Notes on Thinking in Bets

By Annie Duke

These are my notes on ideas and concepts I found interesting — not a comprehensive summary of the book. Buy the book →

Why thinking in bets can help us make better decisions

Life is Poker, not Chess

The decisions we make in our lives (business, saving and spending, health and lifestyle, relationships, parenting, etc) involve luck, uncertainty, risk, and occasional deception — prominent elements in poker.

Unlike poker, chess contains no hidden information and very little luck.

We get intro trouble when we treat life decisions as if they were chess decisions instead of poker decisions.

Everything is a bet

Jobs and relocation decisions are bets. Sales negotiations and contracts are bets. Buying a house is a bet. Ordering chicken over steak is a bet, etc.

In most of our decisions, we’re not betting against another person —we’re betting against all the future versions of ourselves that we are not choosing.

Ignoring the risk and uncertainty in every decision might make us feel better in the short run, but the cost to the quality of our decision making can be immense. If we can find ways to become more comfortable with uncertainty, we can see the world more accurately and be better for it.

The quality of our lives = the sum of decision quality (bets)+ luck.

In the long run, the cumulative effect of being a little better at decision-making like compounding interest— can have huge effects on everything that we do.

We don’t win bets by being in love with our own ideas. We win bets by striving to calibrate our beliefs and predictions about the future to more accurately represent the world.

In the long run, the more objective person will win against the more biased person.

Our brains weren’t built for rationality

Our brains evolved to create certainty and order, so we are uncomfortable with the idea that luck plays a significant role in our lives.

We recognize the existence of luck, but resist the idea that, despite our best efforts, things might not work out the way we want.

It feels better for us to imagine the world as an orderly place, where randomness does not wreak havoc and things are perfectly predictable. We evolved to see the world that way. Creating order out of chaos has been necessary for our survival.

When we work backwards from results to figure out why those things happened, we are susceptible to a variety of cognitive traps, like assuming causation when there is only correlation, or cherry-picking data to confirm there narrative we prefer.

We will pound a lot of square pegs into round holes to maintain the illusion of a tight relationship between our outcomes and our decisions.

How to apply bet-thinking to your decision-making

“I’m not sure” — Acknowledging uncertainty

Making better decisions starts with understanding that uncertainty can work a lot of mischief.

We are generally discouraged from saying “I don’t know” or “I’m not sure”. People regard those expressions as vague, unhelpful, and even evasive. But getting comfortable with “I’m not sure” is a vital step to being a better decision maker. We have to make peace with not knowing.

There are many reasons why embracing uncertainty makes us better decision makers. Here‘s a couple:

1. “I’m not sure” is simply a more accurate representation of the world.
2. Related: When we accept that we can’t be sure, we are less likely to fall into the trap of black-and-white thinking.

The secret is to make peace with walking around in a world where we recognize that we are not sure, and that’s okay.

Redefining “Wrong”

Decisions are bets on the future. They aren’t “right” or “wrong” based on whether they turn out well or not.

When we move away from a world where there are only two opposing and discrete boxes that decisions can be put in — right or wrong — we start living in a continuum between the extremes. Making better decisions stops being about wrong or right but about calibrating among all the shades of grey.

Should we be willing to give up the good feeling of ‘right’ to get rid of the anguish of ‘wrong’? Yes.

First, the world is a pretty random place. The influence of luck makes it impossible to predict exactly how things will turn out, and all of the hidden information makes it even worse. If we don’t change our mindset, we’re going to have to deal with being wrong a lot.

Second, being wrong hurts us more than being right feels good. We know that losses in general feel about twice as bad as wins feel good.

Redefining confidence

We would be 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.

Instead of thinking of confidence as all-or-nothing, our expression of our confidence would then capture all the shades of grey in between.

Incorporating uncertainty into the way we think about our beliefs comes with many benefits:

• We’re less likely to succumb to motivated reasoning since it feels better to make small adjustments in degrees of certainty instead of having to grossly downgrade from “right” to “wrong”.
• When we work toward belief calibration, we become less judgmental of ourselves.
• We assume that if we don’t come off as 100% confident, others will value our opinion less. The opposite is usually true.
• Expressing our level of confidence invites people to be our collaborators. When we declare something as 100% correct, others may be reluctant to offer up new and relevant information that could inform our beliefs.
• Expressing our beliefs this way also serves listeners. We know that our default is to believe what we hear, without vetting the information too carefully. If we communicate to our listeners that we are not 100% on what we are saying, they are less likely to walk away having been infected by our beliefs.

Belief

The more accurate our beliefs, the better the foundation of the bets we make. Unfortunately, our beliefs can be way, way off.

People are credulous creatures who find it very easy to believe and very difficult to doubt. In fact, believing is so easy, and perhaps so inevitable, that it may be more like involuntary comprehension than it is like rational assessment.

This is how we think we form abstract beliefs:

1. We hear something.
2. We think something about it and vet it, determining whether it is true or false; only after that:
3. We form the belief.

Unfortunately,this is how we actually form abstract beliefs:

1. We hear something.
2. We believe it to be true.
3. Only sometimes, later, if we have the time or inclination, we think about it and vet it, determining whether it is, in fact, true or false.

