330. Extra: Ray Dalio Full Interview

Stephen Dubner's conversation with the founder and longtime C. E. O. of Bridgewater Associates, recorded for the Freakonomics Radio series “The Secret Life of a C. E. O.”

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Stephen J. Dubner?

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• 0:33Stephen J. Dubner?

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• 1:04Stephen J. Dubner?

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• 1:48Stephen J. Dubner?

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• 1:54Stephen J. Dubner?

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• 2:33Stephen J. Dubner?

  Hey there. It's Stephen Dubner. You are about to hear a conversation with Ray Dalio, founder and longtime CEO of Bridgewater Associates, the biggest hedge fund in the world. Although, as you'll hear, there's barely any such thing as a hedge fund anymore, at least. We spoke in October, soon after Dalio had published a sort of work-life manifesto called Principles. Dalio appeared in our six-part Secret Life of a CEO series, which you can find at Freakonomics.com/CEOs. And now, we are releasing some of the full interviews as special episodes, like this one. Hope you enjoy.

• 3:11Stephen J. Dubner?

  Hey, this is Stephen Dubner. Is that Ray Dalio?

• 3:13Speaker 01

  Hey, Stephen. Yeah, this is Ray Dalio.

• 3:16Stephen J. Dubner?

  Nice to-- so nice to talk to you, and thank you so much for coming in. And congratulations on the book.

• 3:21Speaker 01

  Thank you.

• 3:22Stephen J. Dubner?

  So, let's begin with literally saying your name and what you do.

• 3:26Speaker 01

  I'm Ray Dalio. I was the founder of Bridgewater Associates. I'm still a chief investment officer and chairman. And right now, I'm trying to help other people be successful without me, in whatever form they want to be successful.

• 3:41Stephen J. Dubner?

  Excellent. And Principles, the book, Part One, grew out of a non-book version that you published a while back. Did you set out to want to help people? Or was that more of a kind of internal working guide that you wanted to publish so that your employees could learn what you were all about? In other words, did you intend for it to become a public proclamation?

• 4:02Speaker 01

  Oh, no, just the exact opposite. Like, I didn't want any public attention. In 2008, we anticipated the financial crisis by thinking differently. And that got a lot of attention. And I was faced with the choice of letting it be a misunderstood, or I put them out. And so, we put them on a website. They were downloaded three and a half million times. I got a whole bunch of thank yous for that. And now, I'm at a stage of my life, 2017, which is my transition state of my life. I think that, basically, life exists in three big phases. In the first phase, you're learning and you're dependent on others. You're a kid. Second phase, you're working, others are dependent on you, and you're trying to be successful.

• 4:49Speaker 01

  In the third phase, and as you get into the third phase, the greatest joy you can have is to help others be successful. That gives them their abilities and it gives you the freedom. So 2017 I view as my transition year from the second phase of my life to the third phase of my life.

• 5:06Stephen J. Dubner?

  I know it's relatively early then in the third phase, but how would you rank the actual satisfaction you're experiencing versus what you would have predicted as your satisfaction in this third phase?

• 5:17Speaker 01

  Well, in that, in that transition from the second to the third phase, it's an unbelievable kick to help other people be successful, right? I, I think it almost instinctually changes. When you're in that second phase, it's a kick to be successful, but there's a greater kick. I'm loving it to be able to help other people be successful. Yeah, it's a kick. Well, it's like, there was a book, there was Hadrian Memoirs, that was a book about, it was Hadrian speaking in his own words and so on, and he had conquered, and he described it, I think, very well. For me to go in there and fight another battle and be successful and whatever is just not the same kick.

• 5:58Speaker 01

  And it's very interesting, because if you look at Joseph Campbell's Hero of a Thousand Faces, it's almost exactly like that. There was a part of that book, if I, just, maybe I'm answering too long, but anyway.

• 6:13Stephen J. Dubner?

  No, no, I love this, yeah.

• 6:16Speaker 01

  My son gave me the book at, in 2014, and he describes that phase of your life as returning the boon. In other words, you learn a lot of lessons in life, and you want to help others be successful, and it's a pleasure. It's the greater pleasure than being successful yourself. At least it feels that way for me.

• 6:35Stephen J. Dubner?

  It's interesting, so a two-parter. Let me ask one first, and I'll hold off on the other. You've become famous for being not only analytical, but self-analytical, and in a way, that's what your management style is about and has really pioneered. But let me ask you to apply that to yourself right now. The window of time you're looking at for this third phase for yourself is very short. So persuade me that this, that this joy that you're experiencing in phase three is not just the novelty of phase three, and is actually the accomplishment that you're feeling in phase three?

• 7:06Speaker 01

  Well, again, I don't even know if it's the accomplishment as much as I feel the need to...

• 7:13Speaker 01

  Convey it and what other people do with it is fine.

• 7:16Stephen J. Dubner?

  Mm hmm, okay, yeah.

• 7:17Speaker 01

  So, and it's not just my principles, I just want to be clear. What my aspiration here is to make clear how effective principled level thinking in general is. I've just interviewed a number of remarkably successful people to try to have them bring out their principles because principles are like recipes for success that have worked for people. And so there are a number of people who are very, very successful. Wouldn't you like to know Elon Musk's principles? Wouldn't you like to know Bill Gates's principles? Wouldn't you like to know Einstein's principles or whoever that is? Because they're the recipes for success.

• 7:56Speaker 01

  So, and if one operates in a principled way, I hope we'll get into what that means. But if one operates in a principled way where you know your principles and you're refining them and you're clear about them, magical things happen. And I just feel a responsibility to pass those things along and then let people do whatever they want with them.

• 8:17Stephen J. Dubner?

  Great, okay, we'll get very micro for a long time, I promise. But let's start a little bit macro. When you look outside your firm and even outside the financial services industry, which industries or realms even do you see that do tend to operate according to their principles?

• 8:36Speaker 01

  Well, I don't know that I could describe it as a particular industry, but I think that what's happening quite a bit is that the development of algorithms is requiring people to be very clear in specifying the equations and that's almost helping the development of algorithms. So let's say if you have a self-driving car and now you're having to make a choice of, I will kill three people or I'm going to go over a cliff and I'm going to die or those types of things. That forces people to think through, okay, what would I do in that situation?

• 9:18Speaker 01

  And become very, very explicit in that, in the form of an algorithm. Or, let's say, an algorithm is nothing more than a principle which is now put into computer ease rather than to put into words. And I think we're coming down that path in a faster way. So, of course, religions think about principles, you know, but the thing about religions in many cases are they're, they come as packaged principles and they come from somebody else and then you move them along. I think that principle level thinking nowadays allows the individual to choose his own principles and to be clear about those principles and in a sense operate that way.

• 10:00Speaker 01

  Now, different institutions, you know, organizations are operating differently, so I couldn't comment on, you know, the whole universe, but I think just inevitably, these things are happening. That things, just want to make it clear what those things are. Algorithms will form, will help to force the clarity of principles and that we are probably in a society that is going from principles that are given to us by others in a more prepackaged way to maybe a society that maybe doesn't think adequately about principles, to one that I think will evolve to making one's own principles clear.

• 10:43Stephen J. Dubner?

  Let me ask you kind of a flip side of the previous question. When you look around the world for an area or environment or industry or institution whatnot, where you see there's an awful lot of behavior, an awful lot of decisions being made, not according to principles, but rather expediency or emotion or self-dealing or whatever, where do you see that happening a lot in particular? And yes, this is a leading question because what I really want to ask you about is, you know, politics. I see politics as something where we as citizens would like nothing more than principled behavior, even if it's a principle that we personally don't agree with. And yet it feels as though we're in a political moment where principles are not being applied.

• 11:28Stephen J. Dubner?

  And I guess I'm curious your take on that.

• 11:30Speaker 01

  I think that's exactly right. I think it would be an unbelievable world, better place.

