Thinking in bets - Making smarter decisions when you dont have all the facts by Annie Duke
“Thinking in bets starts with recognizing that there are exactly two things that determine how our lives
turn out: the quality of our decisions and luck. Learning to recognize the difference between the two is
what thinking in bets is all about.”
“Why did so many people so strongly believe that Pete Carroll got it so wrong? We can sum it up in four
words: the play didn’t work . . . Pete Carroll was a victim of our tendency to equate the quality of a
decision with the quality of its outcome. Poker players have a word for this: “resulting.” When I started
playing poker, more experienced players warned me about the dangers of resulting, cautioning me to
resist the temptation to change my strategy just because a few hands didn’t turn out well in the short
run.”
“Why are we so bad at separating luck and skill? Why are we so uncomfortable knowing that results can
be beyond our control? Why do we create such a strong connection between results and the quality of the
decisions preceding them? How can we avoid falling into the trap of the Monday Morning Quarterback,
whether it is in analyzing someone else’s decision or in making and reviewing the decisions in our own
lives?”
“Take a moment to imagine your best decision in the last year. Now take a moment to imagine your worst
decision. I’m willing to bet that your best decision preceded a good result and the worst decision
preceded a bad result. That is a safe bet for me because resulting isn’t just something we do from afar.
Monday Morning Quarterbacks are an easy target, as are writers and bloggers providing instant analysis
to a mass audience.”
“When I consult with executives, I sometimes start with this exercise. I ask group members to come to our
first meeting with a brief description of their best and worst decisions of the previous year. I have yet to
come across someone who doesn’t identify their best and worst results rather than their best and worst
decisions.”
“Hindsight bias is the tendency, after an outcome is known, to see the outcome as having been
inevitable.”
“We recognize the existence of luck, but we 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 backward 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 a correlation, or cherry-picking data
to confirm the 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.”
“We need shortcuts, but they come at a cost. Many decision-making missteps originate from the pressure
on the reflexive system to do its job fast and automatically. No one wakes up in the morning and says, “I
want to be closed-minded and dismissive of others.” But what happens when we’re focused on work and
a fluff-headed coworker approaches? Our brain is already using body language and curt responses to get
rid of them without flouting conventions of politeness.”
“The challenge is not to change the way our brains operate but to figure out how to work within the
limitations of the brains we already have. Being aware of our irrational behavior and wanting to change is
not enough, in the same way that knowing that you are looking at a visual illusion is not enough to make
the illusion go away. Daniel Kahneman used the famous Müller-Lyer illusion to illustrate this.”
“Our goal is to get our reflexive minds to execute on our deliberative minds’ best intentions.”
“Every hand (and therefore every decision) has immediate financial consequences. In a tournament or a
high-stakes game, each decision can be worth more than the cost of an average three-bedroom house, and
players have to make those decisions more quickly than we decide what to order in a restaurant.”
“John von Neumann is also the father of game theory. After finishing his day job on the Manhattan
Project, he collaborated with Oskar Morgenstern to publish Theory of Games and Economic Behavior in
1944. The Boston Public Library’s list of the ‘100 Most Influential Books of the Century’ includes Theory of
Games. William Poundstone, author of a widely read book on game theory, Prisoner’s Dilemma, called it
‘one of the most influential and least-read books of the twentieth century.’”
“Bronowski quoted von Neumann’s response: “‘No, no,’ he said. ‘Chess is not a game. Chess is a welldefined form of computation. You may not be able to work out the answers, but in theory there must be a
solution, a right procedure in any position. Now, real games,’ he said, ‘are not like that at all. Real life is
not like that. Real life consists of bluffing, of little tactics of deception, of asking yourself what is the other
man going to think I mean to do. And that is what games are about in my theory.’”
“The decisions we make in our lives—in business, saving and spending, health and lifestyle choices,
raising our children, and relationships—easily fit von Neumann’s definition of “real games.” They involve
uncertainty, risk, and occasional deception, prominent elements in poker. Trouble follows when we treat
life decisions as if they were chess decisions.”
“Poker, in contrast, is a game of incomplete information. It is a game of decision-making under conditions
of uncertainty over time. (Not coincidentally, that is close to the definition of game theory.) Valuable
information remains hidden. There is also an element of luck in any outcome. You could make the best
possible decision at every point and still lose the hand, because you don’t know what new cards will be
dealt and revealed. Once the game is finished and you try to learn from the results, separating the quality
of your decisions from the influence of luck is difficult.”
