From Ray Dalio’s “Principles”
Here are Ray Dalio’s tips on how to make good decisions:
The two biggest barriers to good decision making are your ego and your blind spots. Together, they make it difficult for you to objectively see what is true about you and your circumstances and to make the best possible decisions by getting the most out of others.” (p. 183)
“Most people make bad decisions because they are so certain that they’re right that they don’t allow themselves to see the better alternatives that exist. Radically open-minded people know that coming up with the right questions and asking other smart people what they think is as important as having all the answers.” (p. 188)
1. “decision making is a two-step process: (first learning and then deciding).” (p. 235)
You should NOT make a decision quickly. You should learn by gathering the best quality information possible. You should NOT simply gather information that already confirms your beliefs. You should gather quality information that goes against your beliefs.
- “Learning must come before deciding.” (p. 235)
“That’s why it always pays to be radically open-minded and seek out believable others as you do your learning. Many people have emotional trouble doing this and block the learning that could help them make better decisions. Remind yourself that it’s never harmful to at least hear an opposing point of view.” - “you need to weigh first-order consequences against second- and third-order consequences, and base your decisions not just on near-term results but on results over time. Failing to consider second- and third-order consequences is the cause of a lot of painfully bad decisions, and it is especially deadly when the first inferior option confirms your own biases.” (p. 236)
- “Never seize on the first available option, no matter how good it seems, before you’ve asked questions and explored.”
- “To prevent myself from falling into this trap, I used to literally ask myself questions: Am I learning? Have I learned enough yet that it’s time for deciding? After a while, you will just naturally and open-mindedly gather all the relevant info…”
- “but in doing so you will have avoided the first pitfall of bad decision making, which is to subconsciously make the decision first and then cherry-pick the data that supports it.”
2. Get Opinions From Experts With High Believability.
And make sure you hear opposing points of view. Don’t listen to uninformed people.
- “One of the most important decisions you can make is who you ask questions of. Make sure they’re fully informed and believable. Find out who is responsible for whatever you are seeking to understand and then ask them. Listening to uninformed people is worse than having no answers at all.”
- “it always pays to be radically open-minded and seek out believable others as you do your learning. Many people have emotional trouble doing this and block the learning that could help them make better decisions. Remind yourself that it’s never harmful to at least hear an opposing point of view.”
- “There are lots of people who will disagree with you, and it would be unproductive to consider all their views. It doesn’t pay to be open-minded with everyone. Instead, spend your time exploring ideas with the most believable people you have access to. If you find you’re at an impasse, agree on a person you both respect and enlist them to help moderate the discussion.”
- “I define believable people as those who have repeatedly and successfully accomplished the thing in question—who have a strong track record with at least three successes—and have great explanations of their approach when probed.“
- “If a number of different believable people say you are doing something wrong and you are the only one who doesn’t see it that way, assume that you are probably biased. Be objective! While it is possible that you are right and they are wrong, you should switch from a fighting mode to an “asking questions” mode, compare your believability with theirs, and if necessary agree to bring in a neutral party you all respect to break the deadlock.”
3. If Someone Has a Different View, You Will Want to “Fight or Flight”
You must build a habit to counter the effects of the Amygdala.
- “(Your brain) oversimplify things and react instinctively. They crave praise and respond to criticism as an attack, even when the higher-level parts of the brain understand that constructive criticism is good for you. They make you defensive, especially when it comes to the subject of how good you are.” (p. 184)
- “To do this, first calm yourself down. This can be difficult: You will probably feel your amygdala kicking in through a tightening in your head, tension in your body, or an emerging sense of annoyance, anger, or irritability. Note these feelings when they arise in you. By being aware of such signals of closed-mindedness, you can use them as cues to control your behavior and guide yourself toward open-mindedness.”
- “The good news is that these “amygdala hijackings” don’t last long so even if you’re having trouble controlling yourself in the moment, you can also allow a little time to pass to give your higher-level you space to reflect in a quality way. Have others whom you respect help you too.” (p. 199)
- “To me, it’s pointless when people get angry with each other when they disagree because most disagreements aren’t threats as much as opportunities for learning. People who change their minds because they learned something are the winners, whereas those who stubbornly refuse to learn are the losers.”
- “Do everything in your power to help others also be open-minded. Being calm and reasonable in how you present your view will help prevent the “flight-or-fight” animal/amygdala reaction in others. Be reasonable and expect others to be reasonable. Ask them to point to the evidence that supports their point of view. Remember, it is not an argument; it is an open exploration of what’s true. Demonstrating that you are taking in what they are telling you can be helpful.” (p. 200)
4. In order to listen to information against your view, you must suspend judgement for a time.
- “Recognize that to gain the perspective that comes from seeing things through another’s eyes, you must suspend judgment for a time—only by empathizing can you properly evaluate another point of view” (p. 189)
- “Most people are reluctant to take in information that is inconsistent with what they have already concluded. When I ask why, a common answer is: “I want to make up my own mind.” These people seem to think that considering opposing views will somehow threaten their ability to decide what they want to do. Nothing could be further from the truth. Taking in others’ perspectives in order to consider them in no way reduces your freedom to think independently and make your own decisions. It will just broaden your perspective as you make them.”