• 11:37Speaker 01

  If each person, particularly those who are in leadership position, wrote down their principles and you walk the talk, and then that we as a country are clear in what are the principles that bind us together? And what are the principles that separate us? So being clear about that. And then to have good idea meritocratic ways of working ourselves through those disagreements. Yeah, I think that that's the problem. First, not clear principles, clearly stated. And second, not idea meritocratic decision making that lets you move past it. Just let me explain quickly what I mean by idea meritocratic decision making.

• 12:22Speaker 01

  It's, of course, hoping that the best processes for producing the best ideas winning out. Okay, three things you need to do. First, you need to put your honest thoughts on the table for everybody to see with other people's honest thoughts, so they're clear. Second, you need to have the ability and protocols for having thoughtful disagreement. In other words, to work yourselves through disagreements, to make the better decisions. And by having principles and being clear about that, that helps that second step of having thoughtful disagreement and getting past those disagreements. And then, third, if you have remaining disagreements, you need to have an idea meritocratic way of getting past that.

• 13:08Speaker 01

  We call that believability weighted decision making. That's a whole other topic if you want to digress into. But I think that's been extremely powerful for us. And I think that we're, as we're entering a period in which we're going to have a greater ability to make collective decision making because of the use of algorithms. And because also, we can find out what everybody's like so easily. So I think that we'll have to move in that direction. But if we don't... We're just going to be in our silos arguing and trying to kill each other.

• 13:43Stephen J. Dubner?

  Yeah, you know, it's funny, I read your book, I don't know if you've thought about this or if others have said this to you, but I read this as a little bit of an analog to Danny Kahneman's book, Thinking Fast and Slow. Are you familiar with Danny and or his book?

• 13:56Speaker 01

  Yes, and it's certainly the case that one thing is totally in common, and is a reality, is that when we're thinking fast, we're going, making a lot of decisions that come at us at a very fast pace, and it's like you can catch a fly ball and we can have this type of conversation without slowing down and making decisions. And then, on the other hand, if you pause, and you reflect, and you think, what are my criteria for making a decision? And you could write those down first in words, and then, nowadays, words can be turned into algorithms, you can then make better decisions. And it's so important

• 14:37Speaker 01

  for that, let's call it, thinking slowly, and articulating, that's a very powerful thing.

• 14:43Stephen J. Dubner?

  I have to ask you, you're, you're what, late, late 60s, mid 60s?

• 14:47Speaker 01

  Sixty-eight.

• 14:48Stephen J. Dubner?

  Okay, and you weren't a math guy, per se, right? You've learned as you, as you went, I gather, correct?

• 14:54Speaker 01

  Yeah.

• 14:54Stephen J. Dubner?

  Okay, did you, was your conversion to the power and the beauty of the algorithm gradual? Was, was it, were you a little reluctant? Because you sound like a true believer in a way that many people, even these days, are not.

• 15:12Speaker 01

  Well, first of all, artificial intelligence began in 1953 is the first time they did it, and, and the ability to express yourself, there was econometric thinking, and there was all sorts of ways of having one's ability to express oneself. In my case, when I stumbled on it, and then it was the just radical key to success, I stumbled on it because every time I would make a trade in the markets, just as a self-discipline, I wrote down the criteria, so when I would close the trade, I would see how it worked in the past. Well, I found that I was able to take that same criteria, and then go back in time and see how those decision-making would have worked. I found that was unbelievable. Then I found that by expressing it in that algorithm...

• 15:56Speaker 01

  That our algorithm is just a language and so by working with people to get the language right, it's not a problem. And then I was able to collect data as it was happening in a real time basis and make that decisions in that. And then I found that it just radically improved the decision making because I was operating in parallel with the computer. So like playing chess, creating a computer chess game and that reconciliation because and I discovered over a period of time that the computer could make decisions better than I could.

• 16:29Stephen J. Dubner?

  Yeah.

• 16:30Speaker 01

  Because it could be more comprehensive, it could be quicker, it was less emotional. Anyway, it had all those benefits and that compounding. So that has existed for 25 years and of course, as the technology and everything improves, you get better and better.

• 16:43Stephen J. Dubner?

  Yeah. One more question back to politics for a second and then we'll move on mostly to Bridgewater. So Jim Comey worked at Bridgewater for a while and then more recently when he was fired as head of the FBI, you publicly defended him, calling him a man of integrity and a hero. You wrote that he is quote, "A man of high principles operating in a low principles environment." That is a disparity that a lot of people are going to run into. I guess, I guess sort of better to be a person of high principles and a low than vice versa, but I don't know. Can you just talk about the difficulty, forget about financial services or investing, even forget about government, but what do you do?

• 17:24Stephen J. Dubner?

  What do you advise to people who do aspire to having a set of principles, whether they're business, personal, political, whatever, and yet find that the environment in which they operate doesn't appreciate, need, et cetera, them?

• 17:38Speaker 01

  You're just describing a situation that helps one know one's principles when things are at odds. The question is, what do you do when they're at odds? So, let's say you're a principled person, and now you're in an environment that is not principled. Okay, that'll force a question, and that's where principles come from. Which of those things are more important to you? Okay, in my opinion, as you're dealing with it, I couldn't be in an environment in which I didn't have the right to speak up, the right to work things through in an idea meritocratic way. I couldn't do that. Now, somebody else will say, no, my principle is, maybe it's the principle to do, to serve,

• 18:21Speaker 01

  or to have the particular authority to do that. And so, they would have then an overarching principle that would be a refined principle that would be different than my principle. My point is, that by experiencing life, and experiencing these things that are at odds, and then reflecting in a high-quality way on that, and your choices, that is the means that you refine your principles.

• 18:47Stephen J. Dubner?

  One story from the ancient past I just want to hear in your voice, because it's so entertaining. Can you tell me briefly how you helped McDonald's launch the McNugget?

• 18:55Speaker 01

  Well, okay, I mean, I, when I got, I graduated from business school in 1973, and I traded commodities, and I loved to trade commodities, and I loved the mechanics of it. You know, there was something about you can grow a chicken, and it's so many pounds of this and that that makes the chicken come out, and blah, blah, blah. And I had two clients at the time, McDonald's and also a chicken producer. And McDonald's wanted to come out with the McNuggets, but there were a lot of volatility in the chicken market at that time, and they were worried that if they didn't, if they set a menu price, and the price of chicken then went through the roof, that they would

• 19:40Speaker 01

  get squeezed, or they'd have to raise the prices, and it would be unstable.

• 19:44Stephen J. Dubner?

  And were they worried that their introduction of the product was going to spike demand, or spike price, because of their action?

• 19:50Speaker 01

  No.

• 19:51Stephen J. Dubner?

  Because they're that big?

• 19:52Speaker 01

  No, no, no, no, no.

• 19:53Stephen J. Dubner?

  Or orthogonal to that?

• 19:54Speaker 01

  They were just worried that the cost of their chicken would go up.

• 19:56Stephen J. Dubner?

  Gotcha.

• 19:57Speaker 01

  And then, but there was not a way for them to hedge that because there was not an adequate chicken market. But the producer of the chickens, um, um, since a chicken is mostly a little chick, and then it has a lot of grain that's added, and you could use the futures market and so on. What I did is I showed him how we can hedge his cost and that he could provide a fixed price to McDonald's for a chicken.

• 20:24Stephen J. Dubner?

  You could, he could hedge his cost by buying corn or buying or selling corn and soybean futures then?

• 20:31Speaker 01

  Yeah, corn and soybean meal futures because, you know, that was where his volatility was. He could lock it through. And so by doing that, we engineered that. I don't know how interesting it is, but anyway.

• 20:43Stephen J. Dubner?

  I find, I find it interesting.

• 20:45Speaker 01

  It was an engineering, it was an engineering exercise.

• 20:48Stephen J. Dubner?

  Well, it's also a reminder that, you know, these days people hear hedge funds and what they think of are, oh, those are the kind of ultra exclusive-ish or good investment vehicles. In the old days, however, hedging was a real thing, as you're talking about now.

