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

by Annie Duke

After identifying as many of the possible outcomes as we can, we want to make our best guess at the probability of each of those futures occurring. When I consult with enterprises on building decision trees and determining probabilities of different futures, people frequently resist having to make a guess at the probability of future events mainly because they feel like they can’t be certain of what the likelihood of any scenario is. But that’s the point.

This kind of scenario planning is a form of mental time travel we can do on our own. It works even better when we do it as part of a scenario-planning group, particularly one that is open-minded to dissent and diverse points of view. Diverse viewpoints allow for the identification of a wider variety of scenarios deeper into the tree, and for better estimates of their probability. In fact, if two people in the group are really far off on an estimate of the likelihood of an outcome, that is a great time to have them switch sides and argue the other’s position.

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. From the vantage point of the present, it’s hard to see past the next step. We end up over-planning for addressing problems we have right now. Implicit in that approach is the assumption that conditions will remain the same, facts won’t change, and the paradigm will remain stable. The world changes too fast to assume that approach is generally valid.

In a Harvard Business Review article, decision scientist Gary Klein summarized the results of a 1989 experiment by Deborah Mitchell, J. Edward Russo, and Nancy Pennington. 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.

We generally are biased to overestimate the probability of good things happening. Looking at the world through rose-colored glasses is natural and feels good, but a little naysaying goes a long way. 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.

Conducting a premortem creates a path to act as our own red team. Once we frame the exercise as “Okay, we failed. Why did we fail?” that frees everyone to identify potential points of failure they otherwise might not see or might not bring up for fear of being viewed as a naysayer.

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.

If we don’t try to hold all the potential futures in mind before one of them happens, it becomes almost impossible to realistically evaluate decisions or probabilities after.

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.