What I Learned From Elon Musk and Ray Dalio About Making Better Decisions

One of the biggest lessons I learned from Tony Robbins, in his books and seminars, is that our lives are shaped by our everyday decisions.

• Whether to stick to the corporate ladder or to start a side hustle
• Whether to have your favorite cheesecake or to pass on it
• Whether to invest in advertising or in people for your company

Every outcome in your life starts from a single decision. A good decision leads to great outcomes while a less than ideal decision causes bad things to happen.

Often, people claim good decision-making as a result of willpower or motivation. If they are motivated enough, they could get the promotion, grow the business, lose the extra pounds. The claim is only partially true.

What’s even more important is to adopt the right mental models so you can see the bigger picture. The right mental models allow you to get closer to the reality, make a more accurate judgment, and ultimately ask better questions.

In this article, I’m going to show you three mental models that will help you make better decisions in both work and life. 

Mental model #1: first principle reasoning

Most of us get through our lives by reasoning from analogy, which essentially means copying other ideas, beliefs, behaviors with slight variations. Analogical reasoning is helpful when we’re trying to make sense of complex ideas.

However, it opposes an issue when we’re trying to solve problems that no one has solved before since we don’t have a point of reference. Besides, the analogy we based our reasoning on becomes the constraint that limits new breakthroughs and advancements.

Whether you want to admit it or not, Elon Musk is a mad genius, and also happens to be the one who has the guts to tackle some of the world’s biggest problems. During an interview with Kevin Rose, Musk revealed a surprising paradigm to make better decisions. It’s called reasoning from First-Principle.

Here is what Musk said:

It’s kind of easier to reason by analogy than from First-Principle, but First-Principle is the physic way of looking at the world. What it really means is that you boil things down to its fundamental truths… and then, reason up from there.

The idea is to base your thinking on the absolute facts. Ask yourself what are you sure is true, then build your reasoning for the decisions you want to make from there. It will take higher mental energy to do that, but the way of thinking allows you to see a more accurate reality and make better decisions. 

Mental model #2: probabilistic thinking

Back in a couple hundred thousand years ago, the environment our ancestors were living in required a fairly different approach to decision-making. In many cases, each decision was a matter of life and death. To cope with that, our ancestors developed a highly sensitive ability to predict the possibility that an event may or may not to occur.

Because of that, it’s difficult to wrap our heads around the idea of probability in today’s environment. Any possibility of reward or danger mattered to our ancestors because it directly impacted their life outcome.

While possibility describes if something may be about to happen or not to happen, probability describes the likelihood that something is about to happen or not to happen.

The failure of understanding these concepts lead to false conclusions and lousy decision outcomes. Take buying lottery tickets for example. Is it possible for you to win a lottery in your lifetime? Yes. But how significant is the probability? Maybe one in a billion. It’s said that the possibility of a person being struck by lightning is higher than winning the lottery.

By learning how to differentiate possibility and probability, you get to tackle problems with a mathematical approach by measuring the stakes of each choice with its probability. Instead of depending on your gut feeling, you can start actively collecting data and evidence to give you a better picture of the probability of the big decisions you want to make.

There are times when you shouldn’t care about probability, too. These are times when the stakes are too low where a bad decision doesn’t lead to any bad outcomes, or too high where you’re forced to select the choice that you’re 100% certain is the right one.

Mental model #3: second and third-order consequences

In the book Principles, Ray Dalio uncovers his secrets to success. Out of many insights and nuggets of wisdom, one thing stood out to me:

By recognizing the higher-level consequences nature optimizes for, I’ve come to see that people who overweigh the first-order consequences of their decisions and ignore the effects of second- and subsequent-order consequences rarely reach their goals. This is because first-order consequences often have opposite desirabilities from second-order consequences, resulting in big mistakes in decision making.

For most things in life, the ultimate desired objectives and outcomes usually get accomplished late in the process. Working out today won’t get the desired body shape tomorrow, but it will in three to five years (if you’re sticking to it).

To make matters worse, the immediate consequences are usually undesirable; having to turn down parties on Friday or to endure pain and soreness the next day. On the other hand, decisions that provide immediate pleasure usually lead to less ideal consequences down the road. Dalio continues with a few common examples in his book:

For example, the first-order consequences of exercise (pain and time spent) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable. Similarly, food that tastes good is often bad for you and vice versa.

Instead of making decisions based on immediate pain or pleasure, it’s crucial to dive deeper into second and subsequent-order consequences. When making high-stakes decisions, think about the possible outcomes down the line rather than focus solely on the immediate rewards.

Once you learn it, you can’t unlearn it

More often than not, making better decisions means looking at the problem from different angles. That’s why it’s crucial for us to constantly gaining new perspectives so we can start seeing a more accurate reality and asking better questions. It’s incredibly challenging to shape and reshape one’s mental models. However, it is definitely worth the effort.

The good news is that once you see them, you can’t unsee them. Constantly learning, validating, and updating your mental models is like learning how to swim or ride a bicycle — once you learn it, you have it forever.