• 21:03Speaker 01

  Yeah. I mean, forget about the term hedge fund. There's, everybody does all different things and they call it a hedge fund. It's almost like saying it's a mutual fund and everybody doing all different things. So I think it's very confusing what, what even a hedge fund is.

• 21:17Stephen J. Dubner?

  Yeah. In the old days, you used to be a little bit on the arrogant side, didn't you?

• 21:22Speaker 01

  Oh, yeah. And then I had my ass kicked in enough times and then I, yeah. I mean, it was a time, particularly I remember the moment, um, in the late 1980, 81, um, I had calculated that foreign banks were, had lent, American banks had lent to foreign countries a lot more money than those countries were going to be able to pay back. And that we were going to have this terrible debt crisis and so on, and it was very

• 21:56Stephen J. Dubner?

  And you were right about all that, correct?

• 21:58Speaker 01

  Yeah, it was a very, I was right about all that, but the markets is a different story. The only thing against is whether you're right in markets. So it was a, because I had anticipated that this and others didn't, I was on Wall Street Week, I testified in Congress and all this, and I got all this type of attention. And right at the exact bottom, when Mexico defaulted in August 1982, okay, everybody said that problem, I said, okay, economic collapse. That was the exact bottom of the stock market for I don't know how many years. And I, I was so wrong. I, I had to let clients go, I lost money, I got so broke that I had to borrow $4,000 from my dad.

• 22:43Speaker 01

  And then letting go people who were like extended family, it was literally down to me. That was a very painful experience, but it was one of the best experiences that happened in my life because it changed my perspective from thinking I'm right to asking myself, how do I know I'm right? And that began the whole process of trying to find people who disagreed with it, smartest people I can find who disagree with me and be curious about what they think, to create a culture in which there's independent thinking, and you need independent thinking. In the markets, or in being an entrepreneur, you're betting against the consensus, and there's a high probability that you're going to be wrong.

• 23:26Speaker 01

  And to have independent thinkers who know how to have thoughtful disagreement, to raise the probabilities of being right, that's what the light bulb went off. I think the greatest problem, the greatest tragedy in mankind, or certainly one of them, is people needlessly holding wrong opinions in their heads, which they could so easily put out there in stress tests and raise their probabilities of being right. But they don't do it for various reasons. So it gave me the open-mindedness that I needed to balance with my audacity.

• 23:58Stephen J. Dubner?

  When you say that people don't do that, that they're not willing to expose their opinions to outside, you know, empirical inspection and all, I guess a lot of people, when I hear that, and I think the question I think is, well, why? Why don't people do that? Are our egos that fragile? Do we, are we that worried about our reputations? I'm curious what you see as the reason for why people don't expose that. Is it something beyond just ego and reputation?

• 24:25Speaker 01

  Well, I, having gone through it from, you know, like 1982 or so, to have the idea of meritocracy, it's been a long journey by speaking to neuroscientists, by speaking to psychologists and so on. And there are two reasons for this overwhelmingly, what I'll call the ego barrier and the blind spot barrier. The ego barrier is that notion, you know, that we have two brains basically operating. Our upper level us that's thoughtful and wants to make the right decisions, and then our emotional brains that also hijack us. And

• 25:06Speaker 01

  we have a challenge of being able to deal with our own imperfections and our own weaknesses and our own being wrong. So this, and our society reinforces that. It's reinforced in schools about, you know, okay, you got the grades right, you're right, or you're right, or you're right, or you're right. It doesn't reinforce the notion of failure and learning from failures and that whole experience. So, so there's, that's the ego barrier. I mean, what is it that people can't be totally straight with each other and all of that because they're always so worried about that other, what I call their lower level them rather than their upper level them. But that's part of it. The second being

• 25:46Speaker 01

  the blind spot barrier. What I learned is that everybody sees things differently, literally, through a lot of experimentation that we do where we see simultaneously how people see things. It's remarkable how people actually see things. Some people will see the big picture, some people will see detail, some people will see all different things. And when, and what happens is because you can only see in one, let's call it seeing spectrum, you only are seeing that particular piece. And you think that that's the right piece. And when you start to be able to see things through everybody's eyes and you then the world lights up and it's a different perspective.

• 26:28Speaker 01

  So the giving it up, in other words, giving up the attachment to what's in one's brains as being the only thing and then being able to move beyond that and seeing through things in other in others' eyes and then transcending that so that we're all above all these different ways of thinking and saying, okay, given all these different ways of thinking, how do we find out what the best answer is, knowing that we don't know necessarily that the one in our heads is the right one? And that's a good idea meritocracy.

• 27:01Stephen J. Dubner?

  So as a leader in that case, when you you understand that a lot of people might have a lot of different perceptions of a given scenario, do you feel it's more your job or maybe more important to try to get them to see the same things essentially to reach a consensus vision of things? Or is it a value, is it an asset to have all those different views and it's your job to collate all of them so you can see the big picture?

• 27:28Speaker 01

  Well, I first of all, I view it more collectively than you're describing because it almost sounds like here's a boss who was saying, what do I want to do kind of thing?

• 27:35Stephen J. Dubner?

  Right, right.

• 27:36Speaker 01

  I'm saying, in a sense, I want an idea meritocracy that has a communication, a means of agreeing on those things. So what I'm saying is, okay, now when faced with this thing that we see that all these different points of view exist, then let's collectively determine the rules of how to work ourselves through that, that we would think is the best possible way of working ourselves through that so that we make the best decision. That is, and so we've come up with this process, I'll describe believability weighted decision making and so on, which has to do with making clear criteria of knowing who is good at what and what and and who is bad at what in all these different dimensions that.

• 28:19Speaker 01

  Are agreed upon processes for determining who's good at what and who's bad at what. And then when we deal with that collective decision making, to be able to have clear protocols that take us to the best answer, assuming that everybody, a lot of people who are smart are going to see things differently, rather than wrestling with each other. The most, the problem in most organizations are most into personal relationships, I think, is that they don't have a way of getting past what their stubbornly is in their head and going to operate idea meritocratically.

• 28:53Stephen J. Dubner?

  And when you say they don't have a way, that's because there is literally not a pre-existing set of principles, or at least agreements, about how we're going to deal with differing views?

• 29:03Speaker 01

  Yes, and then even more fundamental than that, let's, if you and I had a relationship, let's establish the ground rules. Let's establish, okay, can we have thoughtful disagreement and be clear? And can I put those things on there? Do we have a process when we have a disagreement? Do we have an agreed upon process for resolving that disagreement? That might, at a very basic level, it might be that we have somebody who helps to arbitrate. We mutually agree that we'll bring in somebody, and then they'll say, okay, I think that'd be a fair judge, now let's work through that.

• 29:43Speaker 01

  We have, by establishing clear protocols of how you do, what's your relationship like? What are the rules of that? How are you going to be with each other? That take you from avoiding disagreement to appreciating it and moving beyond it so that you're held together, that's good. Writing principles also helps, of course, because it makes clear what you're making decisions on. In other words, if I know your principles, and you know my principles, and we agree on principles of how we're going to operate with each other. It becomes fantastic and you have that idea meritocratic decision making.

• 30:20Stephen J. Dubner?

  Right, right. Let me, uh, let me stay on the macro one minute. I promise we'll get micro because there, there's a lot I want to know about, um, the truthfulness and transparency and the idea meritocracy and so on. But let me just step back for one minute. So Bridgewater has been one of the most successful hedge funds in history. Um, you're its founder, you were its CEO for many years. You're still a co-CIO. You're worth a reported $17 billion. So that's a lot of success. Additionally, you, Ray Dalio, have this set of principles that you live and, and work by. So it'd be pretty natural to conclude that you and/or your principles are responsible for Bridgewater's success. So Ray, how convinced are you that

• 31:03Stephen J. Dubner?

  that is the case? And, and how can you tell?

