Ray Dalio is the author of the 2017 book Principles: Life & Work, about corporate management and investment philosophy.
In his book Dalio presents 5 type of Decisions / Choices that everyone faces. This decisions have major impact on the quality of our lives. Depending on which way we choose the consequences of these Choices will add up to a better or worse kind of life.
So let's dive in and explore the 5 type of Decisions:
1. Consequences Focus
Dalio says Decisions have First, Second and Third Order Consequences. People who make bad Choices tend to focus only the First Order Consequences and ignore 2nd and 3rd order consequences.
Another way to put is to look at the Short Term Consequences of our Decisions, Medium Term and Long Term.
What does that actually mean? Well, when making a choice we usually decide based on terms of Pain-Pleasure, Gain-Loss, Upside-Downside, Advantages-Disadvantages.
But most of us tend to have a narrow focus and decide based on the immediate, short term Pain-Pleasure implications. Yet what we don't realize and ignore is the Transmute and Compound Effect. By that I mean that what is or seems to be Pleasurable at the time of the choice may transmute (change, metamorphose) into Painful consequences down the line.
For instance let's say that you eat a lot of doughnuts, sugar, fast-food type of meat because you like the taste of it. You feel pleasure eating this type of food. Yet if you continue to eat for long time this type of food negative side effects will start to show up: overweight and other health problems.
At the opposing end we have what seems at Painful Consequences when we start, for instance, to learn how to ski. We may fall down a couple of times, people may laugh at us, ....
Yet if we keep practicing and reflect on it, we'll make progress and get better at it. We'll be fitter, healthier, in a better mental and physical condition.
Read more about Compounding Effect.
2. Accountability Choice
When we make a decision we have some expectation of how we would like things to turn out. But often get different result than what we wanted.
How do you respond whenever things go worse than you wanted?
Dalio says that people who make good decisions take self-accountability for the outcomes of their decisions. In doing so they focus on learning, figure out what is up to him to make thing better.
On the other hand those who make bad choices tend to blame others, come up with excuses and justifications. In doing so he/she waits for other people to change, circumstance outside his control have to change for things to get better. But what if they don't?
3. Pain Approach
Often in order to grow and evolve we have to move outside our comfort area, push our limits and explore unfamiliar ground. This is often painful, stressing.
Dalio says that people who make good decisions combine Pain with Reflection. In doing so they are able to Progress.
Those who make bad choices tend to have a Fight or Flight approach.
4. Reality Approach
Too often we make choices based on a set of assumptions that contradicts of things/reality actually are/is.
Dalio says that people who make good decisions try to find out how reality works and then make their decisions accordingly.
Those who make bad choices are used to make their decisions based on how they wished things to be, how they should be instead of how things actually are.
5. Preoccupied with?
Dalio says that those who make good decisions worry about and preoccupy their mind whit achieving their goals.
Those that make bad choices are worried about and preoccupy their mind with appearing good in front of the others, make a good impression.
So what do you think about these 5 type of decisions? What other decisions do you think are important and Dalio should have included?
Other posts about decision making:
