PDF Summary:Thinking in Bets, by Annie Duke

Every decision carries risk. We don’t always think in terms of risk, and maybe that’s why we’re prone to making irrational decisions. But what if we worked on keeping risk at the forefront of our minds?

Annie Duke discusses how her decades-long poker career helped her develop decision-making strategies based on the idea that all decisions are bets. Being immersed in the game enabled her to observe how people make decisions in a setting where every choice leads to a clear outcome—winning or losing money. That’s what a bet is: a decision with quantifiable risk. In our guide to Thinking in Bets, you’ll find out how to work around your biases, objectively evaluate your beliefs, learn from your past, and ultimately get better at making good decisions.

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• You got unlucky.
• You didn't have any good choices.
• There was information you didn't have.
• You decided the potential reward was worth the risk.
• You didn't make the best possible choice, but you didn't make the worst choice, either—you picked something in between for reasons that made sense to you at the time.

None of these factors means that your process was bad or your decision was “wrong.” And if all the choices available to you carry a degree of uncertainty, a chance of failure, you can learn to evaluate which one is the least likely to fail. By thinking about not only whether you're unsure, but also how unsure you are, your guesses become more educated.

Avoid Resulting

“Resulting” is a poker term that refers to our habit of judging a decision based solely on the outcome it produced. It’s dangerous because it can lead you to believe you have to change your strategy based on one bad outcome. What if the bad outcome was due to luck, rather than the quality of your decision? In that case, changing your strategy won’t help in the long run; it’ll just make you confused and erratic.

Making good decisions isn’t just about achieving the best outcome: It’s about having a decision-making process that is sound regardless of what the final outcome is.

Before you blame a negative outcome on poor decision-making, analyze the factors that led you to make the choice you made. You can’t control your luck, but you can control your skill and the soundness of your thought process. Make sure that you:

• Considered alternatives
• Took steps to lower your risk
• Thought through all the possible outcomes

Being a good decision-maker means staying rational in the face of losses. You won’t always be right, but you can always be working toward objectivity and away from emotional or biased decision-making.

Separate Luck From Skill

Before you can learn from the outcomes of your decisions, you have to figure out how much of the outcome you can attribute to skill, and how much of it was due to luck. If an outcome is the product of forces that you don’t control, like luck, then it might not be able to teach you anything. But you’ll find that most outcomes are the result of a combination of factors, some of which you can control, like skill. You can think of outcomes as existing on a spectrum between luck and skill, with the majority falling somewhere in the middle of the two extremes.

If an actor can’t land any jobs, he has to figure out if it’s because he needs more training—an issue of skill—or if he just hasn’t found the right role yet—an issue of luck. Or if it’s a little of both. To move his career forward, he’ll have to learn to tell those factors apart and address them. Duke calls this sorting process “outcome fielding.”

How you sort an outcome is a kind of bet, just like your decisions and beliefs. If you attribute an outcome to skill, you’re betting you can learn from it and thereby adjusting future decisions (other bets) in a way that will impact future outcomes. It’s a chain reaction. That’s why it’s important to get better at outcome fielding and get it right as often as you can.

Look Into the Future

"Mental time travel" is a strategy where you consider how past decisions turned out and imagine future outcomes when making a decision in the present. You ensure that you're actively learning from your past. And you keep your long-term goals in mind even when it comes to decisions where possible benefits or consequences might not be immediately obvious, as is the case with many decisions we make, like relocating or changing careers.

You can mentally time travel into the future, the past, or a combination of the two.

Traveling into the future might involve imagining the consequences of your present decision for your future self, in detailed and specific ways. What are the positive impacts that working out regularly could have on your life? What could be the negative impacts of not staying fit?

Traveling into the past can involve calling on past regrets. Usually, regret isn’t all that helpful, because it occurs after the fact. But if you conjure up the regret of a similar past decision, it can help guide you toward making a more rational choice in the present moment.

One form of mental time travel is “scenario planning,” an exercise where you imagine all the possible outcomes of a decision—all the possible futures—and try to guess the probability of each of these outcomes occurring. Just by weighing the possibilities and confronting your uncertainty, you’ll be more likely to make a more rational decision. Why?

• You'll have a chance to prepare for negative outcomes and not get taken by surprise.
• You can set up barriers to your own irrational tendencies.
• Your emotional response to either a failure or a success will be moderated—you're less likely to self-flagellate if things don't go your way, because you braced yourself for that result in advance.
• You’ll avoid the trap of resulting, because you'll have weighed the merits of the decision well before the outcome happened.

Relying on a Group to Hold You Accountable

Self-critique is an important skill, but other people can help you see your blind spots. They bring their own unique life experiences to the table and give you the chance to view ideas from angles you hadn't considered before.

But first, you need to find someone who’s willing to have those discussions with you. Not every person has the bandwidth to provide you with serious feedback on your life choices, or wants to have their decisions or beliefs picked apart in return. That’s why forming a group around good decision-making practices is important.

What are the qualities of a good group, when it comes to learning from each other?

1. The group cares about accuracy. Members will call out each other's biases and engage in civil disagreement.
2. Members of the group hold each other accountable. They discourage each other from succumbing to irrational or self-destructive impulses.
3. The group welcomes a diversity of thought. Having different perspectives in the group is important for generating new ideas and helping each other see what you'd have otherwise missed.

Once you’ve formed the group, you’ll need to have clear rules of engagement. Duke looks to sociologist Robert K. Merton's guidelines for how he believed the scientific community should function, which he described using the acronym CUDOS:

Communism

Data is commonly owned, belonging to everyone. In a decision group, sharing data means being honest about the factors that went into your decision and providing as much detail as possible, omitting nothing, especially the things you're tempted to leave out.

Universalism

All evidence must be treated in the same way, with a standard set of criteria, no matter what the source is. This doesn’t mean you can’t evaluate whether a source is credible or not—but it means you shouldn’t disregard information without a fair evaluation just because you have negative feelings about the source, like a news outlet with political leanings you don’t agree with or a colleague you find annoying.

Disinterestedness

Don't let conflicts of interest or other biases influence the work. Those “conflicts of interest” can include resulting. If knowing the outcome influences what we think of a decision, then one way to ensure your group isn’t swayed in either direction is to withhold the outcome until after the discussion happens.

Organized Skepticism

All ideas are subject to scrutiny, criticism, and dissent. Organized skepticism is not argumentative or confrontational—not if everyone is willing to engage with their own uncertainty. As a group, you should reward civil dissent and debate with approval, encouraging healthy discussion and making it part of the group's norms.