• 31:06Speaker 01

  Well, I think, uh, I'm not, uh, I want to be clear. What I, what has made me successful is not me. It is these recipes, these principles that I've discovered over a period of time. And what's made Bridgewater successful is those recipes because if it was me centered, then we wouldn't have an idea meritocratic process and you could only get a certain amount of leverage out of one person. It's the power of, um, it's the power of good principles, good recipes. So I don't know, you could take whoever, you, if you take Albert Einstein or XYZ, if he's following a certain set of principles. In my case, uh, you know, it could be anybody can follow the particular principles that I'm describing. It's just

• 31:50Speaker 01

  idea meritocratic decision making. Cause the thing that you have to understand is that it, what is in you is only a small percentage of what you need. Okay. When you start to realize that what's out there in the world of resources and, and different thoughts that you can have and how you can triangulate in almost any issue, you can get people who are, are better and, and, and you do this triangulation process and, and, and it's fantastic. It enhances learning and improves better decision making. So that's what it is. And I'm asking, is that logical? Does that make sense? I mean, I'll ask you, let me turn the question. Isn't that right? Isn't that logical? Doesn't that approach make sense?

• 32:36Stephen J. Dubner?

  So I, if you were to ask me that, so you did ask me the question, so I'll answer it. I would say that in Almost any circumstance where empiricism carries the day, then the answer is yes. And the financial services industry is one where I would argue maybe more than almost any other.

• 32:54Speaker 01

  It has nothing to do with the financial services. And I'm asking you, let me clarify my question to you.

• 32:59Stephen J. Dubner?

  Sure, yeah.

• 33:01Speaker 01

  Isn't the best thinking on almost anything probably, you have a certain amount of thinking in your head, but that there's a world out there with the smartest people? And if you've got the smartest people and you take your thoughts and you triangulate with the other smartest people and you make good collective decision making, don't you think that that's a better approach even for the best decision maker?

• 33:28Stephen J. Dubner?

  Yes, with a caveat, and the caveat is this, there are some kinds of brilliant people who are brilliant on a lot of dimensions, but really bad in others. I'll give you, I'll give you an example.

• 33:41Speaker 01

  But I'm saying, wouldn't that person be better? Wouldn't that person be better if they did that? There's a graph in my book that shows what an individual's capacity to make decisions are. And then on one axis and a degree of humility on the other axis. And because I've had the contact, the most wonderful thing is to be able to have contact with the most brilliant people in the world. I would say almost the universal means of success is that they're great on both spectrums. Would you disagree with that?

• 34:14Stephen J. Dubner?

  I wouldn't disagree with that at all.

• 34:16Speaker 01

  Thank you.

• 34:16Stephen J. Dubner?

  But I still want to tell you my caveat.

• 34:18Speaker 01

  Okay.

• 34:19Stephen J. Dubner?

  And it's simply this, for instance, if you look back 50 or 80 years ago, you could say that economists, academic economists, kind of Nobel Prize winning level economists were among the most brilliant people we had in this country. And yet, the field of economics, while it advanced on some dimensions pretty well, it also really didn't move forward or well on some others, both on the macro and micro level. And I would say that was because, this is just one example, the field of economics for many, many, many, many years did not incorporate the fact that humans don't make decisions generally on a one to one level the way that their models would predict. So that's, that's an example where.

• 34:59Stephen J. Dubner?

  Huge intelligence is valuable, but you need to bring in a different sort of intelligence sometimes to complete the picture. That's my caveat. That's it.

• 35:08Speaker 01

  I don't think that's any disagreement. Let's put that in my terms. My terms is that there's an upper level you and a lower level you. And in the language that you're speaking, if you believe that you can make decisions only by existing in the assuming that people are rational, when they're not totally rational, that's dumb. And so if you're talking about that old dumb economics in where you're assuming everybody's rational, then, okay, that's dumb. And therefore, we have to accept the fact that there are two us's. Okay, there are two us's. And that lower level has a big effect on behavior. And that doesn't diminish. It's not even an equivocation to the thing we said before. Because if we take that and

• 35:52Speaker 01

  we said, okay, now let me assume that either of those things can be going on, that my subliminal thing is making me make the bad decisions or whatever, and my best process is to go out there and find the most brilliant people to triangulate with and stress test my decision so that I'm going to make a better, won't I make better decisions than if I didn't do that?

• 36:13Stephen J. Dubner?

  I agree entirely. Although I feel that I've now disqualified myself from ever working at Bridgewater because I feel I didn't really present my challenge well.

• 36:22Speaker 01

  No, no, no. We keep doing it over and over again. It's great.

• 36:25Stephen J. Dubner?

  I blew it. I blew it. I had my chance.

• 36:28Speaker 01

  It's whether we have a good time together, right? We're having a good time together, I think.

• 36:37Stephen J. Dubner?

  Coming up after the break, the good times continue. Dalio tells us how employees respond to a management philosophy that includes radical transparency.

• 36:47Speaker 01

  I would say maybe a third of the people are gone in that 18-month period. But the ones who go through it and so on, can't go back to operating that other way.

• 36:57Stephen J. Dubner?

  That's coming up right after this.

• 37:11Stephen J. Dubner?

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• 37:55Stephen J. Dubner?

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• 38:38Stephen J. Dubner?

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• 39:18Stephen J. Dubner?

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• 40:13Stephen J. Dubner?

  Back now to our conversation with Bridgewater Associates founder and longtime CEO Ray Dalio.

• 40:23Stephen J. Dubner?

  All right. So, so let me ask you, you've become famous, I would say, for encouraging what's known as radical transparency and radical truthfulness, both of which are in pursuit of an idea meritocracy. Give me just one concrete example, a micro example, or story to illustrate how either one of those, transparency or truthfulness, works in a daily encounter at Bridgewater, let's say.

• 40:50Speaker 01

  I'll start with the the truthfulness. If you're, if you're not being clear and truthful about what you're thinking, then, in my opinion, what you're doing is being very inefficient, because everybody doesn't know what everybody else is really thinking. And you're probably reducing your probabilities of getting out what is actually true and how to deal with it. So it's a very inefficient, and it's an unethical proposition, because if I'm making judgments in my head about you, or vice versa, and I'm not allowing you to be part of that decision and understand the criteria, it's, you know, one of the most basic things of justice is the right to face one's accuser. And to be able to have that conversation is what I will call integrity, not be, not having duality.

• 41:35Speaker 01

  And so that's what I think about the radical truthfulness. It's inefficient, it's unethical and so on. And then the first question is, okay, do you agree with that now? And then we'll get to radical transparency in a second. Do you agree with that?

• 41:47Stephen J. Dubner?

  I do agree with that. I, I agree, I would agree with that on the rational and empirical level, but I, I can immediately foresee where there might be a whole lot of ingrained or emotional barriers to overcome.

• 42:00Speaker 01

  We agree on, on that thing. And then when you start to see that it'll produce better outcomes for you and better outcomes for your, um, organization, then you start to see, okay, now you face a choice. And how will you deal with that choice? And my experience has been that if you explain it and you, and you also ask the other person, do you want me to tell you what I think? Or do you want me to hold that back? Do, you know, do you want to be free to tell me what you think? And that, can we work it through together? The intellectual brain will, our upper level of us will choose that. And when they realize that there's a struggle within ourselves between our upper level

• 42:45Speaker 01

  and our lower level, which can do us that harm, will operate in a better way. That's been my experience. So that's what that is. So I would say if we're going to have a relationship, and it's not just a company relationship, if I'm having a relationship with anybody, I want to know that, you know, I could be that way with them. That's important to me. Now, it doesn't have to be to you, you can make your choices, but I think we're all going to be better off, generally speaking about that, if we can get over those ego barriers or that, that painfulness moment of the, of things like harsh realities. Do we want to deal with harsh realities? Or do we want to avoid looking at them is the question?

• 43:22Stephen J. Dubner?

