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

by Annie Duke

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.

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 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. We evolved to see the world that way. Creating order out of chaos has been necessary for our survival.

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.

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 life were like chess, nearly every time you ran a red light you would get in an accident (or at least receive a ticket). If life were like chess, the Seahawks would win the Super Bowl every time Pete Carroll called that pass play. But life is more like poker. You could make the smartest, most careful decision in firing a company president and still have it blow up in your face.

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.”

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.

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.

“Experience is not what happens to a man; it is what a man does with what happens to him.”

“Whereas confirmatory thought involves a one-sided attempt to rationalize a particular point of view, exploratory thought involves even-handed consideration of alternative points of view.” In other words, confirmatory thought amplifies bias, promoting and encouraging motivated reasoning because its main purpose is justification. Confirmatory thought promotes a love and celebration of one’s own beliefs, distorting how the group processes information and works through decisions, the result of which can be groupthink. Exploratory thought, on the other hand, encourages an open-minded and objective consideration of alternative hypotheses and a tolerance of dissent to combat bias. Exploratory thought helps the members of a group reason toward a more accurate representation of the world.

“Complex and open-minded thought is most likely to be activated when decision makers learn prior to forming any opinions that they will be accountable to an audience (a) whose views are unknown, (b) who is interested in accuracy, (c) who is reasonably well-informed, and (d) who has a legitimate reason for inquiring into the reasons behind participants’ judgments/choices.”

groups can improve the thinking of individual decision-makers when the individuals are accountable to a group whose interest is in accuracy.

A focus on accuracy (over confirmation), which includes rewarding truthseeking, objectivity, and open-mindedness within the group; Accountability, for which members have advance notice; and Openness to a diversity of ideas.

Truthseeking charter

In the long run, the more objective person will win against the more biased person. In that way, betting is a form of accountability to accuracy.

On our own, we have just one viewpoint. That’s our limitation as humans. But if we take a bunch of people with that limitation and put them together in a group, we get exposed to diverse opinions, can test alternative hypotheses, and move toward accuracy.

CUDOS stands for Communism (data belong to the group), Universalism (apply uniform standards to claims and evidence, regardless of where they came from), Disinterestedness (vigilance against potential conflicts that can influence the group’s evaluation), and Organized Skepticism (discussion among the group to encourage engagement and dissent).

We have all experienced situations where we get two accounts of the same event, but the versions are dramatically different because they are informed by different facts and perspectives. This is known as the Rashomon Effect, named for the 1950 cinematic classic Rashomon, directed by Akira Kurosawa.

We treat outcomes as good signals for decision quality,

Improving decision quality is about increasing our chances of good outcomes, not guaranteeing them. Even when that effort makes a small difference—more rational thinking and fewer emotional decisions, translated into an increased probability of better outcomes—it can have a significant impact on how our lives turn out. Good results compound. Good processes become habits, and make possible future calibration and improvement.

This tendency we all have to favor our present-self at the expense of our future-self is called temporal discounting.

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.”

This action—past-us preventing present-us from doing something stupid—has become known as a Ulysses contract.

For us to make better decisions, we need to perform reconnaissance on the future. If a decision is a bet on a particular future based on our beliefs, then before we place a bet we should consider in detail what those possible futures might look like. Any decision can result in a set of possible outcomes.

“When faced with highly uncertain conditions, military units and major corporations sometimes use an exercise called scenario planning. The idea is to consider a broad range of possibilities for how the future might unfold to help guide long-term planning and preparation.”

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.

Imagining a successful future and backcasting from there is a useful time-travel exercise for identifying necessary steps for reaching our goals. Working backward helps even more when we give ourselves the freedom to imagine an unfavorable future.

The premortem starts with working backward from an unfavorable future, or failure to achieve a goal, so competing for favor, or feeling good about contributing to the process, is about coming up with the most creative, relevant, and actionable reasons for why things didn’t work out.

To understand an overriding risk to that perspective, think about time as a tree. The tree has a trunk, branches at the top, and the place where the trunk meets the branches. The trunk is the past. A tree has only one, growing trunk, just as we have only one, accumulating past. The branches are the potential futures. Thicker branches are the equivalent of more probable futures, thinner branches are less probable ones. The place where the top of the trunk meets the branches is the present. There are many futures, many branches of the tree, but only one past, one trunk. As the future becomes the past, what happens to all those branches? The ever-advancing present acts like a chainsaw. When one of those many branches happens to be the way things turn out, when that branch transitions into the past, present-us cuts off all those other branches that didn’t materialize and obliterates them. When we look into the past and see only the thing that happened, it seems to have been inevitable. Why wouldn’t it seem inevitable from that vantage point? Even the smallest of twigs, the most improbable of futures—like the 2%–3% chance Russell Wilson would throw that interception—expands when it becomes part of the mighty trunk. That 2%–3%, in hindsight, becomes 100%, and all the other branches, no matter how thick they were, disappear from view. That’s hindsight bias, an enemy of probabilistic thinking.

Life, like poker, is one long game, and there are going to be a lot of losses, even after making the best possible bets. We are going to do better, and be happier, if we start by recognizing that we’ll never be sure of the future. That changes our task from trying to be right every time, an impossible job, to navigating our way through the uncertainty by calibrating our beliefs to move toward, little by little, a more accurate and objective representation of the world. With strategic foresight and perspective, that’s manageable work. If we keep learning and calibrating, we might even get good at it.