During World War II, lots of fighter planes were getting hit by anti-aircraft guns. Air Force officers wanted to add some protective armor/shield to the planes. The question was “where”?

The planes could only support a few more kilos of weight. A group of experts were called for a short consulting project. Fighter planes returning from missions were analyzed for bullet holes per square foot. They found 1.93 bullet holes/sq. foot near the tail of the planes whereas only 1.11 bullet holes/sq. foot close to the engine.

The Air Force experts thought that since the tail portion had the greatest density of bullets, that would be the logical location for putting an anti-bullet shield.

One of the experts named Abraham Wald said exactly the opposite; more protection is needed where the bullet holes aren’t – that is – around the engines.

His judgment surprised everyone. He said “We are counting the planes that returned from a mission. Planes with lots of bullet holes in the engine did not return at all”.

Einstein had said: Not everything that counts can be counted, and not everything that can be counted counts”.

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I got this interesting story as a forward. It is a very good example of second level thinking.

In his exceptional book, The Most Important ThingHoward Marks hits on the concept of second-order thinking, which he calls second-level thinking. Here is an interesting blog on Farnam Street on the concept. You can also read a Memo by Howard Marks on this here.

One of the important tools in second-level thinking or second-order thinking is Inversion. I briefly touched upon Inversion when I mentioned Charlie Munger’s story and quote of mathematician Jacobi. You can read the reference here.

The above fighter plane story is another example of second-level thinking using principle of Inversion. Others were looking at planes that returned safely and trying to identify which are they should protect. Abraham Wald rightly applied the Inversion principle and thought: “We should focus on the planes that didn’t return, and think why they didn’t and protect them from getting gunned down!”

Another example of principle of Inversion which many of you would know if you are fans of Amazon founder Jeff Bezos. When asked about what is the purpose or goal of life, most people would give answers which could be summarized as follows:

1. My goal is to be happy in life – pursuit of happiness is the purpose of life
2. My goal is to do justice to my potential – achieve the maximum that I am capable of

Jeff Bezos was asked similar question about his goal and what motivated him to found Amazon; and his answer was very interesting. He applied principle of inversion and said: “My idea was to minimize regrets in life when I am 80 years old!” This is a “Regret Minimization” approach as opposed to “Pursuit of Happiness” approach. Jeff said that giving Entrepreneurial instincts a shot was one of his life goals. If he had failed at Amazon he would have happily gone back to his previous career and would have scaled up there. But he wouldn’t have regretted at age of 80 that he had aspirations to start his own venture but he didn’t.

This is such a novel approach! It frees you from the burden of pursuing your dreams and fearing failure and enables you to just enjoy what you want to do and not have any regrets. Many things could be turned into success if we approach life with this philosophy!

Warren Buffett has often said that his biggest mistakes in life were not errors of commission, but the errors of omission. That is, Buffett regrets the opportunities he missed far more than his investing bets that went wrong. Because, according to him, in many cases of omission he had enough knowledge, insights, wisdom to make a right decision and yet for some reason he didn’t and then the missed opportunities turned out to be multi billion dollar “errors” – which never show up anywhere in the Books of Accounts.

Hope this highlights the power of second level thinking and principle of inversion as tools in thinking and decision making…

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