Underlying Algorithms and Social Robustness: A Christmas Reflection on Principles Evolution and Their Game Theoretic Logic

Written by: Ray Dalio

Translated by: Bruce

Merry Christmas to everyone (even if you’re not Christian)!

Yesterday was Christmas Day. While enjoying family time with three generations together, I couldn’t help but reflect on a few points. These reflections focus on: the importance of principles as core assets, the delineation of positive and negative externalities (good and evil), and the “fall into hell” caused by the loss of social capital.

1. Principles: The Most Core Intangible Asset

In my view, the most important asset in life is a set of excellent “principles,” because they form the underlying algorithms (Underlying Algorithms) for individual decision-making. Principles shape our utility functions (Utility Function) and their implementation paths. The fundamental principles concern our value hierarchy and even determine our game preferences (i.e., beliefs worth risking life and death for) in extreme scenarios.

Based on this, I have conducted the following audits and reflections:

• How compatible are our current codes of conduct with Christian and other religious doctrines?
• Do we have a consensus-based contractual principle, or do conflicts in principles lead us into a “zero-sum game”?
• Which universal principles can serve as public goods (Public Goods) shared by all humanity?
• Where are the sources (Source) of these principles?
• As civilization evolves, how have these principles undergone path evolution (Path Evolution)?

From a historical perspective, since the formation of human societies, civilizations in different regions have developed their own principles and religions within relatively closed environments. Despite geographical differences, the core demands (Demand) of all societies are highly consistent: the need for a set of informal institutions that constrain individual behavior to reduce transaction costs (Transaction Costs) and achieve social coordination. These guidelines are encoded in “scriptures.” In other words, the origin of religion was to provide incentives for social governance, guiding individual behavior toward collective optimality.

Most religions—whether based on transcendental faith or focused on worldly ethics like Confucianism—are hybrid contracts composed of two parts:

• Social governance guidelines: interaction rules aimed at improving overall social welfare;
• Supernatural assumptions (Superstitions): belief systems beyond logical empiricism.

These supernatural assumptions (such as virgin birth, resurrection) often lack empirical support when interpreted literally. But if viewed as metaphors, they reflect cross-cultural isomorphism. In comparison, the non-supernatural principles related to “social cooperation” in major religions are surprisingly similar. If we only focus on the elaborate rituals and ignore these core motivational principles, religious festivals become meaningless consumption symbols.

Although I am not a believer due to my lack of faith in supernatural powers (I tend not to accept unverified a priori assumptions), I highly agree with the evolutionary wisdom embedded in religion. For example, “Love your neighbor as yourself” and “Karma” in game theory actually embody reciprocal altruism.

From a mechanism design perspective, when individuals adopt a “giving exceeds taking” strategy in interactions, it produces extremely high value-added: the cost to the helper is often far less than the marginal benefit to the recipient. The accumulation of these positive externalities creates a non-zero-sum “win-win relationship,” greatly increasing total social output and welfare.

For me, “spirituality” refers to the awareness that an individual is a part of the whole system and tends to pursue system optimization rather than local optimization (i.e., extreme self-interest at the expense of overall benefit). This is not only a moral requirement but also an efficient operational logic. Unfortunately, this shared value of good and evil is currently suffering severe credibility erosion in society.

Of course, I do not advocate absolute peace. When it comes to irreconcilable conflicts related to survival, struggle is necessary as an external constraint. But my principle is: avoid unnecessary deadweight loss on supernatural assumptions or trivial marginal matters, and never blur the fundamental delineation of positive and negative externalities (good and evil).

2. The Definition of Good and Evil and the Moral Attributes of Human Capital

What exactly are good and evil?

In the modern context, people often mistakenly reduce “good and evil” to “gains and losses for individuals.” From an economic perspective, “good” is behavior that maximizes total social utility (positive externality), while “evil” is behavior that harms the overall system (negative externality).

Evaluations of character are an extension of this logic. Good character is a psychological asset capable of promising and realizing collective benefits maximization; bad character results from weaknesses or deviations that damage social welfare.

I firmly believe there exists a behavior pattern that can achieve Pareto improvements (Pareto Improvement) for both individuals and society. Although different religious discourses vary, the promotion of qualities like “courage,” “integrity,” and “moderation” is a global consensus because they are necessary protocols for maintaining the operation of complex societies.

3. The “Downward Spiral” of Society

I personally believe we are in a metaphorical “hellish process.” This means most members of society have already lost the anchor points of consensus on good and evil, and this loss will lead to society paying an extremely high price (Hellacious Price).

More specifically, the social contract consensus is disintegrating. The current dominant principles have been reduced to pure self-interest maximization: an absolute plunder of money and power. This drift in values is vividly reflected in cultural products: we lack role models with moral authority.

When malicious behavior is packaged as a shortcut to success, and children grow up in environments lacking proper “incentive templates,” the consequences are disastrous. Drugs, violence, suicide, and the widening opportunities gap are symptoms and causes of the collapse of social principles.

Ironically, many believers in history have betrayed the principles of cooperation in their doctrines due to disputes over supernatural explanations or personal interests. This moral hazard has led people to abandon religious superstitions while also wrongly dismissing beneficial social norms embedded within them, resulting in institutional vacuums.

Summary

Despite technological progress and exponential increases in productivity, I believe technology is just a lever—it can amplify both benefits and destruction. History has shown that technological innovation has not eliminated conflict.

The good news is: because our existing toolkit of technology is extremely powerful, as long as we can reconstruct a healthy set of “reciprocal win-win” principles (Rulebook), we have the capacity to solve all systemic crises.