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

by Annie Duke

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 did so many people so strongly believe that Pete Carroll got it so wrong? We can sum it up in four words: the play didn’t work.

Pete Carroll was a victim of our tendency to equate the quality of a decision with the quality of its outcome. Poker players have a word for this: “resulting.” When I started playing poker, more experienced players warned me about the dangers of resulting, cautioning me to resist the temptation to change my strategy just because a few hands didn’t turn out well in the short run.

we so bad at separating luck and skill?

Take a moment to imagine your best decision in the last year. Now take a moment to imagine your worst decision. I’m willing to bet that your best decision preceded a good result and the worst decision preceded a bad result.

why the CEO thought the decision to fire his president was so bad (other than that it didn’t work out).

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,”

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).

our brains weren’t built for rationality

(If you are unaware of these books, see the Selected Bibliography and Recommendations for Further Reading.) But here’s a summary.

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.

When our ancestors heard rustling on the savanna and a lion jumped out, making a connection between “rustling” and “lions” could save their lives on later occasions. Finding predictable connections is, literally, how our species survived.

Those shortcuts keep us alive, routinely executing the thousands of decisions that make it possible for us to live our daily lives. We need shortcuts, but they come at a cost. Many decision-making missteps originate from the pressure on the reflexive system to do its job fast and automatically.

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

In addition, once the game is over, poker players must learn from that jumbled mass of decisions and outcomes, separating the luck from the skill,

common decision traps, learning from results in a rational way, and keeping emotions out of the process as much as possible.

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 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 learn from the results, separating the quality of your decisions from the influence of luck is difficult.

If we buy a house, fix it up a little, and sell it three years later for 50% more than we paid, does that mean we are smart at buying and selling property, or at fixing up houses? It could, but it could also mean there was a big upward trend in the market and buying almost any piece of property would have made just as much money. Or maybe buying that same house and not fixing it up at all might have resulted in the same (or even better) profit.

When someone asks you about a coin they flipped four times, there is a correct answer: “I’m not sure.”

Write “I don’t know” as an answer on a test and your answer will be marked wrong. Admitting that we don’t know has an undeservedly bad reputation.

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.

“Annie, you were wrong!” In the same spirit that he said it, I explained that I wasn’t. “I said that would happen 24% of the time. That’s not zero. You got to see part of the 24%!”

Making better decisions stops being about wrong or right but about calibrating among all the shades of grey.

Redefining wrong is easiest in situations where we know the mathematical facts in advance.

things will go your way a minority of the time, but you didn’t necessarily do anything wrong. Don’t fall in love or even date anybody if you want only positive results. The world is structured to give us lots of opportunities to feel bad about being wrong if we want to measure ourselves by outcomes. Don’t fall for it!

The promise of this book is that if we follow the example of poker players by making explicit that our decisions are bets, we can make better decisions and anticipate (and take protective measures) when irrationality is likely to keep us from acting in our best interest.

All decisions are bets Our traditional view of betting is very narrow: casinos, sporting events, lottery tickets, wagering against someone else on the chance of a favorable outcome of some event. The definition of “bet” is much broader.

Not placing a bet on something is, itself, a bet.

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.

They can get comfortable with uncertainty because they put it up front in their decisions. Ignoring the risk and uncertainty in every decision might make us feel better in the short run, but the cost to the quality of our decision-making can be immense.

If we can find ways to become more comfortable with uncertainty, we can see the world more accurately and be better for it.

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.

This is how we think we form abstract beliefs: We hear something; We think about it and vet it, determining whether it is true or false; only after that We form our belief. It turns out, though, that we actually form abstract beliefs this way: We hear something; We believe it to be true; Only sometimes, later, if we have the time or the inclination, we think about it and vet it, determining whether it is, in fact, true or false.

Gilbert and colleagues demonstrated through a series of experiments that our default is to believe that what we hear and read is true. Even when that information is clearly presented as being false, we are still likely to process it as true.

As with many of our irrationalities, how we form beliefs was shaped by the evolutionary push toward efficiency rather than accuracy.

Seeing is, after all, believing. If you see a tree right in front of you, it would generally be a waste of cognitive energy to question whether the tree exists. In fact, questioning what you see or hear can get you eaten.

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.

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.

The way we process new information is driven by the beliefs we hold, strengthening them.

Fake news works because people who already hold beliefs consistent with the story generally won’t question the evidence. Disinformation is even more powerful because the confirmable facts in the story make it feel like the information has been vetted, adding to the power of the narrative being pushed.

Google and Facebook use algorithms to keep pushing us in the directions we’re already headed. By collecting our search, browsing, and similar data from our friends and correspondents, they give users headlines and links that cater to what they’ve divined as our preferences.

the person who wins bets over the long run is the one with the more accurate beliefs.

We would be better served as communicators and decision-makers if we thought less about whether we are confident in our beliefs and more about how confident we are. Instead of thinking of confidence as all-or-nothing (“I’m confident” or “I’m not confident”), our expression of our confidence would then capture all the shades of grey in between.