Ray Dalio on Effective decision-making
Background
In the book Principles by Ray Dalio, he states the following about effective decision-making:
Biggest threat to decision-making is harmful emotions. Decision-making is a two-step process:
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Learn
- Know whats paints a true and rich picture of the realities that will affect your decision.
- Be radically open minded.
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Decide
- Define the “what is” and “what to do about it”.
- Weigh first-order consequences with second- and third-order consequences.
Dalio emphasizes the importance of searching for the truth, which is the main thread of this book—find what’s true and accept the world for what it is, be radically open minded, and decide how you want to respond from there, using principles.
Questions to ask yourself:
- Am I learning?
- Have I learned enough to yet that it’s time for deciding?
Synthesizing
Dots
To explain this section, Dalio is referring to everything that comes our way as dots and the importance of prioritizing. He explains that some people collect and keep unnecessary information about everything that comes their way. This will as a result cause something he calls “detail anxiety”—worrying about unimportant things.
- The importance of who you ask questions to. Make sure they are believable.
- Don’t believe everything you hear. Opinions get stated as facts.
- Everything looks bigger up close and what that happens today, will seem less important in retrospect.
- New is overvalued relative to great.
- A dot is just a piece of information, don’t squeeze it. Figure out how much you can learn without overweighing it.
- Pay attention to rates of change, levels, and the relationships between the dots.
- Be imprecise—understand the concept of by-and-large, which is the level you need for making effective decisions.
- Remember the 80/20 rule.
- Be an imperfectionist. Perfectionists spend too much time on details in the margins.
Levels
Dalio illustrates the following concept of levels, by which you should know at what level you examine. He also states that if you pay attention to your conversations in your own life, you will tend to move between multiple levels when you talk.
- High-level big picture: I want to do Meaningful work
- Subordinate concept: I want to be a doctor.
- Sub point: I need to go to medical school.
- Sub-sub point: I need to get good grades in the sciences.
- Sub-sub-sub point: I need to stay home tonight and study.
Further,
- Remember that multiple levels exist.
- Decisions need to be made at the appropriate level.
- Be aware on what level you’re examining.
- Consciously navigate levels rather than give in to randomness.
Other notes
- Logic, reason, and common sense are your best tools.
- Simplify. He quotes “Any damn fool can make it complex. It takes a genius to make it simple”.
- Use principles:
- Slow down your thinking.
- Write the criteria down as a principle.
- Think about those criteria when you have an outcome to assess, and refine them before next time.
- Seek out thoughtful disagreements.
- Triangulate with other highly believable people.
- Avoid valuing your own believability more than is logical.
- Distinguish between who is more or less credible.