Page 232 - Ray Dalio - Principles

a. Raising the probability of being right is valuable no matter what your
probability of being right already is. I often observe people making
decisions if their odds of being right are greater than 50

percent. What they fail to see is how much better off they’d be
if they raised their chances even more (you can almost always
improve your odds of being right by doing things that will give
you more information). The expected value gain from raising
the probability of being right from 51 percent to 85 percent
(i.e., by 34 percentage points) is seventeen times more than
raising the odds of being right from 49 percent (which is

probably wrong) to 51 percent (which is only a little more
likely to be right). Think of the probability as a measure of
how often you’re likely to be wrong. Raising the probability of
being right by 34 percentage points means that a third of your
bets will switch from losses to wins. That’s why it pays to
stress-test your thinking, even when you’re pretty sure you’re

right.

b. Knowing when not to bet is as important as knowing what bets are probably
worth making. You can significantly improve your track record if
you only make the bets that you are most confident will pay
off.

c. The best choices are the ones that have more pros than cons, not those that
don’t have any cons at all. Watch out for people who argue against
something whenever they can find something—anything—

wrong with it, without properly weighing all the pluses and
minuses. Such people tend to be poor decision makers.

5.7 Prioritize by weighing the value of

additional information against

the cost of not deciding.

Some decisions are best made after acquiring more
information; some are best made immediately. Just as you
need to constantly sort the big from the small when you are
synthesizing what’s going on, you need to constantly evaluate

the marginal benefit of gathering more information against the