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.

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.

Game theory was succinctly defined by economist Roger Myerson (one of the game-theory Nobel laureates) as “the study of mathematical models of conflict and cooperation between intelligent rational decision-makers.”

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 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.

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.

Duhigg tells us that reshaping a habit requires time, preparation, practice, and repetition.

Jonathan Haidt, a professor at New York University’s Stern School of Business, is a leading expert in exploring group thought in politics. Haidt, in his book The Righteous Mind: Why Good People Are Divided by Politics and Religion, built on Tetlock’s work, connecting it with the need for diversity. “If you put individuals together in the right way, such that some individuals can use their reasoning powers to disconfirm the claims of others, and all individuals feel some common bond or shared fate that allows them to interact civilly, you can create a group that ends up producing good reasoning as an emergent property of the social system. This is why it’s so important to have intellectual and ideological diversity within any group or institution whose goal is to find truth.”

John Stuart Mill is one of the heroes of thinking in bets. More than one hundred and fifty years after writing On Liberty, his thinking on social and political philosophy remains startlingly current. One of the frequent themes in On Liberty is the importance of diversity of opinion. Diversity and dissent are not only checks on fallibility, but the only means of testing the ultimate truth of an opinion: “The only way in which a human being can make some approach to knowing the whole of a subject, is by hearing what can be said about it by persons of every variety of opinion, and studying all modes in which it can be looked at by every character of mind. No wise man ever acquired his wisdom in any mode but this; nor is it in the nature of human intellect to become wise in any other manner.”

Dissent channels and red teams are a beautiful implementation of Mill’s bedrock principle that we can’t know the truth of a matter without hearing the other side.

We must be vigilant about this drift in our groups and be prepared to fight it. Whether it is the forming of a group of friends or a pod at work—or hiring for diversity of viewpoint and tolerance for dissent when you are able to guide an enterprise’s culture toward accuracy—we should guard against gravitating toward clones of ourselves.

After the outcome, make it a habit when seeking advice to give the details without revealing the outcome.

And outcomes aren’t the only problem. Beliefs are also contagious. If our listeners know what we believe to be true, they will likely work pretty hard to justify our beliefs, often without even knowing they are doing it.

Second, lead with assent. For example, listen for the things you agree with, state those and be specific, and then follow with “and” instead of “but.” If there is one thing we have learned thus far it is that we like having our ideas affirmed. If we want to engage someone with whom we have some disagreement (inside or outside our group), they will be more open and less defensive if we start with those areas of agreement, which there surely will be.

But sometimes they’ll say they are looking for advice, and that is potentially an agreement to opt in to some truthseeking. (Even then, tread lightly because people may say they want advice when what they really want is to be affirmed.)

When we think about the past and the future, we engage deliberative mind, improving our ability to make a more rational decision. When we imagine the future, we don’t just make it up out of whole cloth, inventing a future based on nothing that we have ever seen or experienced. Our vision of the future, rather, is rooted in our memories of the past. The future we imagine is a novel reassembling of our past experiences. Given that, it shouldn’t be surprising that the same neural network is engaged when we imagine the future as when we remember the past.

Philosophers agree that regret is one of the most intense emotions we feel, but they have argued about whether it is productive or useful. Nietzsche said that remorse was “adding to the first act of stupidity a second.” Thoreau, on the other hand, praised the power of regret: “Make the most of your regrets; never smother your sorrow, but tend and cherish it till it comes to have a separate and integral interest. To regret deeply is to live afresh.”

Moving regret in front of a decision has numerous benefits. First, obviously, it can influence us to make a better decision. Second, it helps us treat ourselves (regardless of the actual decision) more compassionately after the fact. We can anticipate and prepare for negative outcomes. By planning ahead, we can devise a plan to respond to a negative outcome instead of just reacting to it. We can also familiarize ourselves with the likelihood of a negative outcome and how it will feel. Coming to peace with a bad outcome in advance will feel better than refusing to acknowledge it, facing it only after it has happened.

Ulysses contracts can come in varying levels of how much your hands are bound, ranging from physically preventing acting on a decision to just committing in advance to certain actions without any barriers save the commitment itself. Regardless of the level of binding, precommitment contracts trigger a decision-interrupt. At the moment when we consider breaking the contract, when we want to cut the binding, we are much more likely to stop and think.

Any words or thoughts denying the existence of uncertainty should be a signal that we are heading toward a poorly calibrated decision.

If we’re worried about guessing, we’re already guessing.

When it comes to advance thinking, standing at the end and looking backward is much more effective than looking forward from the beginning.

When we identify the goal and work backward from there to “remember” how we got there, the research shows that we do better. 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.

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.

Her first study, of women enrolled in a weight-loss program, found that subjects “who had strong positive fantasies about slimming down . . . lost twenty-four pounds less than those who pictured themselves more negatively. Dreaming about achieving a goal apparently didn’t help that goal come to fruition. It impeded it from happening. The starry-eyed dreamers in the study were less energized to behave in ways that helped them lose weight.”

The key to a successful premortem is that everyone feels free to look for those reasons, and they are motivated to scour everything—personal experience, company experience, historical precedent, episodes of The Hills, sports analogies, etc.—to come up with ways a decision or plan can go bad, so the team can anticipate and account for them.