The following is a conversation with Ray Dalio.

He's the founder, co-chairman, and co-chief investment officer of Bridgewater Associates, 1 of the world's largest and most successful investment firms that is famous for the principles of radical truth and transparency that underlies culture.

Ray is 1 of the wealthiest people in the world, with ideas that extend far beyond the specifics of how you made that wealth.

His ideas that are applicable to everyone are brilliantly summarized in his book, Principles.

They're also even further condensed on several other platforms including YouTube, where, for example, the 30-minute video titled How the Economic Machine Works is 1 of the best educational videos I personally have ever seen on YouTube.

Once again, you may have noticed that the people I've been speaking with are not just computer scientists, but philosophers, mathematicians, writers, psychologists, physicists, economists, investors, and soon, much more.

To me, AI is much bigger than deep learning, bigger than computing.

It is our civilization's journey into understanding the human mind and creating echoes of it in the machine.

That journey includes the mechanisms of our economy, of our politics, and the leaders that shape the future of both.

This is the Artificial Intelligence Podcast.

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And now, here's my conversation with Ray Dalio.

Truth, or more precisely an accurate understanding of reality is the essential foundation of any good outcome.

Let me ask an absurd sounding question at the high philosophical level.

When you're trying to do something different than everybody else is doing, and perhaps something that has not been done before.

How do you accurately analyze the situation?

How do you accurately discover the truth, the nature of things?

Almost the way you're asking the question implies that truth and newness are almost at odds.

And I just want to say that I don't think that that's true, right?

So what I mean by truth is, you know, what is the reality, how does the reality work?

And so if you're doing something new that has never been done before, which is exciting and I like to do, the way that you would start with that is experimenting on what are the realities and the premises that you're using on that and how to stress test those types of things.

I think what you're talking about is instead the fact of how do you deal with something that's never been done before and deal with the associated probabilities.

And so I think in that, don't let something that's never been done before stand in the way of you doing that particular thing.

You have a, because almost the only way that you understand what truth is is through experimentation.

And so when you go out and experiment, you're going to learn a lot more about what truth is, but the essence of what I'm saying is that when you take a look at that, use truth, find out what the realities are as a foundation, do the independent thinking, do the experimentation to find out what's true, and change, and keep going after that.

So I think that when you're thinking about it the way you're thinking about it, that almost implies that you're letting people almost say that they're reliant on what's been discovered before to find out what's true.

And what's been discovered before is often not true.

Conventional view of what is true is very often wrong.

It'll go in ups and downs and, you know, I mean, there are fads and okay, this thing, it goes this way and that way.

And so definitions of truths that are conventional are not the thing to go by.

How do you know the thing that has been done before that it might succeed.

It's to do whatever homework that you have in order to try to get a foundation and then to go into worlds of not knowing and you go into the world of not knowing but not stupidly, not naively, you know?

You go into that world of not knowing and then you do experimenting and you learn what truth is and what's possible through that process.

The first step is you go after your goals.

The second step is you identify the problems that stand in the way of you getting to your goals.

The third step is you diagnose those to get at the root cause of those.

Then the fourth step is then now that you know the exact root cause, you design a way to get around those, and then you follow through and do the designs you set out to do, and it's the experimentation.

I think that what happens to people mostly is that they try to decide whether they're gonna be successful or not ahead of doing it.

And they don't know how to do the process well because the nature of your questions are along those lines like how do you know?

But a practical person who is also used to making dreams happen knows how to do that process.

So the person, what I mean by a shaper is a person who can take something from visualization, They have an audacious goal, and then they go from visualization to actualization, building it out.

I've given it to Bill Gates, and I've given it to many, many such shapers.

And they know that process that I'm talking about.

They experience it, which is a process essentially of knowing how to go from an audacious goal, but not in a ridiculous way, not a dream, and then to do that learning along the way that allows them in a very practical way to learn very rapidly as they're moving toward that goal.

So the call to adventure, the adventure starts not trying to analyze the probabilities of the situation but using what, instinct?

It is being a, simultaneously being a dreamer and a realist.

For whatever reason, I can't tell you how much of it's genetics and how much it's environment, but there's a early on, it's exciting.

Okay, how do I know, how do I learn very well, and then how do I imagine, and then how do I experiment to go from that imagination?

So it's that process that 1, and then the more 1 does it, the better 1 becomes at it.

You mentioned shapers, Elon Musk, Bill Gates.

