A Decision-Making System

Today, friends, let’s talk about improving the quality of our decisions.

The university we went to, the field we work in, the friends around us. All of these are choices. And those choices shaped who we are today. Imagine you’d taken a different job. How much would your life have changed?

Where we are now is the result of the decisions we made in past years. And the choices we make now will shape where we end up.

Make the right decisions, and in a year you could become the richest person in the world. Make the wrong ones, and you could just as easily become the unhappiest.

So, to change where we are, we need to improve the quality of the decisions we make.

Let’s take an example. A 20-year-old guy. He’s started working and earning money. He’s saving up. Before long, an acquaintance offers to sell him his car. Our hero has enough money. Now he has a choice. Buy the car, or put the money toward something else? Investing, say? On one hand, he wants the car. His friends have cars, after all. If he buys one, maybe he’ll be more motivated. On the other hand, a car is a liability. Maybe investing is the better move? He’s stuck between two options. A dichotomy, isn’t that what it’s called?

Which choice should he make?

Or think back on yourself. The last time you were in a dichotomy like this, what did you decide? Was there a better option you could have taken?

An acquaintance once told me that every decision depends on the situation. There are no universal rules, he said. But isn’t the principle of not taking what belongs to others, found in our holy books, universal? Whether there are exceptions to it, I don’t know. But whenever I’m facing a choice, I always try to follow that principle.

Fine, agreed. Not all of our choices will turn out right. But aren’t there universal rules that work in most cases?

Ray Dalio answers this question with his “Principles” system. It’ll probably make more sense if we start with an example.

When a robot vacuum is switched on for the first time, it bumps into the walls and doors of your home. In two hours it has close to a hundred “crashes,” and it remembers every obstacle in its chip (its brain). After that, it knows how to go around them.

What if we tried using the same process in our own lives?

We run into some problem. Most people get to work solving it. They search, they struggle, they read books, they ask for advice. And once it’s solved, they move on to the next thing. Right? But one important step gets skipped here. According to Ray Dalio, this exact step is what separates successful people from unsuccessful ones. It’s the step of writing to that “chip.” The step of reflection.

Let’s dig a little deeper into the word “reflection.”

A problem is the result of a wrong decision. Reflection uses that problem to find which of our decisions was the mistake. For myself, I’ve broken reflection into 3 steps.

Find the root cause of the problem. We need to follow the problem all the way to its very last point. Example: being late for work. We didn’t make it in on time, and we got called out for it. What could the cause be?
The answer will probably be: “I left home late.” But what if we dig deeper? Why did we leave home late?
I overslept this morning.
Why?
I went to bed late last night, so I couldn’t get up on time.
Why?
I’d been working out. Maybe it was the adrenaline, I don’t know, but I couldn’t fall asleep.
So is the root cause that we went to the gym too late?
Turn our case into a universal rule. In our case, we put an energy-draining task at the end of the day. Let’s make that into a universal rule. Let’s assume that tasks which take a lot of energy or time should be done first. As a rule: “Do the hardest task first.” A principle has appeared. Didn’t Brian Tracy say this too?
Write the principle down and try to apply it.
Okay, so if we start following this principle, what changes in our lives?
After a morning workout, we’ll feel much fresher all day.
We probably won’t be late for work anymore either. Not counting exceptions, of course.
And what if we organized our work tasks around this principle too? Do the hardest task first. Chances are we’ll get through our work faster. It’s as if we’ve discovered the most important rule of time management.

Next time, whenever we’re planning a task or dividing up our time, we won’t sit and wonder how to do it. We won’t have to choose. Our principles will tell us which choice to make.

It turns out principles help make our lives systematic.

So it was never really about being late for work. It was about a flaw in our thinking. And principles help fix those flaws. The more bugs in our heads we fix, the more problems in our lives get solved.

Back to our example: buy the car or invest? Someone might say, “Get the car.” That’s their choice. I, on the other hand, look at my principles. I have one: “Decisions should be made with second- and third-order consequences in mind.” Based on that, here’s what I’d say. In the first-order future, the car is great. You enjoy it. Your motivation goes up. In the second- and third-order future, the car turns out to be expensive. Its TCO is high. Investing is the opposite. Right now it looks like it does nothing for you. But in 5–6 years, it pays off far more. The money I wanted to spend on a car might even be enough for an apartment. My choice is clear.

The root cause of many of our problems can probably be solved with just a few principles. The more principles we have, the fewer problems we face. A time will come, Dalio says, when you’ll look forward to problems, and when you hit one, you’ll take it on with excitement. Because you’ll want to derive new principles.

As most of our problems get solved, we take on bigger obstacles. And we grow along with them, because a person’s scale is measured by the problems they solve.