  So the empirical part of me, when I hear that explanation, I think, man, Ray Dalio, you are the boss. That, that is so good and so useful and so fresh to hear. And I could see how that would be hugely valuable, whether in a firm, a government institution, or your family, right? On the other hand, I think, I can imagine that a lot of people hearing you say that, Are just scared out of their wits, thinking, there is no way I want that kind of conversation at work or home or anywhere. So what do you do when you just encounter that baseline, you know, fear?

• 44:01Speaker 01

  I'm going to tell you then, I'm speaking to you out there who are the ones who are reacting that way, that it's an exercise, that with practice, you can have that exercise and you can have it. And you go through a process, we call it getting to the other side. You know, you come in, you say, I intellectually want to be that way with each other and so on, for that benefit. Then you go through the experience. And it takes about 18 months typically through that experience. You go into it and you say, oh, it's uncomfortable and so on. And then while that's happening, your upper level you is wrestling with your lower level you. You say, is the process fair? It's a fair process and you believe

• 44:44Speaker 01

  it's fair. But it's, you see that struggle and you intellectually do it. And if you do that, even in an ideal community that kind of reinforces that behavior, as you go through it, it becomes increasingly comfortable and uncomfortable in operating the other way. Because the other way, we watch this, some people can't make it through. I would say maybe a third of the people are gone in that 18 month period. But the ones who go through it and so on, can't go back to operating that other way because they go into an organization and they look at everybody and they say, I know all the politics that are going on behind the scenes. I can't speak up. I can't have other people be straight with me. I

• 45:25Speaker 01

  can't do that. I can, I just can't go back into that kind of an environment. And when they're in that state where they can't go back into the other environment, they have made it to the other side, so to speak. And this is a healthy side to be in. And because it wins. It's not just healthy, individual for individual development. It makes the organization better. If you can have idea meritocratic decision making, it makes individuals better, makes the organization better, and it's a lot fairer.

• 45:52Stephen J. Dubner?

  You know, a lot of your work at Bridgewater has been about individual development. It's about changing the way people, you know, think and behave. Did you feel that that was necessary to attain the kind of business success you wanted? Or was that a kind of add-on that you felt would complement, you know, the work environment?

• 46:13Speaker 01

  It's fundamental.

• 46:15Stephen J. Dubner?

  Mm hmm.

• 46:15Speaker 01

  It has nothing to do with business. It's just how we're going to be with each other. And how am I going to face these things like? Do I want to know the harsh realities? Do I want to know my weaknesses?

• 46:28Stephen J. Dubner?

  But do you not respect people who don't? Or I shouldn't say that. I shouldn't put those words in math. How do you assess therefore? People who don't want to know the harsh reality? Don't want that candid assessment?

• 46:39Speaker 01

  Well, first, it's their decision. I just want them to understand the consequences of their decision. If they if they say I want to. Look, if they want to smoke, that's up their decision. If they want to do whatever it is, it's their decision. Everyone has the right to make their own preferences. That's the individual decision making. But if just as long as they understand that, you know, that's what it is. And that's the consequences and you pick your choice. But do it with your with your upper level self. Thinking like, what do I want my life to be? And try to make those choices that way is something I'd recommend.

• 47:21Stephen J. Dubner?

  Yeah. These principles that you're talking about. How generalizable do you believe they are for firms and institutions all across America? Or all across the world?

• 47:31Speaker 01

  I think it is true for all organizations. That these principles of, you know, what is the circle of decision makers? And, you know, it may end up being that in a country or an economy or whatever. Is that a wide group of decision makers operating meritocratically? And the rest are kind of following instructions? So it becomes a matter of this, the width of that, the scope of that. Is everybody in the circle? Or have it? That that'll be a question that people have got to answer. My case, the reason I wanted radical transparency, because we forgot to get back to that.

• 48:13Speaker 01

  But let's get get that is because if I let let everybody see everything. In other words, we literally record in everybody, all conversations, let everybody see everything.

• 48:25Stephen J. Dubner?

  I know some people will have. Gotten that as you said it, but you said it pretty fastly. You record just about all conversations at Bridgewater and then those transcripts are available for anyone.

• 48:35Speaker 01

  No, the actual tapes of them are available for anybody. I found this to be a valuable tool.

• 48:41Stephen J. Dubner?

  Can, before we move on to the result of that, I just, I can't help but want to know about how that went over when you first, I wanted to know where you first got that idea and what it was like when you first introduced it at Bridgewater, because that's so radical.

• 48:55Speaker 01

  Well, what happens is radical transparency-

• 48:59Stephen J. Dubner?

  I mean Nixon did it, but that was, you know, he was an outlier, let's say.

• 49:05Speaker 01

  Radical transparency allows everybody who is in that group to understand what is really going on, so you can't have spin. And you, and then you have questions. And I found that I needed that because as people are looking at me and giving feedback or whatever it is, I need the feedback. Everybody needs that feedback. You can only have an idea meritocracy as wide as people get to see things for themselves. Otherwise, you're going to get spin. So, you know, otherwise, somebody comes out of a meeting, one person

• 49:46Speaker 01

  describes it one way, another person describes it another way, and, okay, you get the spin. Instead, it's okay to watch people wrestle with decisions. It's okay to watch people make mistakes. And everybody, you'll see everybody screw things up. And it's okay. That's what humanity is like. And then, and then the question is, you see how people wrestle with that and improve and deal with it. So transparency is, is, is, is great. And then every one of those, then, we find out is an experience in which principles are being examined. So if you go through a case, I don't know, maybe effing to fire somebody. Okay, now, let's have that conversation, let's look at that conversation.

• 50:31Speaker 01

  Okay, was that handled well? Or was that handled poorly? And what are the principles? Behind how it was handled? So that you could say, ah, when faced with this choice? Like you give an example. Okay, that's, that may be very painful. It's painful for the person maybe who's being fired. And it's painful for the person who's firing them. And then they're faced with another choice, which is the other pain? That would be if they didn't do that. And so by working oneself through those things, and you do it transparently? It helps to maintain quality control. It helps to make it much more inclusive. So everybody sees what's really going on without spin. And it helps to really think in a better principled way. So I found it invaluable.

• 51:15Stephen J. Dubner?

  Can you talk for a second about you as the boss? Either calling yourself out, maybe raising your hand and saying, man, you know, I'm underperforming here. Obviously, you're being assessed all the time. And everybody's encouraged to do that. But has there ever been a time where you said, you know what? I am not doing, I'm not executing at the level, whatever, that I should be. And I need either help, or I need a discussion about this. Does that ever happen?

• 51:41Speaker 01

  Well, I do that, yes, I do that all the time, because there, you know, I've got strengths and weaknesses. And, and what's most helpful to me, like, most helpful to any other people? Is people who catch me and see me do that types of things. Because sometimes, let's say, for example, I can answer questions too long, or I could be inarticulate, or I can... Whatever it is, I can maybe not communicate with the person whose mind works differently than mine in a certain level, or... I could do, I don't know, a whole bunch of other things. Because individuals' minds work differently, and everybody sees things differently? We all need other people to help point those things out. So I'll raise them, but I find particular value when other people point it out.

• 52:25Speaker 01

  Because I get to see through other people's eyes. So isn't that a great thing? When you can see through other people's eyes? Rather than to not see through people, other people's eyes? Doesn't that make the organization better, the individuals better? And so, that, anyway.

• 52:41Stephen J. Dubner?

  Are you often surprised by your colleagues' assessments of you in a given situation?

• 52:48Speaker 01

  I've learned, you know, I'm often surprised, but never surprised anymore because I've learned to not be surprised when those things happen.

• 52:58Stephen J. Dubner?

  Uh huh. In other words, you now know that the perception may not match up to the...

