Thinking in Bets

Author

Annie Duke

Poker not chess

  • Life is more like poker, skill and luck

  • Chess is all skill.

Resulting

  • A good decision does not mean a good outcome and a bad decision does not mean bad a outcome

  • Run a red light and be fine

  • Go on green and get in accident.

Dr. Strangelove

  • Game theory: making decision under conditions of uncertainty overtime

  • The world doesn’t easily reveal the objective truth

  • Uncertainty can work a lot of mischief.

Process

  • What makes a good decision is a good process

  • A process that accurately represents our current state of knowledge, which is always some variance of I don’t know

  • More experience just means you can make a better guess

Reality

  • We don’t perceive the world objectively, but our goal should be to try

  • Get comfortable about not being sure and saying I don’t know

  • A loss feels twice as bad as a win feels good

All decisions are bets

  • Buying a house, parenting, choose steak over chicken, going to the movies

  • We can only make our best guess, given what we know and what we don’t know, at what the future will look like

Alter beliefs

  • Instead of alternating our beliefs to fit new information, we do the opposite, altering our interpretation of that information to fit our beliefs

  • Our preexisting beliefs influence the way we experience the world

  • Those beliefs are formed in not an orderly way, which means mischief is in our decision making

Opposite

  • The better you are with numbers, the better you are spinning those numbers to conform and support your beliefs

  • We bet on our beliefs, but don’t vet those beliefs well before we form them

  • We stubbornly refuse to update our beliefs. And being smart doesn’t help, it makes it worse

Why be Objective?

  • Because the more objective we are, the more accurate our beliefs become

  • Almost nothing is black and white, 0 or 100, and that’s pretty good philosophy for living

How not What

  • Better served as communicators and decision-makers if we thought less about whether we are confident in our beliefs and more about how confident we are in those beliefs

  • This way our expression of confidence would capture all the shades of grey in-between

  • It’s a spectrum, 76% to 63% is much better than right or wrong.

Uncertainty

  • Acknowledging uncertainty is the first step in measuring and narrowing it

  • Any decision is a bet on what will likely create the most favorable future for us.

  • Sometimes things happen because of the other form of uncertainty - LUCK

The Problem

  • The way things turn out could be the result of our decisions, luck, or a combination of the two

  • Quote: We must believe in luck, for how else can we explain the success of those we don’t like

  • Golden rule of habit change - keep the old cue, deliver the old reward, but insert a new routine

Strive for this

  • Be a better credit-giver than your peers

  • Be more willing than others to admit mistakes

  • Be more willing to explore reasons for an outcome with an open mind

  • And even, and especially, if that might cast you in a bad light or shine a good light on someone else

What to ask

  • Why might my belief not be true?

  • What other evidence might be out there bearing on my belief?

  • Are there similar areas I can look toward to gauge whether similar beliefs to mine are true?

More ?s to ask

  • What sources of information could I have missed or minimized on the way to reaching my belief?

  • What are the reasons someone else could have a different belief, what’s their support, and why might they be right instead of me?

  • What other perspectives are there as to why things turned out the way they did?

Don’t be a outcome junkie

  • You’re going to lose a lot, and win a lot

  • You can always, however, try to make a good bet

  • Learn how to navigate the uncertain future because you’ll never be sure of the future

CUDOS

  • Principles for a good trust group

  • Communism: be a data sharer, more data you share leads to better assessment

  • Rashomon effect: two accounts of same event, but versions are dramatically different because they’re informed by different facts and perspectives

  • You can’t assume your version of the story is accurate or complete

  • Universalism: don’t shoot the message, imagine if same info came from person you didn’t like

  • Both of these are bad: - negative opinion about person delivering message, we close our mind - positive opinion about person delivering message, we accept without vetting it

  • Listen to the other side to look for things you agree with, when we do this, we learn things we otherwise wouldn’t have learned

  • The only way to gain knowledge and approach truth is by examining every variety of opinion

  • Disinterestedness: telling someone how a story ends encourages them to be resulters

  • We don’t process information independent of the way we wish the world to be

  • If the group is blind to the outcome, it produces higher fidelity evaluation of decision quality

  • Organized skepticism: discussion among the group to encourage engagement and dissent

  • Lean over backwards to figure out where we could be wrong

  • Skepticism is about asking why things might not be true rather than why they are true

Communication with a trust group

  • Express uncertainty: listen for things you agree with, state those and be specific, follow with and instead of but

  • and is an offer to contribute

  • but is a denial and repudiation of what came before

  • Try using yes and

Decision making help

  • Ask do you want to let it all out or are you thinking about what to do next?

