Analysis

Robin Hanson on Ray Dalio

Feature image for Robin Hanson on Ray Dalio

A scholar was walking along the road to Damascus one day, when he came across a master potter and his practice. After watching the master work his clay, the scholar asked: “Why does the clay harden when you fire it? What principle lies behind this? Would it be possible to use this fire to harden other types of material?”

The master shrugged. “I know not the principle. I just know the feel of the clay, and if it feels right, then it burns right, and produces beautiful pots. Here, would you like to buy some?”

The scholar declined the offered pot, gave his thanks, and went his way. “It’s remarkable that the master does not know the general principles behind his work,” the scholar thought after. “Surely this technique is generalisable. What a wasted opportunity. This master must be quite the self absorbed man.”

The Review

Economist Robin Hanson wrote a short review of Dalio’s Principles about a week back, arguing:

This book seems useful if you were the absolute undisputed ruler of a firm, so that you could push a culture of your choice and fire anyone who seems to resist. And were successful enough to have crowds eager to join, even after you’d fired many. And didn’t need to coordinate strongly with customers, suppliers, investors, and complementors. Which I guess applies to Dalio.

But he has little advice to offer those who don’t sit in an organization or social network that consistently rewards “radical truth.” He offers no help in thinking about how to trade honesty against the others things your social contexts will demand of you. Dalio repeatedly encourages honesty, but he admits that it is often painful, and that many aren’t suited for it. He mainly just says to push through the pain, and get rid of people who resist it, and says that these big visible up-front costs will all be worth it in the long run.

I actually agree with part of this. In my piece on Dalio’s approach to people management, I wrote that Bridgewater occupies a unique spot in the organisational design space for firms, but that the spot comes with some pretty severe tradeoffs:

Am I convinced that Dalio's management style at Bridgewater makes sense? No, I'm not entirely convinced. I believe there are several interesting ideas here — including that of rigorous psychometric testing — that I may want to try out the next time I'm in charge of a team. But I also think Dalio's desire to systematise everything leaves gaping holes in his management practice.

Take, for instance, the research into psychological safety. Research at Google's Project Aristotle and in the academic literature show us that team composition does not matter as much as its level of psych safety — or, to put another way, that group norms override the strengths of the individuals within.

Dalio's solution to guaranteeing that group norms don't override individual strengths is to create a culture of systematised truth-seeking in his entire company. In a conventional organisation, high psych safety ensures group members are able to contribute equally, pooling their strengths together during group decision making. At Bridgewater, psych safety doesn't matter due to its overarching culture of honest, biting criticism, its tough love ethos, its protocol of thoughtful disagreement, and the pressing need of the business to seek the truth at all costs.

The cost, of course, is that Bridgewater's turnover is a third of its new employees. Its culture of rigorous, ruthless truth-seeking has resulted in an experience that Dalio likens to "entering a nudist camp". Stories abound of employees leaving in tears.

I don’t agree with all of Dalio’s organisational design, but the fact that he’s built an effective company — one that’s worked over the long term — isn’t something to scoff at. At the very least, Dalio’s walk through the search space of possible organisation designs has led him down some very interesting paths, and we don’t have to walk down those paths to gain value from the experience. I wouldn't have known that it was possible to standardise group norms — and that when you do, group composition starts to matter again. Dalio's approach hints that this might be the case.[1]

What bothers me is Hanson’s immediate assumption that Dalio’s book offers little of value:

I can believe that the firm Bridgewater is full of open conflict, with negative opinions being frequently and directly expressed. And it would be interesting to study social behavior in such a context. I accept that this firm functions doing things this way. But I can’t tell if it succeeds because of or in spite of this open conflict. Yes this firm succeeds, but then so do many others with very different cultures. The fact that the top guy seems pretty self-absorbed and not very aware of the questions others are likely to ask of his book is not a good sign.

But if its a bad sign its not much of one; plenty of self-absorbed people have built many wonderful things. What he has helped to build might in fact be wonderful. Its just too bad that we can’t tell much about that from his book.

This bothers me because I think people would read this and dismiss Principles out of hand; it also bothers me because I think this reflects the difference between the scientist view of the world and the practitioner view of the world. So let’s talk about that for a bit.

The Academic vs The Practitioner

I suspect Hanson is writing from the perspective of an academic — and to be fair, his reaction makes sense when considered from that perspective. When you’re searching for truth, it’s a legitimate thing to read the text and its surrounding context as a proxy for its value. Hanson is looking for intellectual rigour — perhaps scientific rigour — in Dalio’s book. And this he does not find.

But if you’re a practitioner, rejecting a book on that basis doesn’t make sense. You don’t have to know what’s absolutely true; you merely have to discover the subset of ideas that you can make work for you.