5. Ask questions instead of making statements. Try to stay calm and dispassionate.
- “To do this well, approach the conversation in a way that conveys that you’re just trying to understand. Use questions rather than make statements. Conduct the discussion in a calm and dispassionate manner, and encourage the other person to do that as well. Remember, you are not arguing; you are openly exploring what’s true. Be reasonable and expect others to be reasonable. If you’re calm, collegial, and respectful you will do a lot better than if you are not. You’ll get better at this with practice.“
6. Try to weigh all evidence objectively. Don’t just overweigh evidence that backs up your own opinion.
- “Be evidence-based and encourage others to be the same. Most people do not look thoughtfully at the facts and draw their conclusions by objectively weighing the evidence. Instead, they make their decisions based on what their deep-seated subconscious mind wants and then they filter the evidence to make it consistent with those desires.” (p. 200).
- “The biggest mistake most people make is to not see themselves and others objectively, which leads them to bump into their own and others’ weaknesses again and again. People who do this fail because they are stubbornly stuck in their own heads. If they could just get around this, they could live up to their potential. This is why higher-level thinking is essential for success.” (p. 159)
7. Everyone including you, has blind spots. You need to rely on other people help you see these blind spots.
- “you (and everyone else) also have blind spots—areas where your way of thinking prevents you from seeing things accurately.” (p. 185)
- “Because it is difficult to see oneself objectively, you need to rely on the input of others and the whole body of evidence. I know that my own life has been full of mistakes and lots of great feedback. It was only by looking down on this body of evidence from a higher level that I was able to get around my mistakes and go after what I wanted. For as long as I have been practicing this, I still know I can’t see myself objectively, which is why I continue to rely so much on the input of others.” (p. 161)
- “The two biggest barriers to good decision making are your ego and your blind spots. Together, they make it difficult for you to objectively see what is true about you and your circumstances and to make the best possible decisions by getting the most out of others.” (p. 183)
8. Write down the mistakes you made in the past to help you recognize your blind spots.
- “Get to know your blind spots. When you are closed-minded and form an opinion in an area where you have a blind spot, it can be deadly. So take some time to record the circumstances in which you’ve consistently made bad decisions because you failed to see what others saw. Ask others—especially those who’ve seen what you’ve missed—to help you with this. Write a list, tack it up on the wall, and stare at it. If ever you find yourself about to make a decision (especially a big decision) in one of these areas without consulting others, understand that you’re taking a big risk and that it would be illogical to expect that you’ll get the results you think you will.”
Other Good Quotes From the book:
“Think of every decision as a bet with a probability and a reward for being right and a probability and a penalty for being wrong. Normally a winning decision is one with a positive expected value, meaning that the reward times its probability of occurring is greater than the penalty times its probability of occurring, with the best decision being the one with the highest expected value.” (p, 251)
The best choices are the ones that have more pros than cons, not those that don’t have any cons at all. Watch out for people who argue against something whenever they can find something—anything—wrong with it, without properly weighing all the pluses and minuses. Such people tend to be poor decision makers.” (p. 253)
“Let’s look at what tends to happen when someone disagrees with you and asks you to explain your thinking. Because you are programmed to view such challenges as attacks, you get angry, even though it would be more logical for you to be interested in the other person’s perspective, especially if they are intelligent.” “Even the most intelligent people generally behave this way, and it’s tragic. To be effective you must not let your need to be right be more important than your need to find out what’s true. If you are too proud of what you know or of how good you are at something you will learn less, make inferior decisions, and fall short of your potential.” (p. 185)
“Even experts can make mistakes; my point is simply that it pays to be radically open-minded and triangulate with smart people. Had I not pushed for other opinions, my life would have taken a very different course. My point is that you can significantly raise your probabilities of making the right decisions by open-mindedly triangulating with believable people.”
“It’s important not to let our biases stand in the way of our objectivity. To get good results, we need to be analytical rather than emotional.” (p. 140)
“If you can’t understand their view, you’re probably just blind to their way of thinking. If you continue doing what you think is best when all the evidence and believable people are against you, you’re being dangerously arrogant.”
“What if you could unplug that lower part of your brain entirely and instead connect with a decision-making computer that gives you logically derived instructions, as we do with our investment systems? Suppose this computer-based decision-making machine has a much better track record than you because it captures more logic, processes more information more quickly, and makes decisions without being emotionally hijacked. Would you use it? In confronting the challenges I’ve faced in the course of my career I’ve created exactly such tools, and I am convinced that I would not have been nearly as successful without them.”