“Life is more like poker. You could make the smartest, most careful decision in firing a company
president and still have it blow up in your face. You could run a red light and get through the intersection
safely—or follow all the traffic rules and signals and end up in an accident. You could teach someone the
rules of poker in five minutes, put them at a table with a world champion player, deal a hand (or several),
and the novice could beat the champion. That could never happen in chess.”
“Just as we have problems with
resulting and
hindsight bias, when we evaluate decisions solely on how
they turn out, we have a
mirror-image problem in making prospective decisions. We get only one try at
any given decision—one flip of the coin—and that puts great pressure on us to feel we have to be certain
before acting, a certainty that necessarily will overlook the influences of hidden information and 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.
That state of knowledge, in turn, is some variation of “I’m not sure.”
“To be sure, an experienced poker player is more likely to make a better guess than a novice player at
determining the chances they will win or lose a hand. The experienced player knows the math better and
is better able to narrow down what their opponents’ cards might be based on how players behave with
certain types of hands. They will also be better at figuring out the choices their opponents are likely to
make with those cards. So, yes, more experience will allow the player to narrow down the possibilities.
None of that experience, however, makes it possible for a poker player to know how any given hand will
turn out.”
“No matter how far we get from the familiarity of betting at a poker table or in a casino, our decisions are
always bets. We routinely decide among alternatives, put resources at risk, assess the likelihood of
different outcomes, and consider what it is that we value. Every decision commits us to some course of
action that, by definition, eliminates acting on other alternatives. Not placing a bet on something is, itself,
a bet. Choosing to go to the movies means that we are choosing to not do all the other things with our
time that we might do during that two hours.”
“In most of our decisions, we are not betting against another person. Rather, we are betting against all the
future versions of ourselves that we are not choosing.”
“Truthseeking, the desire to know the truth regardless of whether the truth aligns with the beliefs we
currently hold, is not naturally supported by the way we process information. We might think of
ourselves as open-minded and capable of updating our beliefs based on new information, but the research
conclusively shows otherwise. Instead of altering our beliefs to fit new information, we do the opposite,
altering our interpretation of that information to fit our beliefs.”
“Given that even scientific facts can have an expiration date, we would all be well-advised to take a good
hard look at our beliefs, which are formed and updated in a much more haphazard way than those in
science. We don’t need someone challenging us to an actual bet to do this. We can think like a bettor,
purposefully and on our own, like it’s a game even if we’re just doing it ourselves. 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 (“I’m
confident” or “I’m not confident”), our expression of our confidence would then capture all the shades of
grey in between.”
“We can’t just “absorb” experiences and expect to learn.
As novelist and philosopher Aldous Huxley
recognized, “Experience is not what happens to a man; it is what a man does with what happens to him.”
There is a big difference between getting experience and becoming an expert. That difference lies in the
ability to identify when the outcomes of our decisions have something to teach us and what that lesson
might be.”
“We have the opportunity to learn from the way the future unfolds to improve our beliefs and decisions
going forward. The more evidence we get from experience, the less uncertainty we have about our beliefs
and choices. Actively using outcomes to examine our beliefs and bets closes the feedback loop, reducing
uncertainty. This is the heavy lifting of how we learn.”
“We all want to feel good about ourselves in the moment, even if it’s at the expense of our long-term
goals. Just as with motivated reasoning and self-serving bias, blaming others for their bad results and
failing to give them credit for their good ones is under the influence of ego. Taking credit for a win lifts
our personal narrative. So too does knocking down a peer by finding them at fault for a loss. That’s
schadenfreude: deriving pleasure from someone else’s misfortune. Schadenfreude is basically the opposite
of compassion. Ideally, our happiness would depend on how things turn out for us regardless of how
things turn out for anyone else. Yet, on a fundamental level, fielding someone’s bad outcome as their fault
feels good to us. On a fundamental level, fielding someone’s good outcome as luck helps our narrative
along.”
“In combination, the advice of these experts in group interaction adds up to a pretty 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. An agreement along these lines creates a common bond and
shared fate among members, allowing the group to produce sound reasoning.”
“Figure out the possibilities, then take a stab at the probabilities. To start, we imagine the range of
potential futures. This is also known as scenario planning. Nate Silver, who compiles and interprets data
from the perspective of getting the best strategic use of it, frequently takes a scenario-planning approach.
Instead of using data to make a particular conclusion, he sometimes takes the approach of discussing all
the scenarios the data could support. In early February 2017, he described the merits of scenario planning:
“When faced with highly uncertain conditions, military units and major corporations sometimes use an
exercise called scenario planning. The idea is to consider a broad range of possibilities for how the future
might unfold to help guide long-term planning and preparation.”
“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.”
