Set out as second-level thinking by Howard Marks (The Most Important Thing, 2011); the habit of tracing an act's later effects goes back to Frédéric Bastiat (That Which Is Seen, and That Which Is Not Seen, 1850) and Henry Hazlitt (Economics in One Lesson, 1946).
Follows an action past its first effect to the reactions and consequences that follow, including how competitors, customers, and regulators will adjust.
When to reach for it
Rivals, staff, customers, or regulators will respond to a move that looks good on its immediate effect, possibly changing the result.
How it runs
- State the action and its first effect.
- Ask who else is affected and how they will respond.
- Ask the same of each response.
- Stop when effects settle or turn too uncertain.
- Compare the end result with the first-order expectation.
Where it sits in SOLVE eX
Go to the source
- The Most Important Thing: Uncommon Sense for the Thoughtful Investor, Columbia University Press, 2011
- That Which Is Seen, and That Which Is Not Seen, 1850
- Economics in One Lesson, 1946