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Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts Hardcover – February 6, 2018
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"A compact guide to probabilistic domains like poker, or venture capital... Recommend for people operating in the real world." –Marc Andreessen
“Outstanding.” –Jason Zweig, The Wall Street Journal
"Duke’s discussion is full of wisdom and also of fun, warmth, humor and humanity. Her sharp, data-driven analysis comes with a large lesson, which is that losers should be willing to forgive themselves: Sometimes the right play just doesn’t work." –Cass Sunstein, co-author of Nudge
"An elegant fusion of poker-table street-smarts and cognitive science insights. This book will make you both a shrewder and wiser player in the game of life." –Philip E. Tetlock, author of Superforecasting
"Thinking in Bets offers a compelling, and eminently useful, new way to think about life's decisions. Annie Duke has written an important, and often hilarious, book that will help you understand your own shortcomings--and make smarter choices as a result. You can bet on it." –Maria Konnikova, author of The Confidence Game and Mastermind
"The insights Duke offers in this book are incredibly helpful when we contemplate decisions in the face of multiple possible outcomes, and that renders her book enormously applicable to the world of investing." –Howard Marks, co-chairman, Oaktree Capital Management and author of The Most Important Thing
"Through wonderful storytelling and sly wit, Annie Duke has crafted the ultimate guide to thinking about risk. We can all learn how to make better decisions by learning from someone who made choices for a living, with millions on the line." –Charles Duhigg, author of The Power of Habit and Smarter Faster Better
"Brilliant. Buy ten copies and give one to everyone you work with. It's that good." –Seth Godin, author of The Icarus Deception
"A mind-bending and indispensable book for entrepreneurs, leaders, and anyone who faces risk on a regular basis." –Olivia Fox Cabane, author of The Net and the Butterfly
“A highly-readable balance between memorable, real-world analogies and hardcore behavioral science studies... The book is packed with insights.” –John Greathouse, Forbes
About the Author
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Forget a one page summary, here is the crux of the book: Make a decision as if you are betting all of your money on your choice. Don't take shortcuts based on your inborn biases and seek contrarian opinions and experienced counsel. Don't blame bad luck on bad outcomes; figure out how you could have made a better informed decision. Oh, and surprise, surprise, join groups with participants who have had similar experiences and expertise who can critique your choices and illuminate your blindspots. There you go.
I digested an advanced reader's copy of the book, and it's one of the few things I've annotated as I went, making notes that I've used in staff meetings and 1:1 discussions in the last few weeks. The whole thing reads the way you'd expect and want; it's like talking to Annie Duke in your living room with the right blend of snark, deep insights wrapped in powerful examples, and force. I've read several dozen business and strategy books, and most of them paint generic pictures of leadership or organizational behavior - "Thinking In Bets" actually lays out a map for where your decision making processes (and as a result, leadership and organizational acumen) are deficient, and how to build a self-improvement plan to address those shortcomings. It's a bit of personal coaching in a purely positive direction, which is as rare as it is helpful.
Here are just some of the things I took away:
- Resist the urge to associate bad outcomes (Seahawks losing to the Patriots in the Super Bowl) with bad decisions (Pete Carroll's play call was backing by solid data). My concern is that as we make continued investments in data science and analytics, we will tend to use that data for "resulting" rather than supporting the quality of decisions, and we'll end up with many fewer aggressive or game-changing decisions.
- We can improve the way in which we collect and vet data, and that process may challenge some of our assumptions (one of my immediate reactions was that adopting this line of thinking actually addresses the closely held belief firewall that Matt Inman addresses in his "belief" comic
- Some decision paths have hysteresis - even if you end up at the same outcome, the path you take to get there may be different and therefore your valuation of the outcome is different. The example Duke dissects is winning $1,000 and then losing $900 of it back, versus losing $1,000 and winning $900 back -- you're likely to be happier you "only lost" $100 versus the outcome where you "only won" $100.
- We have to imagine the future impacts of our decisions, which involves scenario planning, careful consideration of risks and future inputs (information) we may or may not see, and some of that future-proofing involves changing our reward valuation such that we are able to break consistently bad or ill-informed decision making processes.
Sound like a lot? It is. It's a dense book. I read it in parallel with a some "lighter" science fiction because I found I had to turn over some of the ideas in my mind and think about both how I've personally exhibited some of the impairing behaviors, and how I could better use these strategies in my professional and personal domains.
Duke is a rare trifecta: she has a solid academic background in cognitive psychology, she was a world-class professional poker player, and is currently a corporate and business consultant. All three of these "Dukes" are poured into the book in compelling and unique ways. I'm a cognitive psychologist and have played a lot of poker (not in her league I can assure you) and so I'm intrigued by the way she lays out the lessons we need to learn.
First: in science, poker, and business you rarely, if ever, have all the information. In poker you don't know your opponents cards and you don't know what they're thinking -- including what they're thinking about what they think you're thinking. In scientific research you only know what's been discovered so far. You're ignorant about the unknown and are trying to extrapolate from current knowledge. In business and finance you unsure of the future, only know some things about markets, and work with incomplete models. In these partial information settings decision-making becomes difficult, tricky, and often contaminated by bias.