• 53:04Speaker 01

  I may not know, like, I could be, I could be in a meeting and I could think, oh, I was clear, for example. And I could come out of that meeting and I could say, nope, you were absolutely so screwed up in terms of this particular thing. And then I would say, yes, I, okay, now I see it. I didn't see it at the time. And then, okay, now, and I know, because we collect the patterns of these things. And then I could see it over and over and over by watching the data. They're very data-driven about each person's behavior. By watching the data, I will know that I will regularly have that particular type of problem. And because I do, then it helps me because I'll go into the next meeting

• 53:49Speaker 01

  and I'll be cautious about it. So it helps me improve. But in any case, yeah, that happens, you know, a fair amount. But I know my weaknesses a lot better than I did before and what to look out for. And people help me look out for it.

• 54:03Stephen J. Dubner?

  And what does that feel like when you get that corrective data? Are you grateful? Are you sheepish?

• 54:10Speaker 01

  It's so great. It's so, but, you know, what I'm talking here is rewiring our connections. Habit. Habit is one of the most important things. You know, I'm interested in neuroscience. They say it comes from the basal ganglia, which is in the old lizard part of the brain. And it's the thing that we follow all the time. And so my attitude has changed. My attitude even about mistakes has changed because I start to view them... As puzzles that will give me gems. In other words, like make a mistake or I get that kind of feedback. And I say, oh, okay. Um, the puzzle is what would I do about that? Uh, when the next time it comes along? So that I learn a lesson.

• 54:55Speaker 01

  And the gem I get is a principle that I write down and say, okay. Now I'm going to do that when the next one comes along. And then I have to do it repeatedly, like if I don't know if I'm learning to ski and they say, put your weight on the downhill ski because that's the thing to do. Okay, I gotta do it and do it until I internalize it and that's the way it works for me.

• 55:15Stephen J. Dubner?

  Can you give an example of one change that you made? That was so either difficult or maybe counterintuitive that it really took a long time?

• 55:23Speaker 01

  Well, the, I guess the biggest challenge was, um, in nineteen, um, I think it was nineteen ninety-three, I remember. Um, people were saying that my straightforward, I got together a group. Um, I was being given my annual review by these people, um, you know what? So they gathered me together.

• 55:46Stephen J. Dubner?

  Colleagues at your firm, right?

• 55:47Speaker 01

  Colleagues at my firm.

• 55:48Stephen J. Dubner?

  Outside.

• 55:49Speaker 01

  That's right. That's right.

• 55:51Stephen J. Dubner?

  And how far down the ladder, if I may, was the lowest on the ladder, if I may? I mean, was it all senior?

• 55:57Speaker 01

  Well, it's anybody, uh, the reviews are done by anybody you have contact with. So it's not a hierarchical thing, but at this particular case, it was, this was a long time ago. And then, um, these people, the senior partners said that, um, you're making people uncomfortable. You're demoralizing them with your straightforwardness. And it, and it, and you could, if you're bringing up their problems or whatever the weakness, um, you're making them feel bad and all that. And I said to myself, whoa, I don't want to do that to people. I don't, you know? And then I sort of wrestle with the question. So it put me in one of those junctures. Should I not be totally straightforward and have this radical transparency?

• 56:40Speaker 01

  Or should we be straightforward and how to do it? And I wrestle with that particular question. And then I realized, okay, well, I should talk to them about it. In other words, so I, we sat down and I talked to each of the people. I said, gee, I didn't know I was having that effect. Why didn't you let me know? And, you know, I don't want to have that effect. And then we had a good conversation of back and forth. And then we agreed on how we would be with each other. And that started to then encourage me more to, again, write down the principles and then together work with other people to try to say, okay, are we operating together according to those principles that make sense? And like you could hear, a lot of those principles, and like you point out, a lot of those principles

• 57:25Speaker 01

  of the radical transparency and that, you know, radical straightforwardness, or whatever you want to call it, it has, can be uncomfortable. So by us working ourselves through that, we were able to operate differently than what would be instinctive. But it was one of those journeys from, oh, you know, I was doing that thing. That's the most terrible thing. That's the most difficult thing.

• 57:48Stephen J. Dubner?

  The most difficult is when you find out, oh, not just the finding out that you've been doing something.

• 57:54Speaker 01

  No, the finding out is great. The finding out is great. I've really, well, the reason I'm saying that is, like, if you're making decisions, if you have feedback loop, you're going to want to change. Like, in my case, like, say, if I'm making decisions in the market, and I'll either get, you know, electric shocks, or pieces of candy, or something, rewards and punishments that are going to be that. And then what happens is, when you have mistakes, you realize that the electric shocks you want to get done with, and you move that along. And in other organizations, if you're having that type of clarity in whatever it is, so that you're working through that, it's going to change your desired behavior. So you will, you like hearing it. Instinctually, I like hearing it.

• 58:38Speaker 01

  I like, I like hearing that. And I go calmly, and I think about that. I think also, maybe meditation has helped me a lot.

• 58:46Stephen J. Dubner?

  Uh huh. You've meditated for a long time, yeah?

• 58:48Speaker 01

  Yeah. And I think that that and I've also found that it's helped a lot of other people a lot because it gives them a calmness and an equanimity and almost an attachment from the ego thing. So that when you come at it, you say, hmm, oh, is that what it is? And then when you, in either case, well, I don't know how much it comes from meditation, how come it comes from the habit. But we do it, and there are lots of people who don't meditate at Bridgewater and do it from the habit. But it's that moment of, hmm, is that true? How do I find out if it's true? And if it's true, that's where the real gem comes from, because that allows me to be better.

• 59:32Speaker 01

  And if I'm not embracing it, then obviously I'm gonna never improve, never change, I'm gonna keep banging my head against the wall. So I love hearing it. And then the question, my saying that it was difficult, or it has been the greatest difficulty, the greatest, what I meant the it is, is the it is the getting people comfortable, being totally radically truthful and radical transparency. So just let me clarify in one sentence what Bridgewater is, or what I believe the best way of operating is, okay? An idea meritocracy in which the goals are meaningful work and meaningful relationships. They're equally important and they're self-reinforcing, they're mutually reinforcing.

• 1:00:17Speaker 01

  So an idea meritocracy with meaningful work and meaningful relationships through radical truthfulness and radical transparency. I think that's the magic formula for success. Because also, when people know that you care about them, in other words, genuinely, let's call it even tough love. I think back to, you know, I was growing up in Vince Lombardi's football team. They were winners, he pushed them and he was tough, but there was a lot of also caring and love to be great together. And if you have that meaningful relationship in which it's very clear, not only does it help the performance and the being tougher along those lines, it provides a reward in

• 1:01:02Speaker 01

  and of itself. Like when I look back on whatever my past has been and let's say the successes, my greatest rewards have been the people and the relationships that I've had. The money has been an accident. I happen to be playing, I mean, it's a good accident, but I happen to be, but I happen to be playing a game that I love, that could be playing chess, and if they played chess and you won, well, but the relationships have been the most rewarding. So to be able to be both successful at the work and be able to be successful at the relationships and have those things mutually reinforced and to do it through radically truthfulness with each other and radical transparency is a magic formula.

• 1:01:45Speaker 01

  And anyways, it's worked for us and, you know, it's explained in greater depth in the book.

• 1:01:49Stephen J. Dubner?

  Quick, quick question that I thought of when you brought up Lombardi. That sounded like well-deserved pride in a fellow Italian. Your parents had a, you changed your name at some point? You shortened it a little bit, is that true?

• 1:02:04Speaker 01

  Yeah, and by the way, my admiration for Vince Lombardi has nothing to do with the fact that he's a paisan.

• 1:02:09Stephen J. Dubner?

  I admire him and I'm not Italian, so just for the record.

• 1:02:13Speaker 01

  Just to clarify. Yeah, my, my name was, my last name was Dalio, D-A-L-L-O-L-I-O. And I was a certain period of time and I, and I, and I, when I was in, I think like freshman or second in college, you know, I talked to my family and I said, boy, that's a mouthful. And I took out a syllable, but I, I kept it Italian because, you know, that was my heritage and.

• 1:02:44Stephen J. Dubner?

  What'd your folks, what'd your folks think? Were they okay with it?