This suggests our default setting is to believe what we hear is true.

Even though our default is “true”, if we were good at updating our beliefs based on new information, our haphazard belief formation process might cause relatively few problems.

Sadly, this isn’t how it works. We form beliefs without vetting most of them, and maintain them even after receiving clear, corrective information.

The stubbornness of beliefs
Once a belief is lodged in, it becomes difficult to dislodge. It takes on a life of its own, leading us to notice and seek out confirming evidence, rarely challenging the validity of that evidence, and ignore or work hard to actively discredit information contradicting the belief. This irrational, circular information-processing pattern is called motivated reasoning.

Even when directly confronted with facts that disconfirm our beliefs, we don’t let facts get in the way.

We want to think well of ourselves and feel that the narrative of our life story is positive. Being wrong doesn’t fit that narrative.

If we think of beliefs as only 100% right or 100% wrong, when confronting new information that might contradict our belief, we have only two options:

1. Make the massive shift in our opinion of ourselves from 100% right to 100% wrong, or:
2. Ignore or discredit the new information.

It feels bad to be wrong, so most of the time, most of us choose (2).

Information that disagrees with us is an assault on our self-narrrative. On the flip side, when new information agrees with us, we effortlessly embrace it.

Evolutionarily, we’re wired to protect our beliefs even when our goal is to truthseek.

Wanna bet? Using bets to vet your beliefs and check your decisions

Being asked if we’re willing to bet money on a belief makes it much more likely that we will:

• Examine our information in a less biased way.
• Be more honest with ourselves about how sure we are of beliefs.
• Be more open to updating and calibrating our beliefs.

When we are challenged to bet on a belief it triggers us to vet that belief, taking inventory of the evidence that informed us. How do I know this? Where did I get this information? Who did I get it from? What is the quality of my sources?

The person who wins bets over the long run is the one with the most accurate beliefs. The more objective we are, the more accurate our beliefs become.

Offering a wager brings the risk out into the open, making explicit what is already implicit (and frequently overlooked).

Advice on Communicating truthfully

Express uncertainty. Uncertainty not only improves truthseeking within groups but also invites everyone around us to share helpful information and dissenting opinions.

Lead with assent. E.g. Listen for things you agree with, state those and be specific, and then follow with “and” instead of “but”. If there is one thing we have learned so far it’s that we like having our ideas affirmed.

If you want to engage someone with whom you have some disagreement, they’ll be more open and less defensive if we start with those ideas we agree with, which there surely will be.

Say “Yes, and…” If someone expresses a belief or prediction that doesn’t sound well calibrated and we have relevant information, try to say “and”, as in: “I agree with you on that [specific idea or concept], AND…”

“Yes” means you are accepting the construct of the situation. “And” means you are adding to it.

Adventures in mental time travel

A visit from past or future versions of us helps present-us make better bets.

In our decision-making lives, we aren’t that good at taking a wider perspective — at accessing the past and future to get a better view of how any given moment might fit into the scope of time. It just feels how it feels in the moment and we react to it.

The over-estimation of the impact of any individual moment on our overall happiness is the emotional equivalent of watching the ticker tape in the financial world.

Our problem is that we’re ticker watchers of our entire lives. Happiness is not best measured by looking at the ticker, zooming in and magnifying moment-by-moment or day-by-day movements.

How we field outcomes is path dependant. It doesn’t so much matter where we end up as how we got there. What happened in the recent past drives our emotional response much more than how we are doing overall.

Our feelings are not a reaction to the average of how things are going. We feel sad if we are breaking even (or winning) on an investment that used to be valued much higher. In relationships, even small disagreements seem big in the moment.

The problem in all these situations is that our in-the-moment emotions affect the quality of the decisions we make in those moments, and we are very willing to make decisions when we are not emotionally fit to do so.

Moving regret in front of our decisions
Regret is one of the most intense emotions we feel. The problem is, it occurs after the fact — not before. But, if regret occurred before a decision instead of after, the experience of regret might get us to change a choice likely to result in a bad outcome.

Use the 10–10–10 process
Before a decision, ask yourself “What are the consequences of each of my options in ten minutes? Ten months? Ten years?”

These questions trigger mental time travel.

Backcasting: Working backward from a positive future

When we identify the goal and work backward from there to “remember” how we got there, the research shows that we do better.

Backcasting makes it possible to identify when there are low-probability events that must occur to reach the goal. That could lead to developing strategies to increase the chances those events occur or to recognizing the goal as too ambitious.

Imagining a successful future and backcasting from there is a useful time-travel exercise for identifying necessary steps for reaching our goals. Working backward helps even more when we give ourselves the freedom to imagine unfavourable futures.

Pre-mortems

Despite the popular wisdom that we achieve success through positive visualization, it turns out that incorporating negative visualization makes us more likely to achieve our goals.

While backcasting imagines a positive future, a pre-mortem imagines a negative one.

It may not feel so good during the planning process to include this focus on the negative space. Over the long run, however, seeing the world more objectively and making better decisions will feel better than turning a blind eye to negative scenarios.