“Thinking In Bets” - A Book By Annie Duke
The Quarantine Zone
March 30, 2020
Annie Duke, the author of Thinking in Bets, was a professional poker player. She is the only woman to have won the WSOP Tournament of Champions and the NBC National Heads-Up Poker Championship, and now is a speaker and consultant on decision strategy.
This book is a great read for those interested in decision theory - how to make better decisions in light of uncertainty. (Yikes - that sounds pretty esoteric.) I'd recommend this book for anyone interested in learning about the way our minds work and the systematic errors that we make that result. Her writing is engaging and while you need to think while reading this book, it is fast read.
Some of my key takeaways are:
1. We would be better decision makers if we focused less on the outcome of our decision and rather on the quality of our decision-making process.
2. We too easily fall into the trap that decisions are binary. The reality is that most decisions involve probabilities and uncertainty, conditions that our minds are not naturally good at dealing with.
3. By understanding our weakness in dealing with uncertainty, we can slow our decision- making process so that we are able to account for uncertainty better.
4. Our process for forming beliefs has many flaws. We do not vet our beliefs enough. Yet our beliefs govern how we see the world. Even worse, we easily accept as true information that validates our beliefs. This pattern of accepting confirming data is known as "motivated reasoning."
5. Being asked if we want to make a bet makes it more likely that we will examine our information in a less biased way, be more honest with ourselves about how confident we are in our beliefs and more open to updating and calibrating our beliefs.
6. We are better off not asking if we are confident in our beliefs but asking how confident we are in our beliefs.
7. We have a self-serving bias. We take credit ("I'm so skilled') for positive outcomes that are the result of luck and blame luck for negative outcomes that are the result of our decisions. This blocks us from learning from the experiences. It is interesting to note that when evaluating other's decisions, we credit luck with good outcomes and skill (or lack thereof) for bad outcomes. We are constantly trying to make ourselves feel good about ourselves.
8. As well-being research as shown, we are better off if we can fight our innate desire to compare ourselves to others as our source of happiness and instead focus inwardly to find our happiness.
9. Be open-minded. Do I have all the information I need? Is there information I am discounting because it doesn't fit with my beliefs?
10. The Rashomon Effect (named after the 1950 movie). Multiple accounts of the same event but the versions are dramatically different because they informed by different facts and perspectives. Oh, that never happens. 🤣
Chapter 1 - Life is Poker, Not Chess
Our minds evolved to create certainty and order
As discussed by Daniel Kahneman in Thinking Fast and Slow, our mind is made up of two different "systems" - one that processes information automatically (reflexive) and one which is deliberative.
Our goal is to have our reflexive mind execute on our deliberative mind's best intentions. Because our reflexive system wants to take over and act fast, we need to our deliberative system to be active and exercise control over our reflexive system.
Her premise for this book is: Decisions are not like chess – they are like poker.
In chess, it’s about strategy. There’s not much luck. Everything is out in the open and nothing randomly appears or disappears.
In poker, you don’t have all the facts. You don’t know what the other person has or what the next cards might be. What you have are probabilities and possibilities. Poker, like life, is a game of incomplete information.
So what does that have to do with decision making?
Decisions are probabilities – we don’t know all the information. When it comes to decisions, it’s all probabilities.
In Texas Hold'em poker, two aces is a good hand; however, it doesn’t guarantee you will win. Even bad hands will win every once in a while.
If you have a 75% chance of winning, there’s also a 25% chance you will lose. You will lose ¼ of the hands with those specific cards.
Some key takeaways from this are:
- We can make good decisions and have bad outcomes
- We can make bad decisions and still have good outcomes
- You shouldn‘t copy someone just because they had a good outcome – sometimes people are just “lucky” – they hit the small percentage where it would be successful.
- That’s why we need to stop judging decisions based on the result, but rather judge the process we took to make that decision.
We won’t usually know all the information. We can’t control what everyone else does or the economy and so on.