This isn’t rocket science.

When you ask a friend for advice and the friend decides to help you by telling you what she did when she last was in a similar situation, the optimal thing to do isn’t to say: “oh, I can’t possibly do that because of X and Y and Z.” If you expect solutions to your problems to come tailor-made for your specific situation, you’re probably not going to get very far in life.

What most of us learn to do instead is to distill the principles behind our friend’s approach, in the hope of finding some way to apply those principles to our lives. Our circumstances are unique because our lives are unique; this doesn’t mean that you can’t learn from other people’s experiences. Expecting a retelling of their approach to life to meet the standards of scientific knowledge is to significantly shrink the sources of knowledge available to you.

But perhaps that doesn’t seem compelling to you, in which case we should use a concrete example.

One idea that’s made a huge difference for me in the past couple of weeks is Dalio’s framing of ‘believability’. In his book, Dalio argues that when you’re trying to get at the truth, you should look for people with high ‘believability’ in the space you’re dealing with. Believable people are people who have 1) a record of at least three relevant successes and have 2) great explanations of their approach when probed.

This seems like a useful formalisation of something we intuitively do; after all, we don’t ask random strangers we bump into for financial advice. But Dalio goes further and proposes a protocol around believability:

  1. If you’re talking to a more believable person, suppress your instinct to debate and instead ask questions to understand their approach. This is far more effective in getting to the truth than wasting time debating.
  2. You’re only allowed to debate someone who has roughly equal believability compared to you.
  3. If you’re dealing with someone with lower believability, spend the minimum amount of time to see if they have objections that you’d not considered before. Otherwise, don’t spend that much time on them.

This seems like an interesting take. So how do you evaluate it?

The academic approach is to ask if this is backed by scientific evidence. You might reasonably wonder: are there studies showing that people who adopt this protocol do better than people who don’t? Are there drawbacks that Dalio does not mention? If there are plausible drawbacks that he doesn’t address, or if there are no such studies, then perhaps we can safely ignore ‘believability’ as an idea.

The practitioner, on the other hand, would try it out and see what happens. It seems plausible that Dalio knows what he’s talking about. It also seems like he’s fairly believable on the subject. So you try it out, and then ask: has adopting it benefited you? Are there nuances to this technique that comes only from practice? Are there potential drawbacks that would become clear over time? The practitioner would adjust accordingly.

I chose the practitioner’s approach, and I’ve found Dalio’s protocol to be an incredibly useful idea. I have discovered that explicitly telling myself to shut up and ask questions in the presence of a more believable person has made me more efficient in absorbing their ideas. Dalio mentions, in passing, that this doesn’t mean you should roll over and accept everything a higher believability person says, but he doesn’t go into detail because he assumes that practice is where you discover how. [2]

I wouldn’t have had this experience if I had rejected — as Hanson has — the whole collection of ideas simply because Dalio ‘appears to be self-absorbed’. I understand the reasoning that has led Hanson to this conclusion — he’s probably looking for generalisable, scientific knowledge, and Dalio’s book falls well short of that standard. But not all knowledge has to meet that standard to be useful to you; it’s patently untrue that ‘we can’t tell much from his book’ when the method for telling is to simply see which ideas work in practice for you.

A little Greek wisdom

This entire post is a long-winded takedown of an economist’s take on a practitioner’s book. But I’m actually cheating; I’ve discovered nothing new in this post.

The ancient Greeks have a word for the kind of knowledge that Dalio has recorded in Principles. That word is technê, which roughly translates to ‘art’ or ‘craft’. It is the root word of ‘technology’. The practitioner doesn’t know what works in the general case; she only knows what works in her experience. This she records, hoping it is useful to others who come after her.

The knowledge that Hanson is looking for is epistêmê, which translates to ‘knowledge’. He is sorely disappointed.

The lesson here isn’t that technê is better than epistêmê, or even that Hanson got it wrong and we should gloat. Hanson is unbelievably smart. That he makes the mistake of seeing no value in Dalio’s writing should serve as a warning to the practitioners — especially to those of us who value the rigour of the scientific method.

The lesson, I think, is that where technê clashes with epistêmê, value technê at the expense of epistêmê — but only if your purpose is getting things done. If your purpose is to discover some truth about the world, then the intersection of technê clashing with epistêmê is probably where you’ll discover new things.

To quote a previous post: if you live as a scientist, optimise for truth. But if you find yourself a practitioner, optimise for usefulness. And don't do one where you need the other.


  1. This may well be a possible research topic! ↩︎

  2. For the record, I’ve found that raising objections in the form of clarifying questions are way more useful for my thinking than outright debate. I can critically analyse later. ↩︎