Who are the shapers that you find yourself thinking about when you're constructing these ideas, the ones that define the archetype of a shaper for you?

Well, as I say, a shaper for me is somebody who comes up with a great visualization, usually a really unique visualization, and then actually builds it out and makes the world different, changes the world in that kind of a way.

So when I look at it, Mark Benioff with Salesforce, Chris Anderson with TED, Mohamed Yunus with Social Enterprise and Philanthropy, Jeffrey Canada and Harlem Children's Zone.

There are, all domains have shapers who have the ability to visualize and make extraordinary things happen.

What are the commonalities between some of them?

The commonalities are, first of all, the excitement of something new, that call to adventure, and then again, that practicality, the capacity to learn.

The capacity then, they're able to be in many ways full rage, that means they're able to go from the big, big picture down to the detail.

So let's say for example, Elon Musk, he describes he gets a lot of money from selling PayPal, his interest in PayPal.

He said, why isn't anybody going to Mars or outer space?

What are we gonna do if the planet goes to hell?

And how do we gonna get that and nobody's paying attention to that.

Says I'm gonna take, okay, half of my money and I'm gonna put it in there and I'm gonna do this thing and he learns and blah, blah, blah, blah, blah, blah and he's got creative, okay, that's 1 dimension.

So he gave me the keys to his car, which was just early days in Tesla, and he then points out the details.

Okay, if you push this button here, it's this, the detail.

So he's simultaneously talking about the big, the big, big, big picture.

Okay, when does humanity going to abandon the planet?

But he will then be able to take it down into the detail so he can go, let's call it helicoptering.

He can go up, he can go down and see things at those types of perspectives.

And then you've seen that with the other shapers as well.

And that's a common thing that they can do that.

Another important difference that they have in mind is how they deal with people.

I mean, meaning there's nothing more important than achieving the mission.

And so what they have in common is that There's a test that I give these personality tests, because they're very helpful for understanding people.

And 1 of the things in workplace inventory test is this test, and it has a category called concern for others.

This includes Muhammad Yunus, who invented microfinance, social enterprise, impact investing, as Muhammad Yunus received the Nobel Peace Prize for this, Congressional Medal of Honor, 1 of the, fortune determined, 1 of the 10 greatest entrepreneurs of our time.

He's built all sorts of businesses to give back money in social enterprise, a remarkable man.

He has nobody that I know practically could have more concern for others.

He lives a life of a saint, I mean, a very modest lifestyle and he puts all his money into trying to help others.

And he tests low on what's called concern for others because what it really, the questions under that are questions about conflict to get at the mission.

So they all, Jeffrey Canada, who changed Harlem Children's Zone and developed that to take children in Harlem and get them well taken care of, not only just in their education, but their whole lives.

What they mean is that they can see whether those individuals are performing at a level, an extremely high level that's necessary to make those dreams happen.

So when you think of, let's say, Steve Jobs was famous for being difficult with people and so on, and I didn't know Steve Jobs, so I can't speak personally to that, but his comments on, do you have A players, and if you have A players, if you put in B players, pretty soon you'll have C players and so on, that is a common element of them.

Holding people to high standards and not letting anybody stand in the way of the mission.

What do you think about that kind of idea, sorry to pause on that for a second, that the A, B and C players and the importance of, so when you have a mission to really only have A players and be sort of aggressively filtering for that.

Yes, but I think that there are all different ways of being a players And I think and what a great a great team You have to appreciate all the differences in ways of being a players.

That's the first thing and then you always have to be super excellent.

In my opinion, you always have to be really excellent with people to help them understand each other themselves and get in sync with them about what's true about them and their circumstances and how they're doing so that they're having a fabulous personal development experience at the same time as you're dealing with them.

So when I say that they're all different ways, this is 1 of the then qualities.

So 1 of the third qualities that I would say is to know how to deal well with your not knowing and to be able to get the best expertise so that you're a great orchestrator of different ways so that the people who are really, really successful, unlike most people believe that they're successful because of what they know, they're even more successful by being able to effectively learn from others and tap into the skills of people who see things different from them.

Brilliant, so how do you, when that personality being, first of all, open to the fact that there's other people see things differently than you and at the same time have supreme confidence in your vision.

Do you see a tension there between the confidence and the open-mindedness?

And now it's funny because I think we grow up thinking that there's a tension there, right, that there's a confidence, and the more confidence that you have, there's a tension with the open-mindedness and not being sure, okay?

