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

by Annie Duke

a more accurate representation of the world. Second, and related, when we accept that we can’t be sure, we are less likely to fall into the trap of black-and-white thinking.

The same holds true for just about all of our decisions. 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, as my client the CEO and Pete Carroll both did. It would be absurd for me, after making a big bet on the best possible starting hand (a pair of aces) and losing, to spend a lot of time thinking that I was wrong to make the decision to play the hand in the first place. That would be resulting.

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.

Redefining wrong is easiest in situations where we know the mathematical facts in advance. In the charity-tournament final-table example with the players’ cards faceup, or when I get all my chips in with the best possible starting hand, the hidden information is removed. We can make a clear calculation. If we have that unquestionably right and make an allocation of resources (a bet) on the calculation, we can more naturally get to “I wasn’t wrong just because it didn’t turn out well and I shouldn’t change my behavior.” When the chances...

Redefining wrong allows us to let go of all the anguish that comes from getting a bad result. But it also means we must redefine “right.” If we aren’t wrong just because things didn’t work out, then we aren’t right just because things turned out well. Do we win emotionally to making that mindset trade-off?

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.

Poker teaches that lesson. A great poker player who has a good-size advantage over the other players at the table, making significantly better strategic decisions, will still be losing over 40% of the time at the end of eight hours of play. That’s a whole lot of wrong. And it’s not just confined to poker.

The most successful investors in start-up companies have a majori...

you applied to NASA’s astronaut program or the NBC page program, both of which have drawn thousands of applicants for a handful of positions, 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 opportuniti...

Second, being wrong hurts us more than being right feels good. We know from Daniel Kahneman and Amos Tversky’s work on loss aversion, part of prospect theory (which won Kahneman the Nobel Prize in Economics in 2002), that losses in general feel about two times as bad as wins feel good. So winning $100 at blackjack feels as good to us as losing $50 feels bad to us. Because being right feels like winning and being wrong feels like losing, that means we need two favorable results for every one unfavorable result just to break ev...

Are you ready to really wrap your arms around uncertainty, like great decision-makers do? Are you ready to embrace this redefinition of wrong, and to recognize you are always guessing and that those guesses drive how you place your resources? Getting comfortable with this realignment, and all the good things that follow, starts with recognizing that you’ve been betting all along.

The punch line of the John Hennigan–Des Moines story—“after two days, he begged to get out of it”—made it part of gambling folklore. That punch line, however, obscures how usual the underlying analysis about whether to move was.

The only real difference between Johnny World’s decision to move to Des Moines and anyone else’s decision to relocate or take a job was that he and the poker players made explicit that the

decision was a bet on what would most improve their quality of life (financial, e...

We have to inventory the potential upside and downside of taking the bet just like Hennigan did. That his $30,000 wasn’t a sure thing doesn’t make his decision distinct from other job or relocation decisions. People take jobs all the time where a large portion of the compensation is

contingent. In many businesses, compensation includes bonuses, stock options, or performance-based pay. Even though most people don’t have to consider losing $30,000 when they take a job, every decision has risks, regardless of whether we acknowledge them.

Even a set salary is still not “guaranteed.” We could get laid off or hate the job and quit (as John Hennigan did), or the company could go out of business. When we take a job, especially one promising big financial rewards, the commitment to work can cost us time with our ...

In addition, whenever we choose an alternative (whether it is taking a new job or moving to Des Moines for a month), we are automatically rejecting every other possible choice. All those rejected alternatives are paths to possible futures where things could be better or worse than the...

To me, the ironic thing about a story that seems so crazy is how the underlying analysis was actually very logical: a difference of opinion about alternatives, consequences, and probabilities.

By treating decisions as bets, poker players explicitly recognize that they are deciding on alternative futures, each with benefits and risks. They also recognize there are no simple answers. Some things are unknown or unknowable. 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.

Every decision commits us to some course of action that, by definition, eliminates acting on other alternatives. Not placing a bet on something is, itself, a bet.

Choosing to go to the movies means that we are choosing to not do all the other things with our time that we might do during that two hours.

The betting elements of decisions—choice, probability, risk, etc.—are more obvious in some situations than others. Investments are clearly bets. A decision about a stock (buy, don’t buy,

sell, hold, not to mention esoteric investment options) involves a choice about the best use of financial resources. Incomplete information and factors outside of our control make all our investment choices uncertain. We evaluate what we can, figure out what we think will maximize our investment money, and execute. Deciding not to invest or not to sell a stock, likewise, is a bet. These are the same decisions I make during a hand of poker: fold, check, call, bet, or raise.

We don’t think of our parenting choices as bets but they are. We want our children to be happy, productive adults when we send them...

a parenting choice (about discipline, nutrition, school, parenting philosophy, where to live, etc.), we are betting that our choice will achieve the future we want for our children more than any other choice we might make given the constraints of the limit...

Job and relocation decisions are bets. Sales negotiations and contracts are bets. Buying a house is a bet. Ordering the chicken instead of t...

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. We are constantly deciding among alternative futures: one where we go to the movies, one where we go bowling, one where we

stay home. Or futures where we take a job in Des Moines, stay at our current job, or take some time away from work. Whenever we make a choice, we are betting on a potential future. We are betting that the future version of us that results from the decisions we make will be better off. At stake in a decision is that the return to us (measured in money, time, happiness, health, or whatever we value in that circumstance) will be greater than what we are giving up by betting against the other alternative future versions of us.

We can only make our best guess, given what we

know and don’t know, at what the future will look like. If we’ve never lived in Des Moines, how can we possibly be sure how we will like it? When we decide, we are betting whatever we value (happiness, success, satisfaction, money, time, reputation, etc.) on one of a set of possible and uncertain futures. That is where the risk is.

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 o...

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.

our beliefs can be way, way off.

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.”

We hear something;

We think about it and vet it, determining whether it is true or false; only after that We form our belief.

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.”

This suggests our default setting is to believe what we hear is true.

“nature does not start from scratch;

1) experience it, (2) believe it to be true, and (3) maybe, and rarely, question it later.