What we can do, however, is to use a process and make good decisions based on the information we have and can get. The results won’t always be what we want, but we can know we made a good decision.
Dangers of “resulting”
- “Resulting” is basing the “goodness” of a decision on the result. One of the big dangers of resulting is that we change our strategy because of the result.
- This doesn’t mean we don’t examine decisions and try to improve – we should. However, just because a decision turned out poorly doesn’t mean it was a bad decision. Changing our strategy just because of the result can lead to poor decisions later.
Here is an example in poker. A poker player makes decisions based on the probability of the cards in their hand as well as how other players play, and so on.
A poker player may have some good hands and bet on them because they have high probabilities – and still lose. Sometimes when they lose, they will get frustrated and change the way they play. They start making bad decisions – and lose even more.
I remember playing one game where one person thought he had it – he had four of a kind. He bet high (of course) and laid down his cards.
Then someone else laid down another four of a kind that was higher than his. The probability of that happening is VERY slim.
The guy made a good decision to bet on his four of a kind. Changing his strategy because he lost that one rare time would be unwise.
The best decision-makers are comfortable with uncertainty (defying our natural desire to have certainty)
Great decision-makers, and poker players, don’t focus on being sure (you can’t); they figure out how unsure they are and make their best guess on different possible outcomes.
The quality of a decision is based on how much information they have, how much experience they have, and the process they use.
There are many benefits to embracing uncertainty. “I don’t know” and “I’m not sure” are no longer dirty words. They just give a better picture of reality and open the doors to learning more.
Embracing uncertainty also prevents us from black and white thinking – “you are wrong, I’m right” or “this way or that way." Instead of information different than ours being an attack on us, it’s more information we use to make a better decision.
Instead of “it’s this course or that course," we then can look at it as different courses we can take that we can examine to get the best possible outcome.
John von Neumann - father of game theory.
We all tend to underestimate the amount of effect of what we don't know.
Chapter 2 - Wanna Bet?
What is a bet?
According to the dictionary, a bet is “a choice made by thinking about what will probably happen” and “to risk losing (something) when you try to do or achieve something” and “to make decisions that are based on the belief that something will happen or is true."
Choice, probability, decision, belief, and risk are all part of a bet.
And guess what? Just like in poker all (or at least the great majority) of decisions are bets. And when we think of decisions as bets, it helps us make better decisions and helps keep us from faulty actions.
Most bets are against ourselves. We are betting against a future self – a future outcome – a future us.
Every choice has an opportunity cost – when we go to the movies, we don’t go bowling. When we eat at a restaurant, we don’t eat at another. We are choosing one over the other.
Beliefs affect bets
One major component of bets (and decision making) is beliefs.
We view everything around us based on our beliefs. Two people with opposite beliefs can view the same thing and see the complete opposite (take a football game, the referee’s call, and the opinion of two opposing fans).
Too often, we think of our beliefs as right and wrong. We think that we are right, and so any information contrary to that makes us wrong.
So what happens?
We often ignore, diminish, or alter the contrary information to fit our viewpoint. We don’t like to be wrong.
In fact the “smarter” you are, the more prone you are to "blind spot bias." The “smarter” you are, the better you are at creating a narrative that rationalizes your belief and fits it into your point of view. Step 1 is to remember this. Step 2 is to factor it into your decision making process.
The thing about beliefs
The thing about beliefs is that we think we get abstract beliefs by hearing something, analyzing it, and then forming a belief.
On the contrary, in realty we form these beliefs by hearing something, believing it initially, and only later, if something comes up or we have the inclination, to vet it.
Our default is to believe what we hear to be true. There have been studies that have shown that even when something is presented as false, mere repetition makes the person believe it’s true.
So what do we do? (Let’s make a bet)
Instead of seeing your belief as right and wrong, think of it as a bet.
Let’s say you have a friend who is sure that a certain classic movie won an Oscar. Now, what happens if you ask him or her, “Wanna bet? $500 you are wrong.”
