Strategy Toolkit: Think one level deeper

Recently, I was helping my daughters plan out some activities, and I found myself wanting them to “think more strategically”. 

As other phrases popped into my head (“think big picture” and “think outside the box”), I realized that the phrase itself is kind of meaningless. Even if you understand the concept, it doesn’t help you figure out *how* to do it. So instead, I tried to think of practical techniques they could use and started with one of my favorites: Nth Order Thinking.

While it might sound complicated, it’s just asking “and what might happen next?” Specifically, you’re looking for unexpected possibilities. Here’s a simple example. Let’s say you spill a drink on your carpet:

  • 1st Order (What will directly happen): The carpet gets dirty and needs to be cleaned.
  • 2nd Order (And what could that cause?): You clean the carpet. End of story. 

But there are more possibilities when you think of non-obvious outcomes: 

  • 2nd Order Alternative: You’ve never cleaned the carpet before, so you might use the wrong cleaner and ruin the carpet.
  • 3rd Order (And then…): You might have to buy a new carpet.
  • 4th Order (And then…): Because you are short of cash, you might have to put it on a credit card, which you are already struggling to pay.
  • And so on…

Note that it doesn’t have to be negative. There are positive effects too:

  • 4th Order Alternative: You go carpet shopping and meet the love of your life (Possible? Yes. Likely? Maybe not.)

As you can see, the farther down the cause-and-effect chain, the more possibilities there are and the more difficult it becomes.

So what is the right order of thinking to focus on? Let’s look at an example from Game Theory known as the “2/3s of the Average” problem: Several people guess what 2/3 of the average of their guesses will be when the numbers are restricted to the real numbers between 0 and 100, inclusive and the winner is the person closest to the 2/3 average.

As an example, let’s say 3 of us play the game. I guess 70, you guess 50, and a third person guesses 30. The average (total divided by 3) is 50, of which 2/3 is 33. Therefore, the person who guessed 30 wins.

Pause for a moment and pretend you are playing with 4 random people (even if you don’t quite get the rules). What number would you pick?

To explain, let’s start with 0th order thinking. 0th order is for someone who doesn’t fully understand the game, which happens in cases like this where it is a little complicated. Since they don’t understand the objective, many people will pick a random number, which would average out to 50.

  • 1st order thinking says, most people are 0th order thinkers and will answer 50 on average, therefore, I will pick 33, since that is 2/3 of 50.
  • 2nd order thinking says, most people will use 1st order thinking, so will guess 33. I will guess 22 as that is 2/3 of 33.
  • 3rd order thinking says, most people use 2nd order thinking, so I will guess 14, which is about 2/3 of 22.

And so on. Mathematically, by 23rd order thinking, the “correct” answer is 0 (which is what you would get if you had 2 intelligent computers play each other in the game).

But what about us humans? Well, we get tired, and each additional level of thinking is a lot of mental work. It turns out that the winning number is typically around 22 (which held up in a Dutch study of almost 20,000 people as well as our own family experiment of 4). So the answer to this particular game is to use 2nd order thinking.

So what do you do when you are trying to “think strategically”? Here are 4 suggestions:

  • If you are trying to understand what “average” people will do, use 1st order thinking.
  • If you are trying to think more strategically than most people, use 2nd order.
  • If you are trying to think more strategically than other “strategic thinkers”, use 3rd order.
  • If you are planning your own life, use the highest order that you can push yourself to think through.

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