Thinking in Bets - Annie Duke

Note: While reading a book whenever I come across something interesting, I highlight it on my Kindle. Later I turn those highlights into a blogpost. It is not a complete summary of the book. These are my notes which I intend to go back to later. Let’s start!

Drawing an overly tight relationship between results and decision quality affects our decisions every day, potentially with far-reaching, catastrophic consequences
The quality of our lives is the sum of decision quality plus luck
What makes a decision great is not that it has a great outcome. A great decision is the result of a good process, and that process must include an attempt to accurately represent our own state of knowledge
Decisions are bets on the future, and they aren’t “right” or “wrong” based on whether they turn out well on any particular iteration. An unwanted result doesn’t make our decision wrong if we thought about the alternatives and probabilities in advance and allocated our resources accordingly, as my client the CEO and Pete Carroll both did
It would be absurd for me, after making a big bet on the best possible starting hand (a pair of aces) and losing, to spend a lot of time thinking that I was wrong to make the decision to play the hand in the first place. That would be resulting
When someone challenges us to bet on a belief, signaling their confidence that our belief is inaccurate in some way, ideally it triggers us to vet the belief, taking an 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? How much do I trust them? How up to date is my information? How much information do I have that is relevant to the belief? What other things like this have I been confident about that turned out not to be true? What are the other plausible alternatives? What do I know about the person challenging my belief? What is their view of how credible my opinion is? What do they know that I don’t know? What is their level of expertise? What am I missing? Remember the order in which we form abstract beliefs: We hear something; We believe it; Only sometimes, later, if we have the time or the inclination, we think about it and vet it, determining whether or not it is true. “Wanna bet?” triggers us to engage in that third step that we only sometimes get to. Being asked if we are willing to bet money on it 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 our beliefs, and be more open to updating and calibrating our beliefs. The more objective we are, the more accurate our beliefs become. And the person who wins bets over the long run is the one with the more accurate beliefs
Any decision, whether it’s putting $2 on Count de Change at the racetrack or telling your kids they can eat whatever they want, is a bet on what will likely create the most favorable future for us. The future we have bet on unfolds as a series of outcomes
The way our lives turn out is the result of two things: the influence of skill and the influence of luck
Fielding outcomes with the goal of promoting our self-narrative and doing it in an all-or-nothing fashion alters our ability to make smart bets about why the future unfolded in a particular way
Habits operate in a neurological loop consisting of three parts: the cue, the routine, and the reward
A habit could involve eating cookies: the cue might be hunger, the routine going to the pantry and grabbing a cookie, and the reward a sugar high. Or, in poker, the cue might be winning a hand, the routine taking credit for it, the reward a boost to our ego
The prospect of a bet makes us examine and refine our beliefs, in this case the belief about whether luck or skill was the main influence in the way things turned out. Betting on what we believe makes us take a closer look by making explicit what is already implicit: we have a great deal at risk in assessing why anything turned out the way it did
When we treat outcome fielding as a bet, it pushes us to field outcomes more objectively into the appropriate buckets because that is how bets are won. Winning feels good. Winning is a positive update to our personal narrative. Winning is a reward. With enough practice, reinforced by the reward of feeling good about ourselves, thinking of fielding outcomes as bets will become a habit of mind. Thinking in bets triggers a more open-minded exploration of alternative hypotheses, of reasons supporting conclusions opposite to the routine of self-serving bias. We are more likely to explore the opposite side of an argument more often and more seriously—and that will move us closer to the truth of the matter. Thinking in bets also triggers perspective taking, leveraging the difference between how we field our own outcomes versus others’ outcomes to get closer to the objective truth. We know we tend to discount the success of our peers and place responsibility firmly on their shoulders for their failures. A good strategy for figuring out which way to bet would be to imagine if that outcome had happened to us. If a competitor closes a big sale, we know about our tendency to discount their skill. But if we imagine that we had been the one who closed the sale, we are more likely to find the things to give them credit for, that they did well and that we can learn from. Likewise, when we close the big sale, let’s spare a little of the self-congratulations and, instead, examine that great result the way we’d examine it if it happened to someone else. We’ll be more likely to find the things we could have done even better and identify those factors that we had no control over