Second: virtually all the interesting things we do in life are bets. Every even mildly complex task we confront or decision we make is, in effect, a bet. And bets have consequences. We take an umbrella because we're betting it will rain. We hire a new manager and are betting on her skills. We chose college A over B and bet that we'll get better education. And in these and the myriad other bets we make every day, we don't have all the facts and, because of the ways in which our minds tend to work, we often run afoul of biases and misunderstandings that lead us to make poor decisions.
And Duke lays out for us the roots of these biases and trenchant advice on how to circumvent them -- with sometimes jarring effectiveness designed to force the reader to suddenly confront what they think they know but don't. Some examples: a) Try asking someone "want to bet?" when they claim something to be true. It puts them in a totally different place than when they were simply stating what they believed to be true. b) Look at decisions on the basis of how they were made rather than how they turned out -- you can win with a poor decision and lose with a good one but in the long run, it's the decision-making process that counts. c) Emphasize the need to stop thinking in certainties and recognize probabilities. d) Stop imagining situations as either-or and acknowledge that most things lie along continuums. e) Recognize when you're in an "echo-chamber" where only viewpoints you're currently comfortable with are expressed. Quoting Mill, she reminds us that truth only emerges when all sides are heard.
Along the way we're treated to stories of gamblers, pain and triumph in poker games, the noodling of philosophers, judicial habits of Supreme Court Justices, corporate CEO's, betting markets, biases of social psychologists, a short but penetrating exegesis on skepticism, some advice on child rearing, and a discourse on mental time travel -- and no, I'm not going to tell you what that is. Read the damn book.
Duke makes her living now as a writer and presenter of her approach to decision-making, a corporate speaker, and a business consultant. I can just imagine jaws dropping when she tells a group of high powered corporate execs that one sure way to succeed is to make sure they have naysayers in corporate headquarters, ensure that they ask for dissenting views and voices before making major (or minor) decisions.
Oh, and in passing, she's an engaging writer with a sense of humor who can turn a simple setting into a hilarious little psychodrama, especially when revealing some of the weird and wonderful things that happened to her during her days as a professional poker player.
Top international reviews
Duke writes well and tells many anecdotes - making her points more memorable.
Some of the points are somewhat trivial - and is covered in by greater works by Daniel Kahneman (Thinking fast and slow) and Nassim Taleb (Fooled by randomness). Duke prefers to use the term of "luck" over "randomness" - although it does feels like, quite a bit of inspiration comes from Taleb.
I like the book, although, especially the first 100 pages are rather repetitive, re. the simple message of recognizing randomness (luck) from skill when evaluating the outcome of a decision.
I recommend you to hang in there and finish the book - the last 50-80 pages are quite good.
The list of recommended readings is quite useful.
I settled on the 3 stars due to the points being made in a repetitive manner - but it is close to a 4.
I might read more from Duke. There are some real world (mine is in investing) lessons that are useful to keep in mind.
For example, considering negative predictions, besides positive ones, can insert some scepticism into a decision so rendering it more realistic. A smart decision involves knowing all the pros and cons of each option, which is where history comes in, then weighing up those pros and cons. A few hands, of poker, come to mind where if I had done exactly that I would have folded a cooler.
Annie Duke describes how to manage the decision-learning process. Not all negative outcomes are down to flawed decisions. Random factors will also influence the outcome. Outcome quality is different from decision quality.
Thinking in Bets is useful because it helps you to identify the flawed assumptions in your decision making.
What a bet really is?
A bet a decision about an uncertain future. Thinking in bets starts with recognizing that there are exactly two things that determine how our lives turn out:
the quality of our decisions
Learning to recognize the difference between the two is what thinking in bets is all about.
What’s your best and worst decision?
Take a moment to imagine your best decision in the last year. Now take a moment to imagine your worst decision. Chances are you will equate the outcome of the decision to the quality of the decision. This is because we’re susceptible to “resulting” and hindsight bias.
We must disassociate outcome with decision. A great decision is the result of a good process and that process must represent an accurate picture of our state of knowledge.
Resulting: tendency to equate the quality of a decision with the quality of its outcome
Hindsight bias: tendency, after an outcome is known, to see the outcome as having been inevitable.
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’re susceptible to these mental traps because our brains are not built for rationality. Our brains work basically in two modes. Daniel Kahneman popularized the labels of “System 1” and “System 2”.
System 1: encompasses reflex, instinct, intuition, impulse and automatic processing.
System 2: is how we choose, concentrate and expend mental energy.
Both systems are necessary for survival. Mistakes happen when System 1 overtakes System 2 in decision-making.
Since most of what we do daily exists in automatic processing. We are used to thinking in System 1 mode. The challenge is to figure out how to make decisions within the limitations we already have.
Embrace uncertainty and Redefine wrong:
Embracing “I’m not sure” is difficult. We are trained in school that saying “I don’t know” is a bad thing. Not knowing in school is considered a failure of learning.
