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

by Annie Duke

Over time, those world-class poker players taught me to understand what a bet really is: a decision about an uncertain future. The implications of treating decisions as bets made it possible for me to find learning opportunities in uncertain environments. Treating decisions as bets, I discovered, helped me avoid common decision traps, learn from results in a more rational way, and keep emotions out of the process as much as possible.

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.

Drawing an overly tight relationship between results and decision quality affects our decisions every day, potentially with far-reaching, catastrophic consequences.

Hindsight bias is the tendency, after an outcome is known, to see the outcome as having been inevitable. When we say, “I should have known that would happen,” or, “I should have seen it coming,” we are succumbing to hindsight bias.

Our goal is to get our reflexive minds to execute on our deliberative minds’ best intentions.

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.”

What good poker players and good decision-makers have in common is their comfort with the world being an uncertain and unpredictable place. They understand that they can almost never know exactly how something will turn out. They embrace that uncertainty and, instead of focusing on being sure, they try to figure out how unsure they are, making their best guess at the chances that different outcomes will occur. The accuracy of those guesses will depend on how much information they have and how experienced they are at making such guesses. This is part of the basis of all bets.

If we misrepresent the world at the extremes of right and wrong, with no shades of grey in between, our ability to make good choices—choices about how we are supposed to be allocating our resources, what kind of decisions we are supposed to be making, and what kind of actions we are supposed to be taking—will suffer. The secret is to make peace with walking around in a world where we recognize that we are not sure and that’s okay. As we learn more about how our brains operate, we recognize that we don’t perceive the world objectively. But our goal should be to try.

Decisions are bets on the future, and they aren’t “right” or “wrong” based on whether they turn out well on any particular iteration. An unwanted result doesn’t make our decision wrong if we thought about the alternatives and probabilities in advance and allocated our resources accordingly,

When we move away from a world where there are only two opposing and discrete boxes that decisions can be put in—right or wrong—we start living in the continuum between the extremes. Making better decisions stops being about wrong or right but about calibrating among all the shades of grey.

part of the skill in life comes from learning to be a better belief calibrator, using experience and information to more objectively update our beliefs to more accurately represent the world. The more accurate our beliefs, the better the foundation of the bets we make.

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.

Incorporating uncertainty into the way we think about our beliefs comes with many benefits. By expressing our level of confidence in what we believe, we are shifting our approach to how we view the world. Acknowledging uncertainty is the first step in measuring and narrowing it. Incorporating uncertainty in the way we think about what we believe creates open-mindedness, moving us closer to a more objective stance toward information that disagrees with us. We are less likely to succumb to motivated reasoning since it feels better to make small adjustments in degrees of certainty instead of having to grossly downgrade from “right” to “wrong.” When confronted with new evidence, it is a very different narrative to say, “I was 58% but now I’m 46%.” That doesn’t feel nearly as bad as “I thought I was right but now I’m wrong.”

Admitting we are not sure is an invitation for help in refining our beliefs, and that will make our beliefs much more accurate over time as we are more likely to gather relevant information.

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.

The way we field outcomes is predictably patterned: we take credit for the good stuff and blame the bad stuff on luck so it won’t be our fault. The result is that we don’t learn from experience well.

Habits operate in a neurological loop consisting of three parts: the cue, the routine, and the reward. A habit could involve eating cookies: the cue might be hunger, the routine going to the pantry and grabbing a cookie, and the reward a sugar high. Or, in poker, the cue might be winning a hand, the routine taking credit for it, the reward a boost to our ego. Charles Duhigg, in The Power of Habit, offers the golden rule of habit change—that the best way to deal with a habit is to respect the habit loop: “To change a habit, you must keep the old cue, and deliver the old reward, but insert a new routine.”

We can work to get the reward of feeling good about ourselves from being a good credit-giver, a good mistake-admitter, a good finder-of-mistakes-in-good-outcomes, a good learner, and (as a result) a good decision-maker. Instead of feeling bad when we have to admit a mistake, what if the bad feeling came from the thought that we might be missing a learning opportunity just to avoid blame? Or that we might be basking in the credit of a good result instead of, like Phil Ivey, recognizing where we could have done better? If we work toward that, we can transform the unproductive habits of mind of self-serving bias and motivated reasoning into productive ones.