What do you think will happen? In most cases, that person is then going to do a deep dive in their mind and see how confident they really are about that movie and it winning an Oscar.
Do they just think it won, or do they really know?
Are they willing to bet $500 that they are right?
You see, when you bet on your belief, it puts your belief on a level of confidence, not as right or wrong.
You are 80% confident, 50% confident, and so on.
How thinking in levels of confidence helps you
First, it opens you up to disconfirming information. If you see your belief as a level of certainty (instead of you being right or wrong) then when contrary information comes around, you see it as more information to make a better decision, not as showing you as wrong. In fact, you may start looking for contrary information because you want to be as confident about the decision as you can.
Second, it makes you a more credible communicator. Someone is more likely to have confidence in your voice when you say “I am 80% confident about X” vs. “I’m 100% completely sure that this is the right way.’ It shows you vetted information and that you are open to other viewpoints and information.
Third, it invites others to collaborate with you. When you speak in levels of confidence, others know they can come beside you and help you find the right information to prove or disprove that particular belief. If they have contrary information, it shows you are open to hearing it and won’t take it as “you’re wrong.”
Chapter 3 - Bet to Learn
Duke says that the way our lives turn out is because of the influence of skill and luck. Skill is the things we can control. Luck is circumstances outside of our control.
When we make a decision or action, whether a life decision or part of a sport or so on, the result is the outcome of the skill we put in and luck.
Take poker, for example. You can be an expert poker player. You can read the other players. You can know all the probabilities by heart. However, you can still lose hands because of the last card placed down or because someone starts playing differently.
The problem is, when it comes to skill and luck, we often have a self-serving bias: when good things happen, we take credit. When bad things happen, we blame luck.
We do this with other people as well. Sonja Lyubomirsky, a professor at Cal, in one study found that for people, what determines the greatest variance in happiness is how we are doing comparatively. That’s where “keeping up with the Jones” and so on comes from.
So how do skill and luck apply to that?
When someone else does well, it can be easy for us to attribute it to luck; if they do bad, well it’s their own durn fault.
Got it? Have you seen that in yourself or others?
The problem with our self-serving bias
The main problem with this bias is that it keeps us from learning and making better decisions. It also affects our relationships negatively.
Sometimes good things happen by luck. You make a bad decision, and it happens to turn out well.
What happens if you think, “Oh look at me, I’m wonderful!” instead of examining that decision to the causes of success and learning from it?
You make the same decisions – except this time, the percentages are against you (remember, even if the odds or 95% bad, 5% good outcome, the 5% happens sometimes).
Bad results come from that bad decision.
So what happens then? You blame luck! Instead, we need to examine our decisions. Even when something turns out great, examine and see what you did well and what you didn’t. Look and see how much was luck and how much was skill.
Then you can work on doing everything you can to improve and increase the possibility, the percentage chance, of that happening again.
You can’t always change luck, but you can always control your response to what happens and you can always keep working on your skill.
And for others
When it goes well with someone else, instead of blaming luck, look at what really happened. See if there is something you can learn from it. Give credit where credit is due.
If it goes bad for them, see what happened. They may have made a good decision, but hit that rare chance it worked out bad.
Instead of comparing yourself to others to feel good, start comparing yourself to yourself on how well you are giving credit to others, admitting mistakes, and being open-minded about possible reasons for outcomes (and other’s beliefs and viewpoints).
Thinking in bets also helps you with the comparison, because it’s not right or wrong, but levels of confidence, and you can then examine each other’s level of confidence, what we got right, and where we went wrong.
Chapter 4 - The Buddy System
Having others involved in the information gathering process and decision-making process is an excellent way to get the best information and make the best decisions.
However, there are some dangers.
One, if others aren’t wanting to find contrary information, you being the volunteering source will often come off very negatively. It’s usually best to make sure the person is wanting and open before you come at them.ccWhen you do talk to someone about different viewpoints, it can be a good idea to have a referee to help guide/referee the conversation.