• 1:02:47Speaker 01

  My dad said, you're so right. I mean, another, he, he had, he had to wrestle around with D-A-L-L-O-L-I-O.

• 1:02:54Stephen J. Dubner?

  And he was a musician, so he had a public profile. He dealt with his name being misspelled and mispronounced all the time.

• 1:02:59Speaker 01

  Well, yeah, and actually, when he was dealing with others, he would, who didn't know him well, he would actually use Modale, Dale. So his, his name, Marino, his first name was Marino. And then, and then, and that sometimes they would say, um, you know, Colton Dale.

• 1:03:19Stephen J. Dubner?

  Uh huh, gotcha. Um, so in the, you know, appreciation of your principles and in, and in pursuit of radical transparency myself, I'm curious to know if you could give me anything for me about this conversation. So, I mean, I too, I say I love feedback. I mean, this show is really all about looking at data and looking at getting real, realistic feedback to help people improve their decision-making, their lives and so on. So this is a rare opportunity for me to have somebody on the other line who I feel I should, I'd be an idiot not to ask you, you know, tell me some things based on this conversation we've been having

• 1:04:03Stephen J. Dubner?

  that you think I could do better on, things I should think about differently. Maybe I should interrupt a lot less. Maybe I should shut up right now.

• 1:04:11Speaker 01

  No, um, so I, so I'll tell you. I think that you did an unbelievably fantastic job of asking questions, understanding, doing the back and forth terrifically within the particular timeframe. And then one thing that you might think about doing is making that, um, uh, where I'm asking you some questions and relate it, you know, this is just something to think about. But let's say if I was probing you on that and pulling out, where do you agree, where do you disagree? So that we could actually work things through to find out if what is overlapping in terms of the real agreement and what isn't this agreement? Like, I don't think we've had adequate thoughtful disagreement in the conversation.

• 1:04:53Stephen J. Dubner?

  That is so interesting in part because I, you know, grew up and trained as a journalist. And even though I'm a little bit more, let's say activist, uh, and I speak my mind a fair amount, I still essentially feel that my job here is to be, uh, you know, the proxy of the listener and to have a certain kind of respectful, um, attitude in that I'll ask you a question, but it's not my job really to tell you what I think about it. But it's interesting that you're saying as the, from the other chair, when you, you want to hear what somebody actually thinks about it. So you can, you know, engage more deeply.

• 1:05:31Speaker 01

  Well, first of all, you're such a great professional in doing what you do. It would be totally arrogant for me to tell you what chair to sit in and, and that you, you just asked a question. So I'd almost ask your listeners, um, would they like that or not? Just a thought to experiment with, um, you know, like if I, but of course I'd be pulling you out and we could, but you'd gain something from it. It would be something that's interesting anyway for you to consider because let's say I'm, I'm turning the thing and I say, okay, let me, let me reverse it and we can play this game a little bit. So, okay, so, um, do, do you agree with what I said? Um, or, or, or what is it that you disagree with what I said?

• 1:06:15Speaker 01

  Is this way of operating a better way of operating? And then why doesn't the world operate this way? Or are you just for your readers, accepting this and going on? And, and so let me just turn that question to you just to see what you think.

• 1:06:31Stephen J. Dubner?

  It's so interesting because you're doing kind of to this format of this kind of journalistic-ish conversation, you're doing to this format, what you did to the format of, um, basically the office structure, which is you're kind of busting it up and flipping it on its head by saying that, no, no, no, the format doesn't have to be the one person asks the other the questions and maybe kind of parries a little bit or challenges a little bit, but actually the person being asked the questions, it's, it's incumbent upon them, or at least it'd be useful for them to turn it into actually a conversation instead of what now strikes me, you've basically just invalidated the last seven years of work I've done, right? Because basically I always think of this show as being truly conversational, but I realize now it's kind of a replica of a conversation.

• 1:07:15Speaker 01

  Okay, so now go on and answer my questions.

• 1:07:18Stephen J. Dubner?

  All right, give me, give me a couple of questions, whatever you want to ask me.

• 1:07:21Speaker 01

  Well, I'll just repeat the questions like, uh, okay, so I described a way of being that's an unusual way of being that may, that seems to make for better decision, that worked for me. Um, so now you've heard it on, let's say by and large, um, does it make sense to you? Does, do you think that that's logical? Do you think the answer's a question without getting first, uh, too tweaky about it? This is an alternative way of being. What do you think about this alternative way of being? Sensible, not sensible? What do you like about it? What don't you like about it? Tell me, critique it.

• 1:07:53Stephen J. Dubner?

  I think it's very sensible. I think it's very logical. And I think that even though I would probably put myself on a scale much closer to your end of things than average, it's still scary. And it's scary because most of us, I believe, look, you've built an ecosystem with a language and a mode of behavior that, as you said yourself, it takes people a long time to acclimate to. I think in most ecosystems and most modes of behavior that most of us encounter every day, whether it's in our work or our families, the conversation is so different, the rewards

• 1:08:34Stephen J. Dubner?

  and punishments are so different for transparency and honesty, that it's scary to think about engaging with it. So I, while I hear what you're saying, and I nod, and I applaud, and I actually cheer, I think, am I willing and able to actually adopt some more of this in my life, professional or personal? Honestly, I don't know.

• 1:08:54Speaker 01

  So if you were a partner of mine, I would say, I hear you. I understand it's scary. So let's together go through it in a way where we agree it's logically the better way to be. And there's really nothing to be scared about. You're not going to die. You're not going to get beat up. Okay? You're going to encounter something different. You're going to encounter your upper level you reflecting on your lower level you. It's going to be an interesting experience. I guarantee an interesting experience. So be adventurous, go into it, you won't get hurt. If you don't like it, you get out of the water.

• 1:09:35Stephen J. Dubner?

  Can I have a pain button?

• 1:09:37Speaker 01

  Yes, that helps.

• 1:09:39Stephen J. Dubner?

  Can you explain the pain button for those who haven't read your book yet?

• 1:09:42Speaker 01

  Sure.

• 1:09:45Speaker 01

  I have a saying that I believe captures progress. Pain plus reflection equals progress. Because if you're having pain, it's probably a signal that you wouldn't want to have that thing happen to you. If you slow yourself down and you reflect in a quality way, what is that reality? How do I deal with that reality? And you come up with your principles and so on, you will learn. So, pain plus reflection equals progress. You will make progress. If you don't reflect and you have a lot of pain, you're not gonna learn. Okay.

• 1:10:27Speaker 01

  So, as we're going through this pain button, it's just an app that you, whenever you have pain, you push the pain button. And at the moment that the pain is happening, it allows, it makes it very easy to describe what that pain is. Something about, it shows the type of pain it has, and it shows maybe who you're having pain or the circumstances, but you capture it at the moment. You don't reflect that. Then, as time passes, because you've captured it, and now you're in a state of mind that allows you to reflect better, you can then reflect on that. Now, the question is, okay, would you want it to have done something different? Who should have done something different?

• 1:11:12Speaker 01

  So, you reflect. You write that reflection down, and that ideally should include, you know, an action you take. For example, if that person keeps bothering you and causing you a lot of pain, or that situation keeps bothering you and causing pain, then are you, what are you gonna do about it? Are you going to speak to that person, whatever it is? And then, what happens is, it tracks you. So, it has these little dials that shows the types of pain that you're having, and it has the, and it shows the sources of those pain. And it shows whether those pains are going down or not, and it shows whether you're adhering to that, the things that you said you would do or not.

• 1:11:55Speaker 01

  And so, it provides sort of a biofeedback that allows you to connect what you're experiencing to your actions and how you're dealing with things to produce better results.

• 1:12:07Stephen J. Dubner?

  Excellent. I know we're already over time. Can I ask you one more question or do you need to go?

• 1:12:10Speaker 01

  No, I'm good.

• 1:12:12Stephen J. Dubner?

