Bookish Weapon Number Fourteen

Today’s Bookish Weapon is from Ray Dalio’s book, Principles. It is arguably one of the best business books in print. Dalio’s biography is stunning. A billionaire investor and hedge fund manager. He knows how to make anything more successful. I am going to look at his take on making decisions, but I highly recommend you read the whole book.

Decisions – Broadly Speaking

So you need to make a decision about something. Something important. How do you ego about it from Dalio’s perspective. He says, “Know that coming up with the right questions and asking other smart people what they think is as important as having all the answers.”

So ask some smart people what they think. Get someone else’s perspective. This is always good advice.

Process

There is a two step process second for making decisions says Ray. First take in all the information especially apposing views. Second, decide!

He says that, “You are looking for the best answer not simply the best answer you can come up with yourself.” Find people that have been successful over time and ask them.

Always plan for worse case scenarios as much as possible. The old 2 is one and 1 is none.

Upper Level and Lower Level

You need to understand what level your conversation is on. If it is about a sub-point then that is a lower level conversation. If it is a main point, that is upper level, and he says, “decisions need to be made at the appropriate level, but they should also be across levels.”

He slices it for sure. He is very detailed in his decision making. He says that most people focus on the lower level points and make decisions based on them and those decisions are inferior.

Bets and Probability

“Make your decisions as expected value calculations. Think of every decision as a bet. Reward times probability of occurring is greater than penalty times probability of occurring.” The book gets into more detail so read it.

He also points out that it is “Not always best to bet on what’s more probable. The best choices are ones that have more pros than cons, not the ones that have no cons.”

Consequences

Have you considered all the consequences of your decision? Dalio says you must consider second and third level consequences. So look at how this decision will impact you in three years. Who will it impact and what will be the consequences for them in three, five, the years. Go deep! Most people only look at first level consequences, so don’t be like most people.