Second, we all like to be liked and approved – and often we will even do things for approval from strangers! This can lead us to not speak up when needed or for others to be less willing to give dissent.
It also can lead to groupthink – groups can be great at analyzing and hitting an idea, plan, or belief from different angles – but, unless specified, groups can often just become conforming voices and opinions for that thought/belief.
As individuals and in a group, “groups can improve the thinking of individual decision-makers when the individuals are accountable to a group whose interest is accuracy”.
Duke recommends having a charter for the group for this purpose. A blueprint she recommends is:
- A focus of accuracy over confirmation, rewarding objectivity, truth-seeking, and open-mindedness in the group
- An openness to a diversity of ideas.
Putting this all together. Having others to help us vet an idea or belief is incredibly beneficial – just make sure the group is focused on accuracy over confirmation and promotes accountability and an openness to ideas.
Chapter 5 - Dissent to Win
For better decision making, Duke suggests we follow CUDOS (developed by Robert K. Merton):
C – Communism (data belong to the group – not the political system)
U – Universalism – apply the same standards to information regardless of the source
D – Disinterestedness (Fight against the conflicts, biases, that can influence the group’s decision)
OS – Organized Skepticism (encouraged dissent)
C -- Mertonian Communism – more is more
To make a good decision, all the information should be shared – even the information that might make it invalid.
It’s easy for us to focus on information that supports our argument and dismiss that which doesn’t or makes us uncomfortable; however, for good decision making, we need to share ALL information, even the uncomfortable kind or that which requires more clarification to explain away.
That information is vital for great decision making.
The Rashomon Effect
The Rashomon Effect is where two or more people can see the same event but have completely different viewpoints. When everyone shares all the information and viewpoints, then the group can make a much better and informed decision because it paints a better picture.
We need to make sure we share everything, even that which may cause people to disagree, and question and encourage others to do the same.
Universalism: don’t shoot the message
We can sometimes judge the information we obtain based on who gave us the information rather than on the information itself.
If it’s from someone we don’t like, we are more likely to dismiss it. If it’s from someone we like, we are more likely to accept it with less vetting.
Sometimes the people who don’t like us can sometimes give us the best information – if we are willing to receive it. They are more likely to point out flaws of ours that our friends may not.
If we are willing to listen and vet the information the same, regardless of the source, we could learn a lot.
We also see this a lot in politics – people are so quick to accept what someone from their party says but so quick to dismiss what someone from the other party says.
They/we vet information differently based on the source, not the information. If we want to make better decisions, we need to vet all information the same way, regardless of the source. We should check and verify information from people we like, and we should give information from people we don’t like the same chance.
Disinterestedness: we all have a conflict of interest, and it’s contagious
We all have interests, biases, and beliefs, and we interpret the world based on our beliefs. As Duke says, “We are not naturally disinterested. We don’t process information independent of the way we wish the world to be.”
When we are making a decision and get information, it’s easy for us to see that information through the lens of our beliefs and interests.
One way we hurt disinterestedness is by telling the result/outcome of a decision when sharing a decision for feedback – because people often judge the decision based on the result.
In that case, it’s better to not give the outcome but just ask for feedback on the process you took.
In a group setting, a good way to help de-bias members is to reward the skill for debating opposing views and finding merits in opposing views.
We should be openminded to other viewpoints, examining them, not just accepting the information that helps our initial belief.
Organized skepticism: real skeptics make arguments and friends
Duke says “skepticism is about approaching the world by asking why things might not be true rather than why they are true.”
A productive group making decisions does well when it organizes around skepticism. If the group embraces uncertainty and looks to where they could be wrong, and sees dissent as information gathering versus right vs wrong, the group will make a lot better decisions.
Communicating outside a group
It can be easier to dissent when the group welcomes it and encourages it, but with everyone else, it can be harder.
Here are some suggestions from Duke:
1. Express Uncertainty
Express your opinions and viewpoints as a level of confidence, as uncertainty, and that will open up the doors for people to share opinions with us.
