Ray Dalio’s Principle for Making Tough Decisions

In his 2017 book, entrepreneur-billionaire Ray Dalio explained his principles for life and work that he’s learned over a 40-year career while growing Bridgewater Associates, one of the world’s most important investment management firms.

One principle, which was developed to help him make complex decisions with the highest probability of success, will be discussed in this article.

It’s called “believability weighted decision making”, and it’s a technique that attempts to cut through the bullshit, blind spots, and ego jockeying that typically takes place when people get together to debate solutions to difficult problems.

The technique helps us to view reality as truthfully as possible, and although not perfect, rationally maximizes the probability of a correct decision.

Common Problems found in Debating Complex Decisions

Before getting to the mechanics of believability weighted decision making, let’s examine some problems we typically encounter when debating complex topics.

Problem 1: Ego Protection

Although disagreements are an incredible opportunity to potentially learn something. Most of us approach a disagreement as a threat to our ego, an opportunity to show how smart we are, and a chance to confirm what we already think is right.

Ray Dalio says that the person who loses an argument actually gains the most. Because rather than confirm what they already knew, they got to learn something new.

To be successful in navigating complex decisions we must get past our childish ego protection. We must see disagreement as opportunity for learning and treat getting to the truth as more important than feeling superior to others.

Problem 2: Valuing People’s Opinions Equally

We often do a poor job of differentiating the value of different people’s opinions and weighing them accordingly in the debate. It should be obvious that not everyone’s opinion is equally valuable on every subject. A plumber’s opinion carries more weight when discussing piping, a doctor’s when discussing coronary disease, and the opinion of your uncle that spends all day forwarding you fake news carries no weight at all.

The opinions of people with proven track records should be weighted more heavily than the opinions of people with no track records. This is important to understand when evaluating 3rd parties but even more so when we evaluate the weight of our own opinions. As we’re often blinded to our ignorance by our need to feel smart and be right.

Problem 3: Overvaluing our own Opinion

We often argue as if our opinion is just as good as anyone else’s. Even if we have no experience, education, or track record in the subject we’re discussing. This makes no sense.

We need to accurately assess our own believability and put ourselves in the relevant place. Most of the time, that means acting as a student, being curious to learn more, and being ready to change our opinion as we acquire new insights into the topic.

It’s often hard to weigh our opinions appropriately. To be objective we need to ask: How much experience/education do I have in this subject? What’s my track record of success?

We need to evaluate the weight we should give to people’s opinions, including our own.

The best decisions aren’t made by democracy, but by an idea meritocracy.

The 3 Step Process of Believability Weighted Decision Making

Believability weighted decision-making is a process that embraces disagreement among highly believable people to make decisions with the highest probability of success.

A person’s “believability” is defined by their experience, education, proven track record, and logical explanations for arguments.

Obviously, the same person can have different levels of believability depending on which topic is being debated.

Step 1: Choose your experts

Ideally, we try to find the 3 or more most believable people that we can on the subject in question. If you are organizing the debate, you may or may not want to include yourself in the panel. Generally, you wouldn’t want to include yourself unless you’re an expert in the topic or acting only as a moderator. If you do participate, get an objective evaluation of your level of believability so that your opinion is being weighed appropriately.

Everyone involved needs to come into the discussion looking to operate in good faith. With a shared goal of finding truth. Not boosting egos.

Step 2: Find out where you agree and shrink the bounds of the decision space

We use the positions of the experts to triangulate on the bounds of the decision space. First, we need to figure out what they agree on. It’s very likely they’ll agree that extreme actions in any direction won’t lead to the best result. It’s probable they’ll agree on a lot more than that. This will shrink the bounds of the decision space to a manageable area of debate.

For example, with regards to the ongoing coronavirus epidemic, let’s say you were to bring a panel of experts together who have disagreeing positions on the effectiveness of quarantining. They could probably agree that zero quarantining is not the right solution, but neither is full lockdown.

After initial agreement, the parties then rationally discuss the disagreed upon space looking for the best answer possible. It’s likely they’ll be able to agree on some more of it through rational argument. It is however unlikely that everyone will agree on everything.

Continuing with our example, let’s say that after some discussion the experts agreed that supermarkets and gas stations should be opened, but night clubs shouldn’t be. However, they still have disagreement with regards to restaurants.

Step 3: Where the experts can’t agree. Weigh their opinions based on believability and take the average.

People see the world in different ways and experts often will not come to exactly the same conclusions. In this case, we take what is leftover in disagreement, weight each expert’s opinion based on their relative believability (experience, education, results) and pinpoint where the truth most likely lies. The decision is based upon this final weighted point of disagreement. This is the basis for making the decision with the highest probability of success.

For our example, the final decision as to whether restaurants should be open or not will come down to a weighted average of the votes. The believability of the experts should have been determined at the beginning of the discussion. And now is not the time to change those evaluations.

In the end, not everyone will get what they want. But if you believe in idea meritocracy as the best way to make complex decisions. You’ll respect the outcome of the process and support it afterwards. Even if you disagree.

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