Perspective taking gets us closer to the truth because that truth generally lies in the middle of the way we field outcomes for ourselves and the way we field them for others. By taking someone else’s perspective, we are more likely to land in that middle ground. Once we start actively training ourselves in testing alternative hypotheses and perspective taking, it becomes clear that outcomes are rarely 100% luck or 100% skill. This means that when new information comes in, we have options beyond unquestioned confirmation or reversal. We can modify our beliefs along a spectrum because we know it is a spectrum, not a choice between opposites without middle ground
Certainly, in exchange for losing the fear of taking blame for bad outcomes, you also lose the unadulterated high of claiming good outcomes were 100% skill. That’s a trade you should take
Good blueprint for a truthseeking charter: A focus on accuracy (over confirmation), which includes rewarding truthseeking, objectivity, and open-mindedness within the group; Accountability, for which members have advance notice; and Openness to a diversity of ideas
We don’t win bets by being in love with our own ideas. We win bets by relentlessly 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. In that way, betting is a form of accountability to accuracy. Calibration requires an open-minded consideration of diverse points of view and alternative hypotheses
Accountability is a willingness or obligation to answer for our actions or beliefs to others. A bet is a form of accountability. If we’re in love with our own opinions, it can cost us in a bet
Accuracy, accountability, and diversity wrapped into a group’s charter all contribute to better decision-making, especially if the group promotes thinking in bets
Whether the situation involves facts, ideas, beliefs, opinions, or predictions, the substance of the information has merit (or lack of merit) separate from where it came from. If you’re deciding the truth of whether the earth is round, it doesn’t matter if the idea came from your best friend or George Washington or Benito Mussolini. The accuracy of the statement should be evaluated independent of its source
Telling someone how a story ends encourages them to be resulters, to interpret the details to fit that outcome. If I won a hand, it was more likely my group would assess my strategy as good. If I lost, the reverse would be true. Win a case at trial, the strategy is brilliant. Lose, and mistakes were made. We treat outcomes as good signals for decision quality, as if we were playing chess. If the outcome is known, it will bias the assessment of the decision quality to align with the outcome quality
If the group is blind to the outcome, it produces higher fidelity evaluation of decision quality. The best way to do this is to deconstruct decisions before an outcome is known. Attorneys can evaluate trial strategy before the verdict comes in. Sales teams can evaluate strategy before learning whether they’ve closed the sale. Traders can vet process prior to positions being established or prior to options expiring. After the outcome, make it a habit when seeking advice to give the details without revealing the outcome. In poker, it isn’t practical to analyze hands before knowing how they turn out since the results come within seconds of the decisions
Skepticism is about approaching the world by asking why things might not be true rather than why they are true. It’s a recognition that, while there is an objective truth, everything we believe about the world is not true. Thinking in bets embodies skepticism by encouraging us to examine what we do and don’t know and what our level of confidence is in our beliefs and predictions. This moves us closer to what is objectively true
Over time, those world-class poker players taught me to understand what a bet really is: a decision about an uncertain future. The implications of treating decisions as bets made it possible for me to find learning opportunities in uncertain environments. Treating decisions as bets, I discovered, helped me avoid common decision traps, learn from results in a more rational way, and keep emotions out of the process as much as possible
Drawing an overly tight relationship between results and decision quality affects our decisions every day, potentially with far-reaching, catastrophic consequences
The quality of our lives is the sum of decision quality plus luck
What makes a decision great is not that it has a great outcome. A great decision is the result of a good process, and that process must include an attempt to accurately represent our own state of knowledge
Decisions are bets on the future, and they aren’t “right” or “wrong” based on whether they turn out well on any particular iteration. An unwanted result doesn’t make our decision wrong if we thought about the alternatives and probabilities in advance and allocated our resources accordingly, as my client the CEO and Pete Carroll both did
It would be absurd for me, after making a big bet on the best possible starting hand (a pair of aces) and losing, to spend a lot of time thinking that I was wrong to make the decision to play the hand in the first place. That would be resulting
