Thinking in Bets — Annie Duke
“Improving decision quality is about increasing our chances of good outcomes, not guaranteeing them. Even when that effort makes a small difference — more rational thinking and fewer emotional decisions, translated into an increased probability of better outcomes — it can have a significant impact on how our lives turn out. Good results compound. Good processes become habits, and make possible future calibration and improvement.”
Thinking in Bets is Annie Duke’s most recent book, which stands out among the few she’s written specifically about poker and her autobiography. She preempts the reader who might quickly and wrongly come to the conclusion that this is just another poker book; it’s really a book about decision making that uses poker as a thread to tie all its major ideas together. I’m personally fascinated with topics related to decision making, cognitive biases, irrational behavior, and human psychology, and Thinking in Bets basically hits on all of those in a clear and fairly entertaining way.
While Duke can be a little redundant at times and belabors certain points, as a whole the book is short and sweet with some very powerful insights. She starts off, as many books about cognitive biases do, explaining how the human brain hasn’t exactly evolved optimally for the decisions we make on a daily basis. We’re not naturally very good at understanding probability/randomness, we tend to look for patterns where they may be none, and we often confuse outcomes with the quality of a decision. I’ll try to distill the few main lessons that I think are really important:
· Process over outcome: if we draw too tight a relationship between our decision quality and what actually happens, we may be dooming ourselves to failure in the future. Just because something turned out poorly doesn’t necessarily mean we made a poor decision. If we focus on the process of how we make decisions given all the information we have beforehand (and not with the benefit of hindsight), then our outcomes should be favorable in the future on average.
· Get comfortable with uncertainty: reality isn’t like chess where we can know each and every possible move and which move would have been optimal after the fact. We have to accept a large degree of uncertainty in daily life. This means moving from black-and-white thinking of right or wrong towards probabilities or degrees of confidence.
· Frame decisions as bets: we’re constantly in what Duke calls the “learning loop.” We have a belief that drives a decision we make, and then our feedback is the outcome. If we frame each decision we make as bet on future versions of ourselves (i.e. what are we giving up with a certain choice, and what do we have to gain?) we will move towards probabilistic thinking and questioning that we don’t usually use. In order to become better decision-makers, we have to take each outcome and dissect it into two parts: skill (the things we can control) and luck (the things we have no control over). We should focus on the skill part of the outcome and use that to refine our beliefs.
· Create interruptions: we can become more thoughtful decision-makers if we create a buffer between our impulses and our decisions. If we think about how “future us” will likely feel after a given decision (particularly if we remember the regret of similar decisions we’ve made in the past) we may be more likely to resist our impulses.
· Use backcasting and pre-mortems: backcasting involves imagining a successful future and the likely decisions that would have needed to be made in order to get there. Pre-mortems involve identifying the likely decisions that will result in failure later. These positive/negative framing exercises can get you to adjust your sense of probabilities of success or failure and make you more prepared for inevitable setbacks.
· Good decisions compound: the whole point of trying to be more objective, less biased, and more in tune with reality is to tilt the odds slightly more in your favor. If you keep learning from mistakes and become a better decision maker, success isn’t guaranteed, but you are certainly more likely to see tangible results from small, good decisions over many years.
These lessons are distilled from Duke’s own experiences learning the ropes as a poker player, bits of pop culture, current events, numerous scientific journals and studies, and other great books like Thinking, Fast and Slow and Influence. I found it to be a fun and straight-forward read that gave both important big-picture ideas and actual tactics for applying them. A good chunk of the book focuses on using what Duke calls “truth-seeking” groups, which may be groups of coworkers, friends, or other people who want to get together for objective criticism about decisions they’ve made. While I can’t say I would personally want to do this with friends or family, it certainly makes a lot of sense for certain work environments where it may be hard to differentiate skill and luck by yourself.
While I would always come back to Kahneman’s Thinking, Fast and Slow as the go-to book on these types of ideas, I think Duke adds a solid amount of value in the tactics she offers and the clear, entertaining way in which the book is written. Definitely worth a read.
