Analysis of Ray Dalio's Principles by Milkyway Media by Milkyway Media

Author:Milkyway Media [Media, Milkyway]
Language: eng
Format: epub
Publisher: Milkyway Media
Published: 0101-01-01T00:00:00+00:00

Key Insight 6

It is useful to determine best outcomes based on probability and reward.

Analysis

There are two general ways to make decisions. Either they are based primarily on logic and evidence involving the prefrontal cortex, or they are based on emotions generated by the amygdala. Logical and evidence-based decision-making is the desired norm for businesses. It is useful to determine best outcomes based on probability of success and the possible reward. Making a choice with a lower probability of succeeding can be wise if the reward is high enough and any losses can be covered.

Making evidence-based decisions is a complex process. It can involve wading through large amounts of information to determine what evidence will be useful and how it should be weighed against other evidence. However, such practice is already routine in other professional fields such as medicine. Endodontists Eyal Rosen and Igor Tsesis describe three criteria for evaluating evidence: relevance, significance, and strength. In medicine, evidence is relevant when it involves any reported outcomes that are meaningful to patients. Evidence is clinically significant when it shows substantial improvement in treatment or prevention of disease. Evidence has strength if it is trustworthy and free of bias. These concepts can be applied to decision-making in other fields including business. For example, they could be used to investigate allegations that a company has a problem with a gender wage gap or with racial bias in the promotions process. Relevance, significance, and strength must all be considered when determining how important a piece of evidence is when considering matters like these, which can seriously affect a company’s morale and performance.

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