When someone challenges us to bet on a belief, signaling their confidence that our belief is inaccurate in some way, ideally it triggers us to vet the belief, taking an 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? How much do I trust them? How up to date is my information? How much information do I have that is relevant to the belief? What other things like this have I been confident about that turned out not to be true? What are the other plausible alternatives? What do I know about the person challenging my belief? What is their view of how credible my opinion is? What do they know that I don’t know? What is their level of expertise? What am I missing? Remember the order in which we form abstract beliefs: We hear something; We believe it; Only sometimes, later, if we have the time or the inclination, we think about it and vet it, determining whether or not it is true. “Wanna bet?” triggers us to engage in that third step that we only sometimes get to. Being asked if we are willing to bet money on it 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 our beliefs, and be more open to updating and calibrating our beliefs. The more objective we are, the more accurate our beliefs become. And the person who wins bets over the long run is the one with the more accurate beliefs
Any decision, whether it’s putting $2 on Count de Change at the racetrack or telling your kids they can eat whatever they want, is a bet on what will likely create the most favorable future for us. The future we have bet on unfolds as a series of outcomes
The way our lives turn out is the result of two things: the influence of skill and the influence of luck
Fielding outcomes with the goal of promoting our self-narrative and doing it in an all-or-nothing fashion alters our ability to make smart bets about why the future unfolded in a particular way
Habits operate in a neurological loop consisting of three parts: the cue, the routine, and the reward
A habit could involve eating cookies: the cue might be hunger, the routine going to the pantry and grabbing a cookie, and the reward a sugar high. Or, in poker, the cue might be winning a hand, the routine taking credit for it, the reward a boost to our ego
The prospect of a bet makes us examine and refine our beliefs, in this case the belief about whether luck or skill was the main influence in the way things turned out. Betting on what we believe makes us take a closer look by making explicit what is already implicit: we have a great deal at risk in assessing why anything turned out the way it did
When we treat outcome fielding as a bet, it pushes us to field outcomes more objectively into the appropriate buckets because that is how bets are won. Winning feels good. Winning is a positive update to our personal narrative. Winning is a reward. With enough practice, reinforced by the reward of feeling good about ourselves, thinking of fielding outcomes as bets will become a habit of mind. Thinking in bets triggers a more open-minded exploration of alternative hypotheses, of reasons supporting conclusions opposite to the routine of self-serving bias. We are more likely to explore the opposite side of an argument more often and more seriously—and that will move us closer to the truth of the matter. Thinking in bets also triggers perspective taking, leveraging the difference between how we field our own outcomes versus others’ outcomes to get closer to the objective truth. We know we tend to discount the success of our peers and place responsibility firmly on their shoulders for their failures. A good strategy for figuring out which way to bet would be to imagine if that outcome had happened to us. If a competitor closes a big sale, we know about our tendency to discount their skill. But if we imagine that we had been the one who closed the sale, we are more likely to find the things to give them credit for, that they did well and that we can learn from. Likewise, when we close the big sale, let’s spare a little of the self-congratulations and, instead, examine that great result the way we’d examine it if it happened to someone else. We’ll be more likely to find the things we could have done even better and identify those factors that we had no control over
Thinking in bets demands the imperative of skepticism. Without embracing uncertainty, we can’t rationally bet on our beliefs. And we need to be particularly skeptical of information that agrees with us because we know that we are biased to just accept and applaud confirming evidence
No longer do we dissent with declarations of “You’re wrong!” Rather, we engage by saying, “I’m not sure about that.” Or even just ask, “Are you sure about that?” or “Have you considered this other way of thinking about it?” We engage this way simply because that is faithful to uncertainty. Organized skepticism invites people into a cooperative exploration. People are more open to hearing differing perspectives expressed this way
There are several ways to communicate to maximize our ability to engage in a truthseeking way with anyone
