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

by Annie Duke

A hand of poker takes about two minutes. Over the course of that hand, I could be involved in up to twenty decisions. And each hand ends with a concrete result: I win money or I lose money. The result of each hand provides immediate feedback on how your decisions are faring. But it’s a tricky kind of feedback because winning and losing are only loose signals of decision quality. You can win lucky hands and lose unlucky ones. Consequently, it’s hard to leverage all that feedback for learning.

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.

The approach of thinking in bets moved me toward objectivity, accuracy, and open-mindedness. That movement compounds over time to create significant changes in our lives.

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 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?

resulting is a routine thinking pattern that bedevils all of us.

“I should have seen it coming,” we are succumbing to hindsight bias. Those beliefs develop from an overly tight connection between outcomes and decisions. That is typical of how we evaluate our past decisions.

The decision didn’t work out, and he treated that result as if it were an inevitable consequence rather than a probabilistic one.

No sober person thinks getting home safely after driving drunk reflects a good decision or good driving ability. Changing future decisions based on that lucky result is dangerous and unheard of (unless you are reasoning this out while drunk and obviously deluding yourself).

He changed his behavior based on the quality of the result rather than the quality of the decision-making process.

To start, our brains evolved to create certainty and order. We are uncomfortable with the idea that luck plays a significant role in our lives. 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.

Kahneman explains how System 1 and System 2 are capable of dividing and conquering our decision-making but work mischief when they conflict. I particularly like the descriptive labels “reflexive mind” and “deliberative mind” favored by psychologist Gary Marcus.

“Our thinking can be divided into two streams, one that is fast, automatic, and largely unconscious, and another that is slow, deliberate, and judicious.” The first system, “the reflexive system, seems to do its thing rapidly

and automatically, with or without our conscious awareness.” The second system, “the deliberative system . . . deliberates, it ...

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.

poker is a

great place to find practical strategies to get the execution of our decisions to align better with our goals. Understanding how poker players think can help us deal with the decision challenges that bedevil us in our workplaces,

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

If a player takes extra time, another player can “call the clock” on them. This gives the deliberating player all of seventy seconds to now make up their mind. That is an eternity in poker time.

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.”

Game theory is the modern basis for the study of the

bulk of our decision-making, addressing the challenges of changing conditions, hidden information, chance, and multiple people involved in the decisions. Sound familiar?

‘Chess is not a game. Chess is a well-defined form of computation.

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.’”

Chess, for all its strategic complexity, isn’t a great model for decision-making in life, where most of our decisions involve hidden information and a much greater influence of luck. This creates a challenge that doesn’t exist in chess: identifying the relative contributions of the decisions we make versus luck in how things turn out.

Poker, in contrast, is a game of incomplete information. It is a game of decision-making

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 le...

If we want to improve in any game—as well as in any aspect of our lives—we have to learn from the results of our decisions.

Our lives are too short to collect enough data from our own experience to make it easy to dig down into decision quality from the small set of results we experience.

But getting comfortable with “I’m not sure” is a vital step to being a better decision-maker. We have to make peace with not knowing.

Of course, we want to encourage acquiring knowledge, but the first step is understanding what we don’t know.

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.

The secret is to make peace with walking around in a world where we recognize that we are not sure and that’s okay.

Look how quickly you can begin to redefine what it means to be wrong. Once we start thinking like this, it becomes easier to resist the temptation to make snap judgments after results or say things like “I knew it” or “I should have known.” Better decision-making and more self-compassion follow.

The goal of the bookmaker is to make sure the amount of money bet on either side is equal, so that the losers essentially pay the winners while the bookmaker just takes their fee. They aim to have no stake in the outcome and adjust the odds accordingly. The bookmaker’s odds reflect the market’s view, essentially our collective best guess of what is fair.

Any prediction that is not 0% or 100% can’t be wrong solely because the most likely future doesn’t unfold.

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,

Getting comfortable with this realignment, and all the good things that follow, starts with recognizing that you’ve been betting all along.

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.

This is ultimately very good news: 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. There is also skill in identifying when our thinking patterns might lead

us astray, no matter what our beliefs are, and in developing strategies to work with (and sometimes around) those thinking patterns. There are effective strategies to be more open-minded, more objective, more accurate in our beliefs, more rational in our decisions and actions, and more compassionate toward ourselves in the process.

As Medical Daily explained in 2015, “a key gene for baldness is on the X chromosome, which you get from your mother” but “it is not the only genetic factor in play since men with bald fathers have an increased chance of going bald when compared to men whose fathers have a full set of hair. . . . [S]cientists say baldness anywhere in your family may be a sign of your own impending fate.”

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.

“We do not simply ‘react to’ a happening. . . . We behave according to what we bring to the occasion.” Our beliefs affect how we process all new things, “whether the ‘thing’ is a football game, a presidential candidate, Communism, or spinach.”

Flaws in forming and updating beliefs have the potential to snowball. Once a belief is lodged, it becomes difficult to dislodge. It takes on a life of its own, leading us to notice and seek out

evidence confirming our belief, rarely challenge the validity of confirming evidence, and ignore or work hard to actively discredit information contradicting the belief. This irrational, circular information-processing pattern is called motivated reasoning.

It doesn’t take much for any of us to believe something. And once we believe it, protecting that belief guides how we treat further information relevant to the belief.