Keep the reward of feeling like we are doing well compared to our peers, but change the features by which we compare ourselves: be a better credit-giver than your peers, more willing than others to admit mistakes, more willing to explore possible reasons for an outcome with an open mind, even, and especially, if that might cast you in a bad light or shine a good light on someone else. In this way we can feel that we are doing well by comparison because we are doing something unusual and hard that most people don’t do.

The prospect of a bet makes us examine and refine our beliefs, in this case the belief about whether luck or skill was the main influence in the way things turned out. Betting on what we believe makes us take a closer look by making explicit what is already implicit: we have a great deal at risk in assessing why anything turned out the way it did. That sure sounds like a bet worth taking seriously.

Treating outcome fielding as bets constantly reminds us outcomes are rarely attributable to a single cause and there is almost always uncertainty in figuring out the various causes. Identifying a negative outcome doesn’t have the same personal sting if you turn it into a positive by finding things to learn from it. You don’t have to be on the defensive side of every negative outcome because you can recognize, in addition to things you can improve, things you did well and things outside your control. You realize that not knowing is okay.

You also become more compassionate toward other people when you treat fielding outcomes as bets. When you look at the outcomes of others from their perspective, you have to ask yourself, “What if that had happened to me?” You come up with more compassionate assessments of other people where bad things aren’t always their fault and good things aren’t always luck. You are more likely to walk in their shoes.

Remember the buddy system from school field trips or camp? Teachers or counselors would pair everybody up with a buddy. Our buddy was supposed to keep us from wandering off or getting into water too deep, and we did the same for our buddy. A good decision group is a grown-up version of the buddy system. To be sure, even with help, none of us will ever be able to perfectly overcome our natural biases in the way we process information; I certainly never have. But if we can find a few people to choose to form a truthseeking pod with us and help us do the hard work connected with it, it will move the needle—just a little bit, but with improvements that accumulate and compound over time. We will be more successful in fighting bias, seeing the world more objectively, and, as a result, we will make better decisions. Doing it on our own is just harder.

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.

Per the BBS paper, CUDOS stands for Communism (data belong to the group), Universalism (apply uniform standards to claims and evidence, regardless of where they came from), Disinterestedness (vigilance against potential conflicts that can influence the group’s evaluation), and Organized Skepticism (discussion among the group to encourage engagement and dissent).

Be a data sharer. That’s what experts do. In fact, that’s one of the reasons experts become experts. They understand that sharing data is the best way to move toward accuracy because it extracts insight from your listeners of the highest fidelity.

Expression of disagreement is, after all, just another way to express our own beliefs, which we acknowledge are probabilistic in nature. Therefore, overtly expressing the uncertainty in a dissenting belief follows. No longer do we dissent with declarations of “You’re wrong!” Rather, we engage by saying, “I’m not sure about that.” Or even just ask, “Are you sure about that?” or “Have you considered this other way of thinking about it?” We engage this way simply because that is faithful to uncertainty. Organized skepticism invites people into a cooperative exploration. People are more open to hearing differing perspectives expressed this way.

Business journalist and author Suzy Welch developed a popular tool known as 10-10-10 that has the effect of bringing future-us into more of our in-the-moment decisions. “Every 10-10-10 process starts with a question. . . . [W]hat are the consequences of each of my options in ten minutes? In ten months? In ten years?” This set of questions triggers mental time travel that cues that accountability conversation (also encouraged by a truthseeking decision group). We can build on Welch’s tool by asking the questions through the frame of the past: “How would I feel today if I had made this decision ten minutes ago? Ten months ago? Ten years ago?” Whichever frame we choose, we draw on our past experiences (including similar decisions we may have regretted) in answering the questions, recruiting into the decision those less-reactive brain pathways that control executive functioning.

Because poker players are in a constant struggle to keep in-the-moment fluctuations in perspective, their jargon has a variety of terms for the concept that “bad outcomes can have an impact on your emotions that compromise your decision-making going forward so that you make emotionally charged, irrational decisions that are likely to result in more bad outcomes that will then negatively impact your decision-making going forward and so on.” The most common is tilt. Tilt is the poker player’s worst enemy, and the word instantly communicates to other poker players that you were emotionally unhinged in your decision-making because of the way things turned out.* If you blow some recent event out of proportion and react in a drastic way, you’re on tilt.

Once something occurs, we no longer think of it as probabilistic—or as ever having been probabilistic. This is how we get into the frame of mind where we say, “I should have known” or “I told you so.” This is where unproductive regret comes from. 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.

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.