- First, express uncertainty. Uncertainty not only improves truthseeking within groups but also invites everyone around us to share helpful information and dissenting opinions. Fear of being wrong (or of having to suggest someone else is wrong) countervails the social contract of confirmation, often causing people to withhold valuable insights and opinions from us. If we start by making clear our own uncertainty, our audience is more likely to understand that any discussion that follows will not involve right versus wrong, maximizing our truthseeking exchanges with those outside our chartered group. Second, lead with assent. For example, listen for the 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 thus far it is that we like having our ideas affirmed. If we want to engage someone with whom we have some disagreement (inside or outside our group), they will be more open and less defensive if we start with those areas of agreement, which there surely will be. It is rare that we disagree with everything that someone has to say. By putting into practice the strategies that promote universalism, actively looking for the ideas that we agree with, we will more naturally engage people in the process of learning with us. We will also be more open-minded to what others have to say as well, enhancing our ability to calibrate our own beliefs
- When we lead with assent, our listeners will be more open to any dissent that might follow. In addition, when the new information is presented as supplementing rather than negating what has come before, our listeners will be much more open to what we have to say. The simplest rhetorical touches can make a difference. 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 that [insert specific concepts and ideas we agree with], AND . . .” After “and,” add the additional information. In the same exchange, if we said, “I agree with you that [insert specific concepts and ideas you agree with], BUT . . . ,” that challenge puts people on the defensive. “And” is an offer to contribute. “But” is a denial and repudiation of what came before
- Third, ask for a temporary agreement to engage in truthseeking. If someone is off-loading emotion to us, we can ask them if they are just looking to vent or if they are looking for advice. If they aren’t looking for advice, that’s fine. The rules of engagement have been made clear. Sometimes, people just want to vent. I certainly do. It’s in our nature. We want to be supportive of the people around us, and that includes comforting them when they just need some understanding and sympathy. But sometimes they’ll say they are looking for advice, and that is potentially an agreement to opt in to some truthseeking. (Even then, tread lightly because people may say they want advice when what they really want is to be affirmed.)
The way we field outcomes is path dependent. It doesn’t so much matter where we end up as how we got there. What has happened in the recent past drives our emotional response much more than how we are doing overall. That’s how we can win $100 and be sad, and lose $100 and be happy. The zoom lens doesn’t just magnify, it distorts. This is true whether we are in a casino, making investment decisions, in a relationship, or on the side of the road with a flat tire. If we got a big promotion last week and have a flat tire right now, we are cursing our lives, complaining about how unlucky we are. 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 midst of the disagreement. The problem in all these situations (and countless others) 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. Now imagine if you had gone for that night of blackjack a year ago. When you think about the outcomes as having happened in the distant past, it is likely your preference for the results reverses, landing in a more rational place. You are now happier about the $100 win than about the $100 loss. Once we pull ourselves out of the moment through time-traveling exercises, we can see these things in proportion to their size, free of the distortion caused by whether the ticker just moved up or down
For us to make better decisions, we need to perform reconnaissance on the future. If a decision is a bet on a particular future based on our beliefs, then before we place a bet we should consider in detail what those possible futures might look like. Any decision can result in a set of possible outcomes. Thinking about what futures are contained in that set (which we do by putting memories together in a novel way to imagine how things might turn out) helps us figure out which decisions to make
When we identify the goal and work backward from there to “remember” how we got there, the research shows that we do better
The most common form of working backward from our goal to map out the future is known as backcasting. In backcasting, we imagine we’ve already achieved a positive outcome, holding up a newspaper with the headline “We Achieved Our Goal!” Then we think about how we got there
Let’s say an enterprise wants to develop a three-year strategic plan to double market share, from 5% to 10%. Each person engaged in the planning imagines holding up a newspaper whose headline reads “Company X Has Doubled Its Market Share over the Past Three Years.” The team leader now asks them to identify the reasons they got there, what events occurred, what decisions were made, what went their way to get the enterprise to capture that market share. This enables the company to better identify strategies, tactics, and actions that need to be implemented to get to the goal. It also allows it to identify when the goal needs to be tweaked. 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 is too ambitious. The company can also make precommitments to a plan developed through backcasting, including responses to developments that can interfere with reaching the goal and identifying inflection points for re-evaluating the plan as the future unfolds
