One-sentence summary: In Thinking in Bets, former professional poker player Annie Duke provides tips to correct cognitive biases and make better decisions under uncertainty.
Author: Annie Duke
Date Completed: December 7th, 2020
Tags: Frameworks, Psychology, Cognitive Biases, Risk, Uncertainty, Decision-Making, Self-Knowledge
Hot take: Much of the cognitive bias stuff from Thinking in Bets is already in the water supply (and thus devoid of “ah-ha” moments), but you can improve your decision-making markedly with only the ideas listed below. Skim the overdone pop-psych and get straight to the decision-making marrow.
Think (and speak) probabilistically.
- We must practice thinking probabilistically to make better decisions over time. Our views need to be temporary – always under construction.
- Instead of saying, “I’m sure the car is nearby,” you might say, “I think the car is over here. I’m about a 7 out of 10 on that.”
- Doing this will encourage you to think about how certain you are on your hypotheses. It will also give other people confidence in you – they know to take you seriously when you’re 100% confident in a piece of information.
- This idea has broad applicability. We tend to speak in black and white terms: “I know,” “there’s no way,” “that’s impossible,” etc. By consciously bringing probabilistic thinking into our lives, we’ll be better at predicting the future. We’ll also have a more realistic view of the present, which means better decisions and fewer surprises.
- “If we misrepresent the world at the extremes of right and wrong, with no shades of grey in between, our ability to make good choices – choices about how we are supposed to be allocating our resources, what kind of decisions we are supposed to be making, and what kind of actions we are supposed to be taking – will suffer.”
Decouple decision quality and outcome.
- One of the big problems we have in improving our decision-making is equating decision quality with the result.
- If we reflect on our best decisions, we almost always think of things that turned out well. Our worst decisions usually turn out poorly. But great choices can have bad outcomes and vice versa.
- This connection between outcome and perceived decision quality is called Resulting. Resulting short-circuits the feedback loop, leading us to the wrong conclusions about our decisions.
- We believe we made a terrible decision any time anything bad happens – but what does a “terrible decision” really mean?
- We might have knowingly bet on a long shot that we felt was worth it despite the long odds.
- We might have had a high probability of success, but a far less likely outcome happened.
- Thinking this way keeps you from learning the right lessons from experience.
- “Experience is not just what happens to a man; it is what a man does with what happens to him.” -Aldous Huxley
- The next time you’re thinking about a decision you made, focus on your process rather than the outcome.
- “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 next time.”
Use scenario planning for higher-quality big decisions.
- Scenario planning can help us to anticipate potential bad outcomes to avoid them ahead of time and to identify positive steps we should be taking to reach our goals. Three tools to use:
- Premortem – Before you get started, you learn that the project was a disaster. What went wrong? How could you have fixed or avoided it?
- Backcasting – Before you get started, you find out the project was a roaring success! What did you do to get from here to there? What went right? What did you rely on to help?
- Probability tree – Each possible scenario is a branch and is assigned a likelihood of taking place. It’s worth doing even if the potential outcomes are highly uncertain. If you decide that an event’s probability is between 20% and 80%, that’s still better than 0% or 100%. Remember: most people see the world in black and white – any improvement on that gives you an edge.
- These tools force you to examine possibilities you might not have otherwise considered.
- They also make the “bet” explicit. Suppose I want to do something with an 80% probability of success, and it doesn’t work. In that case, I can say, “This is an example of the 20% happening” (probabilistic thinking) rather than, “My decision was wrong because this happened” (resulting). Bonus: this disconnects good results from decision quality, which reduces hindsight bias.
To improve, form a decision-making accountability group.
- One way to make better decisions is to have a group of people to whom you’re accountable. In that safe space, you can test your decision-making process rather than your results. A good decision-making pod gives credit for truth-seeking behavior rather than satisfactory outcomes.
- Putting money on your beliefs is a forcing function for the improvement of your thinking and forecasting – think Nassim Taleb’s Skin in the Game. That’s why some poker players rapidly improve – they’re constantly testing and checking themselves.
- When you discuss a decision-making process with your group, share all pertinent details except the outcome. Knowing the ending will bias the pod as they evaluate your decision.
- Ask targeted questions to draw people out. “Specific questions…encourage the other person to figure out reasons why we might be wrong. That way, they won’t be as reticent to challenge the action we want to pursue; we’re asking for it, so it’s not oppositional for them to disagree or give us advice contrary to what they think we want to hear.”
- One other tip that Annie suggests: venting about lousy luck doesn’t do anything to change the outcome or your future decision quality. As such, it shouldn’t be allowed in the group except under explicitly requested (infrequent) exceptions.
Bits and Pieces
- Examine your good outcomes as closely as your bad ones – most of us know not to look a gift horse in the mouth, so we don’t question our good results. But we should. “Taking credit for the good [outcomes] means we will often reinforce decisions that shouldn’t be reinforced and miss opportunities to see where we could have done better.”
- Argue the other side of your decision – If you’re considering a new job, argue against it. Only after thoroughly examining the other side will you understand the full picture.
- Give people the benefit of the doubt when their decisions backfire. We should all be more charitable in our assessments of other people’s decisions – remember that when we get a good result, we assume it’s due to skill, and when we get a bad one, we assume it’s luck. With other people, it’s the reverse. If we were in their shoes, how would we think about what just happened? How would we want to be treated?
- Nothing is ever 100% luck or 100% skill. “We are in a better place when we don’t have to live at the edges. Euphoria or misery, with no choices in between, is not a very self-compassionate way to live.”
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- How to Decide – Annie Duke
- Risk Savvy: How to Make Good Decisions – Gerd Gigerenzer (Book notes)
- Optionality: How to Survive and Thrive in a Volatile World – Richard Meadows (Book notes)