Thinking in Bets

By Annie Duke

Making smarter decisions when you don’t have all the facts

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

CUDOS continued

  • 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

  • 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

CUDOS continued

  • 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

CUDOS continued

  • 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

  • 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

More Benefits of scouting the future

  • 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

The End

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