· Resulting — our tendency to equate the quality of a decision with the quality of its outcome
o Drawing an overly tight relationship between results and decision quality affects our decisions every day, with potentially terrible consequences
o Changing our strategies or tactics based on the quality of the result rather than the process can lead to further mistakes
· Our brains generally aren’t built to understand randomness, luck, and probabilities, but rather cause and effect
o Creating order out of chaos/randomness has been necessary for our survival in the past — learning to link cause and effect (like the rustling of a bush and the presence of a predator) has saved us in dangerous situations
o False associations or links (false positives) were much less consequential than false negatives, leading us to seek patterns where there may be none
o Life is also far less orderly than say, a game of chess, where all the rules are laid out and you can work backward from a decision to see where you went wrong; sometimes you could make a perfect decision given the circumstances and still end up in the wrong
o Our lives are also generally too short to collect enough data from our own experience to make it easy to dig down into decision quality from the small set of results we experience
· A great decision is a result of a good process, and that process must include an attempt to accurately represent our own state of knowledge
o That state of knowledge is generally always some form of “I’m not sure” because we’re always working with limited information
o Good decision-makers are comfortable with the uncertainty that “I’m not sure” brings into the process because it brings them closer to reality — they are less likely to fall into the trap of black-and-white thinking
o Decisions aren’t right or wrong based on whether they turned out well on any particular iteration; if we thought about the alternatives and probabilities in advance and acted accordingly, then we should be satisfied with the process
o When we think probabilistically, we are less likely to use adverse results alone as proof of error — we recognize luck and/or incomplete information may have intervened
· All decisions are bets
o In most of our decisions, we’re not betting against another person, but rather all the future versions of ourselves that we are not choosing
o At stake is that the return to us (happiness, money, time, health…) will be greater than what we are giving up by betting against alternative futures
o The more accurate our beliefs, the better the foundation of the bets we make; the better we calibrate beliefs with new information/experiences, the better off we will be
§ Part of the problem with our beliefs is that our brains threshold for believing something is quite low — this relates the small consequences of false positives in our evolutionary past
§ Most of the time we hear something, accept it as true, and then maybe later vet it to verify; many times we fail to update our beliefs even after being given corrective information
§ Motivated reasoning involves seeking out evidence confirming a currently held belief and readily dismissing information that contradicts it — this inclination is what makes it hard for us to better understand reality
o The more we recognize that we are betting on our beliefs, the more we are likely to temper our statements, getting closer to the truth as we acknowledge the risk inherent in what we believe
§ We will generally be better served if we thought less about whether we are confident in our beliefs and more about how confident we are (on a scale)
§ When we speak in terms of percentages or ranges, we no longer tie our ego to being right or wrong; we start thinking more about how we can better incorporate new information
· Learning from outcomes
o The more evidence we get from experience, the less uncertainty we have about our beliefs and choices
o Actively using outcomes to examine our beliefs and bets closes the learning feedback loop
o Part of the learning loop entails deciding what to throw away into the “luck pile” — things we think were out of our control and don’t reflect the quality of the decision; we should focus on parts of the experience that have something to teach us (skill)
o The problem is we too often take credit for good results and blame bad results on chance; this self-serving bias is a terrible way to learn
§ Blaming bad outcomes on luck means we miss opportunities to examine our decisions
§ Taking credit for good outcomes can actually reinforce decisions that shouldn’t be reinforced
§ We tend to do the opposite when it comes to evaluating our peers — their mistakes are their fault while their good fortune is a result of luck
o People who can successfully reshape their habit of evaluating outcomes honestly take advantage of compounding
§ The cumulative effect of being a little better at decision-making can have huge effects in the long run on everything we do
§ When we catch extra occasional learning opportunities, it puts us in a better position for future opportunities of the same type in the future