Confident and accurate are almost negatively correlated in many people.

They're extremely confident and they're often inaccurate.

And so I think 1 of the greatest tragedies of people is not realizing how those things go together because instead it's really that by saying, I know a lot and how do I know I'm still not wrong?

And how do I take that best thinking available to me and then raise my probability of learning?

All these people think for themselves, okay?

I mean, meaning they're smart, but they take in like vacuum cleaners, they take in ideas of others, they stress test their ideas with others, they assess what comes back to them in the form of other thinking.

And they also know what they're not good at.

And what other people who are good at the things that they're not good at, they know how to get those people and be successful all around.

Because nobody has enough knowledge in their heads.

And that I think is 1 of the great differences.

So the reason my company has been successful, in terms of this is because of an idea meritocratic decision-making, a process by which you can get the best ideas.

You know, what's an idea meritocracy and idea meritocracy is to get the best ideas that are available out there and to work together with other people in the team to achieve that.

That's an incredible process that you describe in several places to arrive at the truth.

But I apologize if I'm romanticizing the notion, but let me linger on it.

Just having enough self-belief, you don't think there's a self-delusion there that's necessary, especially in the beginning you talk about in the journey maybe the trials or the abyss.

Do you think there is value to deluding yourself?

I think what you're calling delusion is a bad word for uncertainty, Okay?

So, I mean, in other words, because we keep going back to the question, how would you know?

No, I think that delusion is not going to help you.

To deal with uncertainty, not saying, listen, I have this dream, and I don't know how I'm going to get that dream.

I mentioned in my book Principles and described the process in a more complete way than we're gonna be able to go here.

But what happens is I say, you form your dreams first and you can't judge whether you're going to achieve those dreams because you haven't learned the things that you're going to learn on the way toward those dreams, okay?

So that isn't delusion, I wouldn't use delusion.

I think you're overemphasizing the importance of knowing whether you're going to succeed or not.

If you can get rid of that and say, okay, no, I can have that dream, but I'm so realistic in the notion of finding out I'm curious, I'm a great learner, I'm a great experimenter.

Along the way, you'll do those experiments, which will teach you more truths and more learning about the reality so that you can get your dreams.

Because if you still live in that world of delusion, okay, and you think delusion's helpful, no the delusion isn't, don't confuse delusion with not knowing.

But nevertheless, so if we look at the abyss, we can look at your own that you described, it's difficult psychologically for people.

So many people quit, many people choose a path that is more comfortable than, I mean, that the heartbreak of that, you know, breaks people.

So if you have the dream and there's this cycle of learning, setting a goal and so on, what's your value for the psychology of just being broken by these difficult moments?

Well, that's classically the defining moment.

It's almost like evolution taking care of, okay, now you crash, you're in the abyss, oh my God, that's bad, and then the question is, what do you do?

And that's what, some people get off the field and they say, oh, I don't like this and so on.

And some people learn and they have, and they have a metamorphosis and it changes their approach to learning.

The number 1 thing it should give them is uncertainty.

You should take an audacious, dreamy guy who wants to change the world, crash, okay, and then come out of that crashing and saying, okay, I can be audacious and scared that I'm gonna be wrong at the same time.

When you don't lose your audaciousness and you keep going after your big goal, and at the same time you say, hey, I'm worried that I'm gonna be wrong, you gain your radical open-mindedness that allows you to take in the things that allows you to go to the next level of being successful.

So your own process, I mean, you've talked about it before, but it would be great if you can describe it because our darkest moments are perhaps the most interesting.

So your own and with the prediction of another depression.

Can you talk to what you were feeling, thinking, planning, strategizing at those moments?

I had calculated that American banks had given a lot more money to lent a lot more money to Latin American countries than those countries were going to pay back, and that they would have a debt crisis, and that this had sent the economy tumbling.

And that was an extremely controversial point of view.

Then it started to happen and it happened in Mexico defaulted in August 1982.

I thought that there was going to be an economic collapse that was going to follow because there was a series of the other countries that was just playing out as I had imagined.

That was the exact bottom in the stock market because central banks, these monetary policy, blah, blah, blah.

I was very publicly wrong and all of that.

I lost money for me and I lost money for my clients.

I only had a small company then, but these were close people.

I was so broke I had to borrow $4,000 from my dad to help to pay for my family bills, very painful.