Of course, we want to encourage acquiring knowledge, but the first step is understanding what we don’t know. “I don’t know” is not a failure but a necessary step toward enlightenment.
There are many reasons why wrapping our arms around uncertainty and giving it a big hug will help us become better decision- makers. Here are two of them. First, “I’m not sure” is simply 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.
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.
Redefining wrong allows us to let go of all the anguish that comes from getting a bad result. 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. Second, being wrong hurts us more than being right feels good.
All decisions are bets:
All our decisions are always bets. We routinely decide among alternatives, put resources at risk, assess the likelihood of different outcomes, and consider what it is that we value.
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
Most bets are bets against ourselves:
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.
Whenever we make a choice, we are betting on a potential future.
Our bets are only as good as our beliefs:
Our bets are only as good as our beliefs. our default setting is to believe what we hear is true.
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. Our pre- existing beliefs influence the way we experience the world. This irrational, circular information- processing pattern is called motivated reasoning. The way we process new information is driven by the beliefs we hold, strengthening them. Those strengthened beliefs then drive how we process further information, and so on.
Being smart makes it worse:
Being smart makes it worse the smarter you are, the better you are at constructing a narrative that supports your beliefs, rationalizing and framing the data to fit your argument or point of view. we all have a blind spot about recognizing our biases. The surprise is that blind- spot bias is greater the smarter you are.
Offering a wager is the best way to fight these mental traps and brings the risk out in the open, making explicit what is already implicit. We can train ourselves to view the world through the lens of “Wanna bet?”
Once we start doing that, we are more likely to recognize that there is always a degree of uncertainty, that we are generally less sure than we thought we were, that practically nothing is black and white, 0% or 100%. We don’t need someone challenging us to an actual bet to do this. We can think like a bettor, purposefully and on our own, like it’s a game even if we’re just doing it ourselves.
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. Incorporating uncertainty into the way we think about our beliefs comes with many benefits.
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)
Organized Skepticism (discussion among the group to encourage engagement and dissent)
Techniques to become a better bets:
Techniques like Suzy Welch’s 10-10-10, temporal discounting problem, pre-commitment, pre-mortem can help us make better bets on our futures.
Our irrational, impulsive & instant gratification tendency are because we favor our present-self at the expense of our future-self. This is called “temporal discounting”. Thinking about the future and recognizing when we commit temporal discounting and helps us maintain the right frame of mind.
Suzy Welch’s 10-10-10 has the effect of bringing the future-us into more of our in the moment decisions. Before taking a bet/decisions visualize how it will affect us in the next 10 minutes, 10 months and 10 years.
Tilt is a poker term when a player is not in a mental or emotional state to choose optimal strategy.
whenever you feel you are experiencing “tilt”, pre-commit to walk away from the situation.
Backcasting is a useful time-travel exercise where we imagine a successful future and identify necessary steps for reaching our goals. Working backward helps even more when we give ourselves the freedom to imagine an unfavorable future. It also makes it possible to identify when there are low-probability events that must occur to reach the goal
Premortems: working backward from a negative future. It’s an investigation into something awful, but before it happens. Asking “Okay, we failed. Why did we fail?” frees everyone to identify potential points of failure without the for fear of being viewed as a naysayer. 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.
We are going to do better, and be happier, if we start by recognizing that we’ll never be sure of the future.
Although the book becomes repetitive places, this is easily one of the best books have read on decision making and cognitive psycology. If you are planning to read only one book for the year, I recommend you pick this up.
In case if you are looking for super-short and concise book summary of the same, you can check out my twitter thread.
I can’t think of anyone who will not be helped by this book. Highly recommended!
However, I feel that the substance of this book can probably be conveyed and summarised in a 1/3 of its length or even a 20-page business review article, but is unnecessarily expanded to the length of a book with too much elaboration and examples in every chapter. Examples and elaboration is good where there is a need to help readers understand theoretical concepts or develop complicated arguments, but it is not what this book aims to achieve.
a) Usually we associate the outcome of the decision, to the quality of the decision made. This is wrong. Because luck too plays a factor. It could be a bad decision, but because of luck, you come out a winner, and so we associate those decision / underlying thought for the decision as good, and repeat it in future. This could get us in trouble in future. And vice versa.
b) Short Sightedness. Example - A day, made up of 10 experiences goes as under: First 8 experience good, and last 2 experience is bad. We then tend to rate the ENTIRE day as bad. If it was the other day around - the first 8 experience are bad, and the later 2 are good, we will rate the day as good ! In other words, our overall feeling is made up of what happened towards the end of the journey! We need to overcome this short sight bias and look holistically.
Having said the above, if this is your first decision making book - I will advice to read - 'Decisive' by Chip and Dan Heath. And then this and 'The Art of Thinking Clearly'. This book is excellent once you have the basics through other books in place, a kind of a higher level thoughts in decision making.
The book itself is well written, but plenty of waffle in there to fill the pages made it a bit of a struggle to read.
Just making notes on it now for Evernote. It's that good.