  • Focus on the future: we can identify the goals, our problem is the execution

The past

  • Rehashing our past can create defensiveness

  • It’s hard to be defensive about something that hasn’t happened yet

  • Have you thought about how you would get rid of all this drama in the future?

  • Example: child with bad test scores - it must be hard to have a teacher like that, do you think there is anything you can do to improve your grade in the future?

Consequences

  • Consequences take awhile to show: what does the intern possibly know?

  • It could take years for that intern to become a successful competitor before that mistake becomes obvious

  • Improving decision quality is about increasing our chances of good outcomes, not guaranteeing them

In the moment

  • When we make in-the-moment decisions, and don’t ponder our past or future, we are more likely to be irrational and impulsive thinking about the future is remembering the future

  • Temporal discounting - favor our present self at the expense of our future self

Regret

  • Move regret in front of our decisions: have a loss agreement

  • Regret decision of losing lots of chips before you bought more

Think like this

  • Imagine how future-you is likely to feel about the decision or imagine how you feel today if past-you made the decision how would you feel if you made the decision 10 minutes ago? 10 months ago? 10 years ago?

  • This does two things:

  • 1 - influences us to make a better decision

  • 2 - helps us treat ourselves more compassionately

How we got there

  • It doesn’t so much matter where we end up as how we got there

  • Our feelings are not a reaction to the average of how things are going

  • What is tilt? If you blow some recent event out of proportion and react in a drastic way, you’re on tilt

Long view

  • Long view thinking is more rational thinking

  • Ulysses contract: past-us preventing present-us from doing something stupid

  • Examples: take a ride share when going to a bar, automatic allocation into retirement fund

What is wrong?

  • Wrong is a conclusion, not a rationale

  • If we’re going to be self-critical, the focus should be on the lesson and how to calibrate future decisions

Benefits of scouting the future

  • 1st: scenario planning reminds us that the future is inherently uncertain, more realistic

  • 2nd: we are better prepared for how we are going to respond to different outcomes that might result from our initial decision, anticipate positive or negative developments instead of being reactive

  • 3rd: being able to respond to the changing future is a good thing, being surprised by the changing future is not

  • 4th: less likely to fall for hindsight or resulting bias

Expected value: Example

  • $100,000 grant has 25% chance of winning (expected value is $100k * .25 = $25,000)

  • $200,000 grant has 10% chance of winning (expected value is $20,000)

  • $50,000 grant has 70% chance of winning (expected value is $35,000)

  • This shows that the $50,000 grant is more valuable than the $100,000 and $200,000 grants

Backcasting

  • When we forecast the future, the present and the immediate future look large, anything beyond that loses focus

  • Prospective hindsight, imagining that an event has already occurred, increases the ability to correctly identify reasons for future outcomes by 30%

Premortem

  • Premortem: imagine a negative outcome

  • Backcasting is cheerleader, premortem is the heckler in the audience

  • Incorporating negative visualization makes us more likely to achieve our goals

Negative visualization

  • We’re more likely to execute goals if we think about negative futures

  • Why?

  • Because it helps us anticipate potential obstacles and improve our likelihood of succeeding

Tree metaphor

  • The trunk of the tree is the past

  • Branches are potential futures

  • When a potential future doesn’t happen, don’t chop it down (give the chainsaw a rest)

Outcomes and Hindsight

  • When you look into the past and only see what happened, it seems inevitable

  • Hindsight bias is the enemy of probabilistic thinking