2. Lead with assent
Starting off arguing with someone how they are wrong doesn’t work well. Instead, start with what you agree about what someone said, then add “and”, not “but”, and add your viewpoint.
3. Ask for a temporary agreement to engage in truth-seeking
Sometimes people are just looking to vent – that’s not a time for truth-seeking. Other times, people are looking for what to do next or want to analyze a situation. Ask first if that is what someone wants, and if so, go for it.
Otherwise, just listen.
4. Focus on the future
Focusing on what someone did in the past and how it was wrong can bring up a lot of defensiveness. Instead, if you focus on the future, what are they going to do next time, how will they handle it in the future, it opens the door to better listening and better problem-solving.
Chapter 6 - Adventures in Mental Time Travel
When it comes to decision making, we need to look both in the past and future.
Duke says, “isolating ourselves from thinking about similar decisions in the past and possible future consequences are frequently the very thing that turns us into a blob (Timecop reference), mired by in-the-moment thinking where the scope of time is distorted.
If we have accountability for our decisions and decision-making process, thinking about how you will discuss the decision with them can help you make a better decision. We can also use our future and past self as accountabilities as well.
The tendency to favor our present-self at the expense of our future self is called temporal discounting. It’s easy to stay up late because it feels good at the moment watching the movie or show without thinking about the cost in the morning.
It’s easy to spend all our money now without thought of future retirement.
When we think about past decisions, and the later consequences they had, and the consequences we will have in the future fo the decision and consider them, we are more likely to make better decisions.
Using regret can also help you – regret before the decision. Take retirement, for example – before blowing off all your money and not setting up savings, etc., think through the eyes of your retired future self, what regrets would you have for those decisions?
Before you make a decision think through the eyes of your past and future self, see how you would look at the decision and what regrets you may have or the joys from it. Ask yourself how you would feel about the decision if your past-self made it.
Thinking about regret in front of the decision not only can help you make better decisions but help you treat yourself more compassionately after the fact.
The 10-10-10 method
One method to view decisions is 10-10-10. What are the consequences of this decision in 10 minutes, 10 months, and 10 years?
This can also help you keep things in perspective – we often overblow the importance of what is right in front of us.
Take a flat tire, for example. At the moment, it’s horrible, but in the light of 10-10-10, it’s very small.
Tilt is when bad outcomes affect your emotions and then compromise your decision making.
For example, a poker player makes some good bets, but the odds don’t work out well for them. They get upset, so they start playing stupidly because of it and lose more money.
The best thing to do, whether when it comes to an argument in a relationship, a situation at work, or so on, is to pre-commit to walk away from it for a few minutes to calm yourself (or if you can’t, something similar before you act on those emotions).
Taking the long view, 10-10-10, for example, can help you keep things in perspective and not overblow a single incident or argument.
Just as Odysseus had the sailors tie him up when they went by the Siren’s, we can do similar.
We can make commitments so that future us doesn’t fall into the trap.
Examples including someone keeping us accountable, carrying only healthy snacks, having a computer program that blocks sites or turns things off at a certain time, making a pre-commitment on the maximum you will pay on something, and so on.
One effective tool for decision making is scenario planning. With scenario planning, you map out the different scenarios, or possibilities, that could come from that decision (bet).
Scenario planning reminds you that the future is uncertain and gives you a more realistic view of the world
Better prepares you to respond to different outcomes that might come
Helps protect you from unproductive regret or undeserved euphoria when a certain future happens
Make you less likely to fall prey to resulting or hindsight bias.
One effective tool for planning ahead (and making good decisions toward it) is to backcast – what event/outcome do you want to happen?
Then work backward: what would have to happen to make that happen, and keep going back to your initial decision/action.
A premortem is a tool that helps you find out what could go wrong before it goes wrong.
With a premortem, you ask: It’s 1 year (or however long) in the future. The outcome was a bust. What went wrong?
Writing it out can help you prepare for the future to help prevent possible failures.