Great decisions require understanding the second-order effects of your decision. Second-order effects are the consequences of the consequences of a decision. For example, the Prohibition Amendment stopped the legal production and distribution of alcoholic beverages. That was the intended consequence. The unintended second-order consequence was the rise of large criminal enterprises that continued far beyond the bootlegging.

Managers and boards are bombarded with requests for changes to the current situation. Most of these have favorable first-order consequences. To make great decisions, you must understand the second order consequences. What other impacts will the immediate effect have? For example, a stay-at-home order in response to a contagion will impact the airline industry, the aircraft manufacturers, their subcontractors, the entire restaurant industry, the food supply chain, the educational system, and even the international financial system.

The First Question to Ask

When faced with a request to change the current situation, you should immediately ask, “How did we get in the current situation?” “What were the reasons for the current situation?” If you don’t understand the answers, you run the risk of creating a worse situation. G.K. Chesterson made a great illustration in his 1929 book, The Thing. This became known as Chesterson’s Fence.

There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”

If a fence exists, there is likely a reason for it. Someone made the effort to design the fence, order the material, and erect the fence. You need to know why before removing the fence.

Before I built a wall I’d ask to know
What I was walling in or walling out,
And to whom I was like to give offence.
— Robert Frost, “Mending Wall”

When we don’t understand the reasons for the existing situation, we often assume that those who created it were random bumbling idiots. For example, when we look at the tax law, we see loopholes for exporters. It is easy to assume that Congress consists of corrupt bumbling idiots. While this may be true, the loopholes were originally passed as incentives to export, resulting in hundreds of thousands of jobs. Closing the loopholes would cost many jobs and degrade the balance of payments.

The Second Question

Ask, “Who are the other stakeholders and how will this impact them?”
Complex systems have many variables. Everything is a complex system, so every action has many stakeholders and many secondary (and teriary) consequences. Unintended consequences are almost always bad.

While you are stuck in work-from-home or stay-at-home, check out this blog post from Farnam Street. Then follow all the links (rabbit trails.) You will be glad you did.