Top positive review
5.0 out of 5 starsDecision Making For Everyone's Long Run Betterment
Reviewed in the United States on June 29, 2020
This book is about how to make better decisions, from the trivial to the most consequential,
in all endeavors of life: personal, business, political/economic forecasting, gambling, etc.
It explains how to think about potential decision options, given that most entail varying
degrees of risky or uncertain outcomes. Without attempting to bog the reader down in
the mathematics of probability theory, the core of most textbook approaches
to decision making, it clearly demonstrates how to incorporate probabilistic
uncertainty into our decision-making thought processes. Since most decisions
we make lead to outcomes which have an element of probabilistic uncertainty,
the book's approach is relevant to all walks of life.
Although Duke does not frame it this way, I think a brief explanation
of two fundamentally different types of situations captured by the tool of
probabilistic reasoning may be helpful. This dichotomy leads to what have
been termed Objective and Subjective probabilities.
Objective probabilities are those associated with outcomes that are truly random
with specific known numerical probabilities governing various occurrences.
For these, no amount of thinking or information on the part of those of us observing
the situation can improve on understanding inherent randomness of the underlying
activity leading to some outcome, i.e., the known probabilities are the best we can
do in anticipating the ultimate outcome of the event. In other words, we can't improve
on the odds of various outcomes however smart we may be. The best examples for
this type of probability are things happening in the world of quantum mechanics,
e.g., predicting the time at which a radioactive element or a neutron will decay.
A close second for most practical purposes would be the outcome of the spin of a
roulette wheel or the outcome of a fair roll of a pair of dice. Objective probabilities are set by
the laws of nature, and, once known, the actual outcomes of a large number of repetitive
observations of the same situation will lead to a predictable distribution of outcomes.
Subjective probabilities, on the other hand, are probabilities we assign to various
outcomes when faced with decisions leading to uncertain outcomes. They are not
fixed or absolute numbers driven by the laws of nature. We may assign
a numerical value to a particular outcome, e.g., a 70% chance the Patriots will win
the Super Bowl against the Eagles, or, they may be qualitative rankings of possible
outcomes, e.g., highly likely, pretty likely, not sure, very unlikely, etc. Three key things
about Subjective probabilities are:
1. Different people thinking about the same event will usually have different
estimates of the probabilistic outcomes. Subjective probabilities are not facts.
They are opinions.
2. The information/knowledge the decision maker has about the situation will
affect their probability estimates of different outcomes.
3. Good decision makers in many particular endeavors like poker or investing will usually,
i.e., more frequently but not always, have better success in predicting uncertain outcomes
than will poor decision makers.
During the first couple of hundred years that mathematicians tried to develop the
field of probability, they were generally focused on thinking about things they believed
were governed by Objective probabilities. Even the game of poker was thought of in this
way for years. Early in the 20th century, thinkers began to crystallize the idea of Subjective
probabilities as distinctly different from Objective probabilities. John Maynard Keynes
attempted to develop a full blown theory with his 1921 book "A Treatise On Probability".
Although it had some excellent ideas, it did not succeed in laying out a firm mathematical basis
for Subjective probability. This took the Italian mathematician, Bruno de Finetti, to define
a mathematically rigorous treatment of Subjective probability in his 1937 book. And,
thinking in bets was core to his approach.
By the 1950's, de Finetti's approach became the basis for aspects of economics , game theory,
and decision making under uncertainty. The latter pertains to virtually all decision making we
encounter in daily life.
So, what does Subjective probability have to do with bets. In short, everything. When we make a bet, we do so with a view of the chances of winning, either a qualitative view, or a quantitative view, i.e., a probability. A bet is the manifestation of one's personal estimate of the Subjective probability of the outcome you are favoring.
The beauty of Duke's book is that it explains with lots of examples of how to apply
Subjective probabilistic thinking in all sorts of situations without having to worry about
the sound basis of the underlying mathematics. Poker is a great example of a situation in which a
Subjective probabilistic assessment is critical, since trying to gauge how others will behave in playing a hand is truly a subjective, rather than objective, assessment. Thus her poker and human psychology background really do mark her as expert in teaching smart decision making for a broad audience. Since information and knowledge are key to making sound estimates of Subjective probabilities, Duke spends a lot of time on how to build a broad information base pertaining to prospective decisions, and how to guard against biases we naturally have that can cause us to resist relevant information that may rub us wrong. She implies that for lots of decisions, one can do better simply by stepping back and thinking about the pro's and con's, rather than just going on an impulse. Oftentimes we have relevant information in our head, if only we would think about it. Get external inputs as well, e.g., friends or Google. Information is key and being open to inputs that may conflict with your beliefs will improve your decision quality in the long run.
Thus,the book is suitable for both the mathematically inclined and the mathematically averse. Although the math is absent, some may find some of the concepts a bit difficult or, on the surface, repetitive, as evidenced by some of the reviews posted here on Amazon. Stated differently, it may be difficult sometimes to appreciate the applicability of the advice to settings that go beyond the specific example used preceding her current point, but a little thought brings it home. No doubt, a few readers of the book will 'get it' and some won't, though they may still find some of the stories entertaining. None-the-less, I highly recommend it as worthwhile for both personal improvement, as well as supplemental reading in almost any graduate school curriculum.