  Great. Just one question about the later, the most recent years at Bridgewater. So you, I'd love you to talk for just a second, Ray, about when you stepped down as CEO a few years ago and installed a new CEO, but then had to step back in as temporary co-CEO. I'm just curious, what happened? What'd you miss? Did you miss anything? I know it's, you know, the post-life of the CEO, especially when they stay on at the firm, I'm guessing is always tricky, but I'd love to just hear your perspective on that.

• 1:12:45Speaker 01

  Well, first of all, I know that I don't know how anything's going to go until I actually experience it. And like I was saying, if you haven't done it three times successfully before, you probably don't know how to do it. Don't be arrogant. And so when I undertook the process of transitioning, I said, well, I think that this is going to go quick, maybe two or three years, but I'm not actually sure of how it would go. And so that's part of the process. So, you know, we began that particular process and it, and I realized, like, the transition from a founder-owned company to an independent company is, you

• 1:13:30Speaker 01

  know, classically very challenging. And so how do you approach that? How do you strike that balance? I wanted to be totally a mentor, being there for other people and letting them do it the way that they wanted to do it. And then I found myself in the surprising, surprising position of having them struggle with that, unacceptably struggle with that. And they found themselves, you know, this partner and the group of people struggled with that and found that particularly difficult. We all agreed that they found that difficult. So the idea meritocratic way, the evidence of that was clear. And then what was great about the whole thing?

• 1:14:10Speaker 01

  Is that we could approach it idea meritocratically rather than emotionally. Because, you know, it's a difficult thing, it's the most difficult thing for the person who's struggling and, you know, not successfully getting there.

• 1:14:24Stephen J. Dubner?

  And this was a guy who you had, who you'd hired as a kid essentially, had been around forever and I gather we're very close with.

• 1:14:31Speaker 01

  Yeah, he was, yeah, you know, for like 20 years. And, you know, I love the guy. I mean, literally wonderful, deep relationship, and he brilliant man. And, you know, at the same time, it's the challenge of that person. And I think it was largely my fault too. I think I gave him too much. You know, when the business grew up, there were two things. I had to make, get my head into all the investment and economic stuff that I do. And then also run a business simultaneously to do that. And any one of those things is too much for any human being, me included.

• 1:15:14Speaker 01

  And then to take that and then sort of to give it to this person was, you know, I made the mistake essentially of giving too much. And by the way, we've evolved past that. So he makes the, he's back in the investment decisions and I'm making investment decisions. We're both co-CIOs, along with another co-CIO has been there. So we had that evolution, but we didn't anticipate it and we learned to structure. And I learned a whole bunch of things that I never understood before, like about governance. Like, look, I just ran the business and we did in our partnership idea meritocratic kind of way. But then how do you do the right checks and balances? Should you have a board? Should you not have a board? What are the processes? And all of that.

• 1:15:58Speaker 01

  So it became a learning process that went on for, that evolved over seven years. When I originally started this, I'd say, I think it'll probably take two or three, but it might be up to 10. And it turned out to be seven, in which I could comfortably step out and have others do it better than me. Again, you know, this is 2017 is my transition year from the second phase of my life to the third phase of my life as I described before. And I look at that and I say, I look at that, there is a great team of people. And there's such a pleasure to being able to watch beauty happen without being intervening along those lines.

• 1:16:41Speaker 01

  And so it's that great journey. And now it's their journey in that way. So that was what the experience was like for all of us. And if we didn't have idea meritocratic ways of having disagreements and having processes for getting past those disagreements that people thought were fair processes, we would have had a separation. But because people could think, I might not be right, and the group in our decision-making process is really good in thinking collectively, we were able to get through that difficult time very effectively and evolve to a much better position than we were ever in.

• 1:17:22Stephen J. Dubner?

  I'm glad your story ended better than most of the heroes in Joseph Campbell, right? Because the hero's journey can be bloody at the end, and there's often not the nice perch you've accomplished now, which is you're still in it and you're still part of it, but you're still, but you're no longer, you know, one of the two CEOs. So it must be a very gratifying position to have earned. So congratulations.

• 1:17:49Speaker 01

  Yeah, but as you know, you know, first of all, the life isn't over yet. And as you're pointing, and as you're pointing out, you know, in Joseph Campbell's, you know, heroes tend to get crucified or whatever. But I think if you can pass it along, I was faced with the choice, honestly, like, I don't like high profile. I don't like to be in the position. And then I was faced with the choice, do I have that fear of that stand in the way of passing these things along? And I could tell you, there was a lot of fear in terms of this. But, you know, and I am not in any way declaring victory that I have not yet gotten there,

• 1:18:34Speaker 01

  but I do find that there's a necessity to do that.

• 1:18:39Stephen J. Dubner?

  Why didn't you want the public attention?

• 1:18:43Speaker 01

  Oh, so many ways, public attention's bad, right? I mean, first of all, for various reasons. People don't treat you the same. It's not good for your family and your kids because all of a sudden they're going to get the public attention. It's all generally, you know, like, you know, by and large, it's bad, totally bad, almost all bad stuff, right?

• 1:19:04Stephen J. Dubner?

  Isn't it strange how many people seek it out, though?

• 1:19:07Speaker 01

  I think they just don't know better.

• 1:19:09Stephen J. Dubner?

  I often think about that. You know, you read about or talk to people who've accomplished a lot of fame, especially in the entertainment realm, which is, you know, that's one where you choose to want to be noticed. Sports, you know, there are other areas, like sports, you play sports, you're great. If you happen to succeed, you happen to become famous. You didn't seek to become famous necessarily. But then there are other lines where you do, and it seems that especially even in the ones where you choose to, the regret is almost instant. I mean, the cost of fame is huge, which I would think that people would recognize by now, but they still seem to want it very badly.

• 1:19:43Speaker 01

  I think that what happens is that a lot of people who are not in that position, not only the issue of fame or accomplishment, think it's so different than it really is. Even the issue like who's successful, they think they're really uniquely special people rather than they're stumbling in the way and failing. And, I mean, like, everybody that I know who's been successful has failed in important ways and has gone through that. That's a reality. Everyone that I know who's very successful has, and I know a lot of people have been very successful, also knows that they are weak in certain ways and that they know how

• 1:20:25Speaker 01

  to orchestrate other people so that they can get what they're missing. They know, they're worried about what they don't know, and they value not knowing even more, you know, how to deal effectively with not knowing by more than that. And so, we look at this, and there's almost like an idealization of, you know, such people that is a totally, it doesn't feel anything like most people expect it to feel.

• 1:20:51Stephen J. Dubner?

  I can't tell you how much I enjoyed this conversation, and I thank you very, very much. And once again, I congratulate you on the book and on this awesome third phase.

• 1:21:01Speaker 01

  Thank you. I enjoyed it, too.

• 1:21:03Stephen J. Dubner?

  Great. Be well, Ray. Bye-bye.

• 1:21:06Speaker 01

  You, too.

• 1:21:21Stephen J. Dubner?

  Thanks to Ray Dalio and all the other CEOs we've been hearing from over the past several weeks. Let us know what you thought. We are on Twitter, Facebook, LinkedIn, and email at [email protected]. And remember, you can hear our entire "Secret Life of a CEO" series at freakonomics.com/CEO. Also, please keep your ears open for our regular Freakonomics Radio episodes, which hit your podcast stream promptly at 11:00 PM Eastern Time on Wednesdays. Thanks. Freakonomics Radio is produced by WNYC Studios and Dubner Productions. Our staff includes Alison Hockenberry, Greg Rosalsky, Stephanie Tam, Max Miller, Merritt Jacob, Harry Huggins, and Brian Gutierrez. You can subscribe to Freakonomics Radio on

• 1:22:03Stephen J. Dubner?

  Apple Podcasts or any number of podcast portals. You should also check out our archive at freakonomics.com, where you can stream or download every episode we've ever made. Our show can also be heard on NPR stations across the country. Check your local stations for the schedule, as well as on SiriusXM, Spotify, and even some airlines. Thanks again.

• 1:22:37Stephen J. Dubner?

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