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.

Life Is Poker, Not Chess

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.

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.

When we work backward from results to figure out why those things happened, we are susceptible to a variety of cognitive traps, like assuming causation when there is only a correlation, or cherry-picking data to confirm the narrative we prefer. We will pound a lot of square pegs into round holes to maintain the illusion of a tight relationship between our outcomes and our decisions.

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.

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.

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

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.”

An expert in any field will have an advantage over a rookie. But neither the veteran nor the rookie can be sure what the next flip will look like. The veteran will just have a better guess.

First, the world is a pretty random place. The influence of luck makes it impossible to predict exactly how things will turn out, and all the hidden information makes it even worse. If we don’t change our mindset, we’re going to have to deal with being wrong a lot. It’s built into the equation.

The world is structured to give us lots of opportunities to feel bad about being wrong if we want to measure ourselves by outcomes.

being wrong hurts us more than being right feels good.

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.

“Findings from a multitude of research literatures converge on a single point: People are credulous creatures who find it very easy to believe and very difficult to doubt. In fact, believing is so easy, and perhaps so inevitable, that it may be more like involuntary comprehension than it is like rational assessment.”

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.

pair of biologists at the University of Queensland who made a list of all 187 species of mammals declared extinct in the last five hundred years. More than a third of those species have subsequently been rediscovered.

Where we blame our own bad outcomes on bad luck, when it comes to our peers, bad outcomes are clearly their fault. While our own good outcomes are due to our awesome decision-making, when it comes to other people, good outcomes are because they got lucky. As artist and writer Jean Cocteau said, “We must believe in luck. For how else can we explain the success of those we don’t like?”

We see this pattern of blaming others for bad outcomes and failing to give them credit for good ones all over the place. When someone else at work gets a promotion instead of us, do we admit they worked harder than and deserved it more than we did? No, it was because they schmoozed the boss. If someone does better on a test at school, it was because the teacher likes them more. If someone explains the circumstances of a car accident and how it wasn’t their fault, we roll our eyes. We assume the cause was their bad driving.

My biased assessment of why they were winning slowed my learning down considerably.

Ideally, our happiness would depend on how things turn out for us regardless of how things turn out for anyone else.

Wins and losses are symmetrical. If I field my win as having to do with my skillful play, then my opponent in the hand must have lost because of their less skillful play. Likewise, if I field my loss as having to do with luck, then my opponent must have won due to luck as well. Any other interpretation would create cognitive dissonance.

A consistent example of how we price our own happiness relative to others comes from a version of the party game “Would You Rather . . . ?” When you ask people if they would rather earn $70,000 in 1900 or $70,000 now, a significant number choose 1900. True, the average yearly income in 1900 was about $450. So we’d be doing phenomenally well compared to our peers from 1900. But no amount of money in 1900 could buy Novocain or antibiotics or a refrigerator or air-conditioning or a powerful computer we could hold in one hand. About the only thing $70,000 bought in 1900 that it couldn’t buy today was the opportunity to soar above most everyone else. We’d rather lap the field in 1900 with an average life expectancy of only forty-seven years than sit in the middle of the pack now with an average life expectancy of over seventy-six years (and a computer in our palm).

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.”

When we treat outcome fielding as a bet, it pushes us to field outcomes more objectively into the appropriate buckets because that is how bets are won. Winning feels good. Winning is a positive update to our personal narrative. Winning is a reward. With enough practice, reinforced by the reward of feeling good about ourselves, thinking of fielding outcomes as bets will become a habit of mind.

If you have any doubt this is true for all of us, put this book down for a moment and check your Twitter feed for whom you follow. It’s a pretty safe bet that the bulk of them are ideologically aligned with you. If that’s the case, start following some people from the other side of the aisle.

Agree to be a data sharer and reward others in your decision group for telling more of the story.

don’t disparage or ignore an idea just because you don’t like who or where it came from.

I was guilty of the same thing David Letterman admitted in his explanation to Lauren Conrad. He spent a long time assuming people around him were idiots before considering the alternative hypothesis, “Maybe I’m the idiot.” In poker, I was the idiot.

John Stuart Mill made it clear that the only way to gain knowledge and approach truth is by examining every variety of opinion. We learn things we didn’t know. We calibrate better. Even when the result of that examination confirms our initial position, we understand that position better if we open ourselves to every side of the issue. That requires open-mindedness to the messages that come from places we don’t like.

First, express uncertainty. Uncertainty not only improves truthseeking within groups but also invites everyone around us to share helpful information and dissenting opinions.

Third, ask for a temporary agreement to engage in truthseeking. If someone is off-loading emotion to us, we can ask them if they are just looking to vent or if they are looking for advice.

That leads to the final decision strategy of this book: ways to use time-travel techniques for better decision-making. By recruiting past and future versions of yourself, you can become your own buddy.

The first rule, emphasized by the trilogy and repeated by nearly every time-travel movie since, is “Whatever you do, don’t meet up with yourself!”

Improving decision quality is about increasing our chances of good outcomes, not guaranteeing them.

After-the-fact regret can consume us. Like all emotions, regret initially feels intense but gets better with time. Time-travel strategies can help us remember that the intensity of what we feel now will subside over time.

The way we field outcomes is path dependent.

It doesn’t so much matter where we end up as how we got there.

“It’s all just one long poker game.” That aphorism is a reminder to take the long view, especially when something big happened in the last half hour, or the previous hand—or when we get a flat tire. Once we learn specific ways to recruit past and future versions of us to remind ourselves of this, we can keep the most recent upticks and downticks in their proper perspective. When we take the long view, we’re going to think in a more rational way.

This is true of most strategic thinking. Whether it involves sales strategies, business strategies, or courtroom strategies, the best strategists are considering a fuller range of possible scenarios, anticipating and considering the strategic responses to each, and so on deep into the decision tree.

Backcasting: working backward from a positive future

Turns out, if we were contemplating a thousand-mile walk, we’d be better off imagining ourselves looking back from the destination and figuring how we got there. When it comes to advance thinking, standing at the end and looking backward is much more effective than looking forward from the beginning.

Samuel Arbesman’s The Half-Life of Facts makes a book-length case for the hazards of assuming the future is going to be like the present.

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.

Premortems: working backward from a negative future

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.

Gabriele Oettingen, professor of psychology at NYU and author of Rethinking Positive Thinking: Inside the New Science of Motivation, has conducted over twenty years of research, consistently finding that people who imagine obstacles in the way of reaching their goals are more likely to achieve success, a process she has called “mental contrasting.”