First-order negative, second-order positive

mental model · origin: book · evidence: not directly tested

In short

Every decision has immediate consequences, which Ray Dalio calls first-order, and consequences that come after them: second-order, third-order and so on. His observation in Principles is that these levels often pull in opposite directions: what is unpleasant now is often good later, and vice versa. According to Dalio, those who give too much weight to the first level risk big decision-making mistakes. The title of this entry sums up the most useful case: something that is negative at the first order can be positive at the second.

What it says

In Principles: Life and Work (2017), Dalio has a life principle titled “Weigh second- and third-order consequences”. He places it in the chapter about accepting reality as it is (“Embrace Reality and Deal with It”). On the official site principles.com, the text of the principle says that people who give too much weight to the first-order consequences of their decisions and ignore the second- and subsequent-order ones rarely reach their goals. His explanation, in the original: “first-order consequences often have opposite desirabilities from second-order consequences”, and this leads to big decision-making mistakes.

The main ideas, paraphrased from the same text:

The first level is often the temptation or the obstacle. Sometimes the immediate consequences are temptations that cost us what we really want. Other times they are barriers standing in our way.
Trap choices. Dalio writes that it is almost as if nature presents us with choices that have both kinds of consequences and penalises those who decide based only on the first level.
Those who choose what they really want have better chances. The flip side: people who choose what they really want, avoid the temptations and push through the unpleasantness that keeps them from it have, according to Dalio, much better chances of a successful life.

Dalio returns to the idea in the part about work, with a principle worded “Consider second- and third-order consequences, not just first-order ones”. There he says that people tend to focus only on first-order consequences. His example: if you asked him whether he would like it to never rain again, he would probably say yes, if he didn’t think about what follows.

The title “first-order negative, second-order positive” is not Dalio’s wording. It is a summary of the case his examples illustrate: the cost comes first, the benefit comes after.

Example

Dalio’s examples come from everyday life:

Exercise. The first-order consequences (effort, pain, time spent) are usually considered undesirable. The second-order ones (better health, a more attractive appearance) are desirable.
Food. Food that tastes good is often unhealthy, and vice versa.

Dalio's examples: with exercise, the cost comes first and the benefit later; with tasty food, the reverse.

An example built for this text, not from Dalio: asking for honest feedback on a piece of work. At the first order it is unpleasant, because you hear what isn’t working. At the second order, the work gets better and you learn something. Conversely, not asking anyone’s opinion is pleasant now, but the problem remains and shows up later, usually bigger.

How to apply it

The steps below are a practical approach we propose, not a procedure described by Dalio.

Before a decision, write two columns: “what happens right away” and “what happens after that (weeks, months)”. Sometimes you can also add a third column, for the third order.
Mark each consequence with a plus or a minus. If the signs flip between columns, you are facing exactly the kind of trap choice Dalio describes.
Ask yourself which column you are actually basing your decision on. If the only reason for “no” is immediate discomfort, or the only reason for “yes” is immediate pleasure, it’s worth pausing.
Don’t read the signs automatically. Not every immediate cost brings a later benefit. A plus at the first order is not automatically suspect, and a minus is not automatically virtuous.

Limits and nuances

It is a mental model, not a lab finding. The idea comes from Dalio’s life and business experience, presented in a book of personal principles. It is not an empirically tested hypothesis in the form in which he states it. His claims about who succeeds and who doesn’t are personal observations, not measured results.
“Often” does not mean “always”. Dalio says the levels often pull in opposite directions. Many decisions have consequences that go in the same direction at every level, good or bad. The model is useful as a question to check yourself with, not as a rule.
Second-order consequences are harder to predict. The further ahead you look, the more uncertain the estimate. The model does not say how much to weigh an uncertain future benefit against a certain cost paid now.
A link to research, not a claim by Dalio. Economics and psychology study a related phenomenon under the name time discounting: choices between outcomes that occur at different times. Frederick, Loewenstein and O’Donoghue (2002) reviewed three decades of empirical research on this subject. They reported very large variation between studies in how much people “discount” the value of the future. They also stressed that preference for the present needs to be separated from other considerations that influence such choices. The link is ours. Dalio does not make this connection, and research on time discounting does not test his model.
Not all waiting is rational. Research on delayed gratification in children suggests that not waiting can be a reasonable choice when the promised reward is uncertain. Applied here, the “second-order benefit” is worth the cost only if it is likely enough. This too is a connection made by us, not by Dalio.

Sources

Ray Dalio (2017). Principles: Life and Work
Shane Frederick, George Loewenstein, Ted O'Donoghue (2002). Time Discounting and Time Preference: A Critical Review