· Regret minimization and tactics
o Temporal discounting — our tendency to favor our present-self at the expense of our future self; we are willing to take an irrationally large discount to get a reward now instead of waiting for a bigger reward later
o One of our goals should be to create interruptions before we make a decision to consider the decision from the perspective of our past and future; we can imagine how future us would feel about the decision today if we made it, or how we would feel right now if past us made it
o One process is called 10–10–10, whereby we ask ourselves what the consequences of a decision are in 10 minutes, 10 months, and in 10 years; these questions trigger a self-conversation about accountability and possible regret
o Moving regret in front of decisions can clearly help us make better decisions and also help treat ourselves more compassionately after the fact; by planning ahead, we can devise a plan to respond to a negative outcome instead of just reacting to it
o Ideally, we should also develop routines for when we recognize ourselves become emotionally upset or tilted (or warnings signs of irrational thought patterns); we should step away from what we are doing or ask ourselves a set of questions to reengage our deliberative mind
o We can use pre-commitment contracts to bind our future selves to certain behaviors, or at least reduce the chances of making poor decisions (ex: not buying junk food at the grocery store so that it makes it requires more effort to snack when you’re at home later); what’s important is that these contracts with yourself create interruptions so that you may not act as impulsively
o We should try to keep an accurate representation of what could have happened (not versions edited by hindsight) so that future scenario plans and decision trees can be more accurate
· Backcasting — imagining a successful future and what decisions/outcomes were necessary to get there
o Pre-mortems involve working backward from a negative future instead; this allows us to think of ways in which things could go wrong
o While we need to have positive goals, we are actually more likely to execute on those goals if we think about the negative futures; all the reasons we come up with help us anticipate potential obstacles
o Imagining both positive and negative futures helps us build a more realistic vision of the future, and plan for a wider variety of challenges; it also allows us to adjust how optimistic we are
· Book recommendations
o The Half-Life of Facts — Samuel Arbesman
o Predictably Irrational — Dan Ariely
o The Greatest Show on Earth — Richard Dawkins
o The Power of Habit — Duhigg
o Stumbling on Happiness — Daniel Gilbert
o The Happiness Hypothesis — Jonathan Haidt
o Nonsense — Jamie Holmes
o A Field Guide to Lies — Daniel Levitin
o The How of Happiness — Sonja Lyubomirsky
o The Success Equation — Michael Maubossin
o The Marshmallow Test — Walter Mischel
o Rethinking Positive Thinking — Gabriele Oettingen
o The Believing Brain — Michael Shermer
o Misbehvaing — Richard Thaler
o Nudge — Thaler
· Poker players… must become adept at in-the-moment decision-making or they won’t survive. That means finding ways to execute their best intentions within the constraints of the speed expected at the table. Making a living at poker requires interpolating between the deliberative and reflexive systems. The best players must find ways to harmonize otherwise irresolvable conflicts. In addition, once the game is over, players must learn from that jumbled mass of decisions and outcomes, separating the luck from the skill, the signal from the noise, and guarding against resulting. That’s the only way to improve especially when those same under-pressure situations will recur in a variety of forms…. The poker players who stand the test of time have a variety of talents, but what they share is the ability to execute in the face of these limitations.
· When we look at the people performing at the highest level of their chosen field, we find that the self-serving bias that interferes with learning often recedes and even disappears. The people with the most legitimate claim to a bulletproof self-narrative have developed habits around accurate self-critique.
· Improving decision quality is about increasing our chances of good outcomes, not guaranteeing them. Even when that effort makes a small difference — more rational thinking and fewer emotional decisions, translated into an increased probability of better outcomes — it can have a significant impact on how our lives turn out. Good results compound. Good processes become habits, and make possible future calibration and improvement.
· Life, like poker, is one long game, and there are going to be a lot of losses, even after making the best possible bets. We are going to do better, and be happier, if we start by recognizing that we’ll never be sure of the future. That changes our task from trying to be right every time to navigating our way through the uncertainty by calibrating our beliefs to move toward, little by little, a more objective representation of the world.