Thinking in Bets by Annie Duke

The Big Idea: Success in poker and life comes from making good decisions while recognizing that luck is also a major factor.

There are two things that determine how our lives turn out: the quality of our decisions and luck.

Life is poker, not chess. Chess contains no hidden information and very little luck. Most of our decisions involve hidden information and a much greater influence of luck.

Poker players have to make multiple decisions with significant financial consequences in a compressed time frame.

Treating decisions as bets will improve decision-making.

Cognitive biases: hindsight bias, correlation vs causation, confirmation bias,

Many times, “I’m not sure” is simply a more accurate representation of the world.

An unwanted result doesn’t make our decision wrong. Sometimes, we were just unlucky.

Hiring an employee is a bet based on incomplete information. Betting on hiring the wrong person can have a huge cost.

Unfortunately, our default setting is to believe what we hear is true. In reality, you should believe none of what you hear and half of what you see.

Research shows that instead of altering our beliefs to fit new information, we do the opposite. We alter our interpretation of that information to fit our beliefs. This is called motivated reasoning .

It turns out the smarter you are with numbers, the better you are at spinning those numbers to conform to and support your beliefs, so intelligent people might actually be more susceptible to motivated reasoning.

Instead, frame a belief like “I’m 80% sure that XYZ.” This way you don’t overcommit to a belief and you open the door for others to tell us what they know.

The way our lives turn out is the result of two things: skill and luck. We take credit for the good stuff and blame the bad stuff on luck. The challenge during learning is how to know when to credit skill and when to credit luck.

Give more credit to your peers, be more willing to admit mistakes, be more willing to explore possible reasons for an outcome.

Thinking in bets is easier if you have an accountability buddy. Other people can spot our errors better than we can.

It’s important to have intellectual and ideological diversity within any group or institution whose goal is to find truth and improve decision-making.

A predetermined loss limit acts as a check against irrationally chasing losses.

Create a “red team” to protect against confirmatory thought.

Expert opinions expressed as a bet are more accurate than expert opinions expressed through peer review.

Robert K . Merton created the CUDOS framework. Communism, Universalism, Disinterestedness, and Organized Skepticism.

Communism: communal sharing of data and information

Universalism: Don’t disparage or ignore an idea just because you don’t like who or where it came from.

Disinterestedness: Avoid conflict of interest. The best way to do this is to deconstruct decisions before an outcome is known. When presenting a decision, don’t bias the group with your opinion. Reward group members for skill in debating opposing points of view and finding merit in opposing positions.

Organized skepticism: real skeptics make arguments and friends. A productive decision group would do well to organize around skepticism. Eg. devil’s advocate, red teams.

CIA has red teams

Take some time to consider the decision from the perspective of our past and future.

Don’t blow the present moment out of proportion. Take a longer-term perspective on the decision at hand.

Overestimation of the impact of any individual moment on our overall happiness is the emotional equivalent of watching the ticker in the financial world. If you’re investing for the long-term, nothing can be gained by obsessing over the ticker.

Mental time travel is when you consider the present in the broader context of the past or the future.

If you’re up $100, your happiness will be framed depending on if you were down $1,000 or if you were up $1,000.

Avoid decisions when you’re in a highly emotional state. Better to take 10 deep breaths or sleep on it.

Odysseus was thinking about the future when he filled his sailors’ ears with beeswax to protect them from the Sirens. This forward-thinking has become known as a Ulysses contract.

Other examples of a Ulysses (Odysseus) contract: throwing out all your junk food, set up automatic transfers into a 401k.

Be aware of certain phrases that might signal that you might thinking irrationally:

  1. Signs of illusion of certainty or overconfidence: “I know,” “you’re wrong,” “there’s no way.”
  2. Signs of irrational outcome fielding: “I planned it perfectly,” complaining about bad luck
  3. Shooting the message because we don’t think much of the messenger, or accepting a message because of the messenger.
  4. Signs of zooming in too much on the present: “worst day ever.”
  5. Signs of accepting or rejecting information without evidence: “conventional wisdom,” “if you ask anybody.”
  6. Saying the word “wrong.”
  7. Signs of lack of self-compassion: “I should have known,” “how could I be so stupid?”
  8. Signs that you are biasing the group when presenting something for decision.

Reconnaissance is mapping out future scenarios. The reason why we do reconnaissance is because we are uncertain.

Perform reconnaissance using diverse viewpoints. Diverse viewpoints allow for the identification of a wider variety of scenarios deeper into the tree, and for better estimates of their probability.

Scouting various futures has numerous additional benefits.

First, scenario planning reminds us that the future is inherently uncertain.

Second, we are better prepared for how we are going to respond to different outcomes that might result from our initial decision. We can anticipate positive or negative developments and plan our strategy, rather than being reactive.

Third, anticipating the range of outcomes also keeps us from unproductive regret (or undeserved euphoria) when a particular future happens. We are less likely to fall prey to resulting or hindsight bias.

Backcasting is working backward from a positive future. We imagine ourselves looking back from the destination and figuring how we got there.

Our decision-making improves when we can more vividly imagine the future, free of the distortions of the present. By working backward from the goal, we plan our decision tree in more depth, because we start at the end.

Premortem is working backward from a negative future.

While we need to have positive goals, we are more likely to execute on those goals if we think about the negative futures.

Imagining both positive and negative futures helps us build a more realistic vision of the future, allowing us to plan and prepare for a wider variety of challenges.

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.

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