And at the same time, I would say it definitely was 1 of the best things that ever happened to me, maybe the best thing for him happened to me, because it changed my approach to decision making.

In other words, I kept saying, okay, how do I know whether I'm right?

And it didn't give up by audaciousness because I was in a position, what am I gonna do?

Am I gonna go back, put on a tie, go to Wall Street and just do those things?

No, I can't bring myself to do that, so I'm at a juncture.

How do I deal with my risk and how do I deal with that?

And it told me how to deal with my uncertainties.

And that taught me, for example, a number of techniques.

First, to find the smartest people I could find who disagreed with me and to have quality disagreement.

I learned the art of thoughtful disagreement.

I learned how to produce diversification.

That is what led me to create an idea meritocracy.

In other words, person by person, I hired them and I wanted the smartest people who would be independent thinkers who would disagree with each other and me well so that we could be independent thinkers to go off to produce those audacious dreams because you have to be an independent thinker to do that.

And to do that not independently of the consensus, independently of each other, and then work ourselves through that because who know whether you're gonna have the right answer.

And by doing that, then that was the key to our success.

And the things that I wanna pass along to people.

The reason I'm doing this podcast with you is I'm 70 years old and that is a magical way of achieving success if you can create an idea meritocracy.

It's so much better in terms of achieving success and also quality relationships with people.

So if we can linger on a little bit longer, the idea of an idea meritocracy, it's fascinating, but especially because it seems to be rare, not just in companies, but in society.

So there's a lot of people on Twitter and public discourse and politics and so on that are really stuck in certain sets of ideas, whatever they are.

So when you're confronted with an idea that's different than your own about a particular topic, what kind of process do you go through mentally?

Are you arguing through the idea with the person?

Sort of present is almost like a debate, or do you sit on it and consider the world sort of empathetically, if this is true, then what does that world look like, does that world make sense, and so on.

So what's the process of considering those conflicting ideas for you?

I'm gonna answer that question, but after saying first, almost implicit in your question is it's not common, okay.

What's common produces only common results, okay?

So don't judge anything that is good based on whether it's common, because it's only going to give you common results.

If you want unique, you have a unique approach.

Okay, and so that art of thoughtful disagreement is the capacity to hold 2 things in your mind at the same time.

The gee, I think this makes sense, and then saying I'm not sure it makes sense, and then try to say why does it make sense, And then to triangulate with others.

So if I'm having a discussion like that and I work myself through and I'm not sure, then I have to do that in a good way.

So I always give attention, for example, let's start off, what does the other person know relative to what I know?

So if a person has a higher expertise or things, I'm much more inclined to ask questions.

If you wanna learn, You're asking questions, you're not arguing, okay?

You're taking in, you're assessing when it comes into you.

And I try to then do that if the conversation, as we're trying to decide what is true and we're trying to do that together and we see truth different, then I might even call in another really smart, capable person and try to say what is true and how do we explore that together and you go through that same thing.

So I would, I said, I describe it as having open-mindedness and assertiveness at the same time.

That you can simultaneously be open-minded and take in with that curiosity And then also be assertive and say but that doesn't make sense why would this be the case and you do that back and forth and

When you're doing that kind of back and forth on the topic like the economy which you have to me perhaps I'm naive but it seems both incredible and incredibly complex.

The economy, the trading, the transactions, that these transactions between 2 individuals somehow add up to this giant mechanism.

You have a lot of incredible videos online that people should definitely watch on YouTube.

But you've put out this 30 minute video titled How the Economic Machine Works.

That is probably 1 of the best, if not the best video I've seen on the internet in terms of educational videos.

So people should definitely watch it, especially because it's not that the individual components of the video are somehow revolutionary, but the simplicity and the clarity of the different components just makes you, there's a few light bulb moments there about how the economy works as a machine.

So as you described, there's 3 main forces that drive the economy, productivity growth, short-term debt cycle, long-term debt cycle.

The former productivity growth is how valuable things, how much value people create, valuable things people create.

The latter is people borrowing from their future selves to hopefully create those valuable things faster.

Maybe we can linger on it a little bit, but you've also said what most people think about as money is actually credit.

Total amount of credit in the US is $50 trillion.

Maybe I'm silly, maybe you can educate me, but that seems crazy.

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Ray Dalio: Principles, the Economic Machine, AI & the Arc of Life | Lex Fridman Podcast #54