opportunities, and risks. Do this solo on paper and  in dialog if anything is significant enough.
 
How do you train this long-term?
 
I think nothing beats personal analysis and dialog – there’s a reason that business schools have all gone onto the case study model, where instead of reading an expert’s conclusions alone, you actually run through the case as if you’re making the hard decisions, analyze, and debate. It’s a terrific way to learn.
 
You can and should do these types of analyses with your friends, confidants, and colleagues regularly.
 
You can apply it to anything – the choice of movies that an actor or director chooses to make, the trades and drafting of a professional sports team, a company expanding or contracting a product line.
 
There’s fodder everywhere for analysis, dialog, and debate. In my social circle, we constantly do this – we analyze anything and everything that’s interesting.
 
Find contemporary examples of stuff happening, then debate and analyze it.
 
Likewise, go back in time and look at things like past company successes and failures, alliances that have succeeded (NATO) and failed (the World War I alliances, the Belgian-Nazi neutrality pact pre-WWII).
 
You can go back and try to analyze how and why the Lakers traded away Shaquille O’Neal and see if you can understand their thought processes and risks, and see if you can come up with lessons from it. (It both failed to some extent, in that they got worse afterwards, and succeeded, in that they were able to build a championship team around Kobe Bryant without Shaq.)
 
There’s nearly infinite opportunities and examples to learn Higher-Order Thinking, just hiding in plain sight. Seize them, grow your thinking in this area, and you’ll develop into a much more effective and powerful human.