If our goal is to lose twenty pounds in six months, we can plan how to achieve that by imagining it’s six months from now and we’ve lost the weight. What are the things we did to lose the weight? How did we avoid junk food? How did we increase the amount of exercise we were doing? How did we stick to the regimen? 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 an unfavorable future
Backcasting and premortems complement each other. Backcasting imagines a positive future; a premortem imagines a negative future. We can’t create a complete picture without representing both the positive space and the negative space. Backcasting reveals the positive space. Premortems reveal the negative space. Backcasting is the cheerleader; a premortem is the heckler in the audience
Imagining a headline that reads “We Failed to Reach Our Goal” challenges us to think about ways in which things could go wrong that we otherwise wouldn’t if left to our own (optimistic, team-player) devices. For the company with the three-year plan to double market share, the premortem headline is “Company Fails to Reach Market Share Goal; Growth Again Stalls.” Members of the planning team now imagine delays in new products, loss of key executives or sales or marketing or technical personnel, new products by competitors, adverse economic developments, paradigm shifts that could lead customers to do without the product or rely on alternatives not on the market or in use, etc
When we set a weight-loss goal and put a plan to reach that goal in place, a premortem will reveal how we felt obligated to eat cake when it was somebody’s birthday, how hard it was to resist the bagels and cookies in the conference room, and how hard it was to find time for the gym or how easy it was to find excuses to procrastinate going. There has been a massive amount written about visualizing success as a way to achieve our goals. Because that’s such a common element in self-help strategies, conducting a premortem (with its negative visualization) may seem like a counterproductive way to succeed
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
A premortem is an implementation of the Mertonian norm of organized skepticism, changing the rules of the game to give permission for dissent. Being a team player in a premortem isn’t about being the most enthusiastic cheerleader; it’s about being the most productive heckler. “Winning” isn’t about the group feeling good because everyone confirms their (and the organization’s) narrative that things are going to turn out great. The premortem starts with working backward from an unfavorable future, or failure to achieve a goal, so competing for favor, or feeling good about contributing to the process, is about coming up with the most creative, relevant, and actionable reasons for why things didn’t work out
One of the goals of mental time travel is keeping events in perspective. To understand an overriding risk to that perspective, think about time as a tree. The tree has a trunk, branches at the top, and the place where the trunk meets the branches. The trunk is the past. A tree has only one, growing trunk, just as we have only one, accumulating past. The branches are the potential futures. Thicker branches are the equivalent of more probable futures, thinner branches are less probable ones. The place where the top of the trunk meets the branches is the present. There are many futures, many branches of the tree, but only one past, one trunk
By keeping an accurate representation of what could have happened (and not a version edited by hindsight), memorializing the scenario plans and decision trees we create through good planning process, we can be better calibrators going forward. We can also be happier by recognizing and getting comfortable with the uncertainty of the world. Instead of living at extremes, we can find contentment with doing our best under uncertain circumstances, and being committed to improving from our experience. Reaction to the 2016 election provides another strong demonstration of what happens when we lop branches off the tree. Hillary Clinton had been favored going into the election, and her probability of winning, based on an accumulation of the polls, was somewhere between 60% and 70%, according to FiveThirtyEight.com. When Donald Trump won, pollsters got the Pete Carroll treatment, maybe no one more than Nate Silver, founder of FiveThirtyEight.com and a thoughtful analyzer of polling data. (“Nate Silver was wrong.” “The pollsters missed it.” “Just like Brexit, the bookies blew it.” Etc.) The press spun this as a certain win for Clinton, despite the Trump branch of the tree being no mere twig at 30%–40%. By the day after the election, the Clinton branch had been severed, only the Trump branch remained, and how could pollsters and the polling process have been so blind?
One of the things poker teaches is that we have to take satisfaction in assessing the probabilities of different outcomes given the decisions under consideration and in executing the bet we think is best. With the constant stream of decisions and outcomes under uncertain conditions, you get used to losing a lot. To some degree, we’re all outcome junkies, but the more we wean ourselves from that addiction, the happier we’ll be. None of us is guaranteed a favorable outcome, and we’re all going to experience plenty of unfavorable ones. We can always, however, make a good bet. And even when we make a bad bet, we usually get a second chance because we can learn from the experience and make a better bet the next time