Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts

by Annie Duke

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.

Third, anticipating the range of outcomes also keeps us from unproductive regret

Finally, by mapping out the potential futures and probabilities, we are less likely to fall prey to resulting or hindsight bias, in which we gloss over the futures that did not occur and behave as if the one that did occur must have been inevitable, because we have memorialized all the possible futures that could have happened.

When it comes to advance thinking, standing at the end and looking backward is much more effective than looking forward from the beginning.

Imagining the future recruits the same brain pathways as remembering the past. And it turns out that remembering the future is a better way to plan for it.

When we identify the goal and work backward from there to “remember” how we got there, the research shows that we do better.

They “found that prospective hindsight—imagining that an event has already occurred—increases the ability to correctly identify reasons for future outcomes by 30%.”

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.

Imagining a successful future and backcasting from there is a useful time-travel exercise for identifying necessary steps for reaching our goals. Working backward helps even more when we give ourselves the freedom to imagine an unfavorable future.

A premortem is an investigation into something awful, but before it happens.

A premortem is where we check our positive attitude at the door and imagine not achieving our goals.

Backcasting and premortems complement each other. Backcasting imagines a positive future; a premortem imagines a negative future. We can’t create a complete picture without representing both the positive space and the negative space. Backcasting reveals the positive space. Premortems reveal the negative space. Backcasting is the cheerleader; a premortem is the heckler in the audience.

Despite the popular wisdom that we achieve success through positive visualization, it turns out that incorporating negative visualization makes us more likely to achieve our goals.

Being a team player in a premortem isn’t about being the most enthusiastic cheerleader; it’s about being the most productive heckler.

Backcasting doesn’t, therefore, ignore the negative space so much as it overrepresents the positive space.

Remember, the likelihood of positive and negative futures must add up to 100%. The positive space of backcasting and the negative space of a premortem still have to fit in a finite amount of space. When we see how much negative space there really is, we shrink down the positive space to a size that more accurately reflects reality and less reflects our naturally optimistic nature.

Forgetting about an unrealized future can be dangerous to good decision-making.

When we look into the past and see only the thing that happened, it seems to have been inevitable. Why wouldn’t it seem inevitable from that vantage point?

That’s hindsight bias, an enemy of probabilistic thinking.

By keeping an accurate representation of what could have happened (and not a version edited by hindsight), memorializing the scenario plans and decision trees we create through good planning process, we can be better calibrators going forward. We can also be happier by recognizing and getting comfortable with the uncertainty of the world. Instead of living at extremes, we can find contentment with doing our best under uncertain circumstances, and being committed to improving from our experience.

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 the next time.

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. That changes our task from trying to be right every time, an impossible job, to navigating our way through the uncertainty by calibrating our beliefs to move toward, little by little, a more accurate and objective representation of the world. With strategic foresight and perspective, that’s manageable work. If we keep learning and calibrating, we might even get good at it.