Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts
by Annie Duke
Thinking with Bets promises to help us make better decisions in an uncertain and challenging world.
Written by poker champion and decision strategist Annie Duke, the book’s premise is that poker is a good metaphor for life. Decisions in life are bets on hoped-for outcomes. Like poker bets, these decisions can have significant consequences. And they are made under conditions of uncertainty, with incomplete information, and at least some luck is involved.
In the author’s words, “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.”
Duke disentangles our black-and-white thinking about the role of luck and skill in determining outcomes and offers tips on making smart decisions when we lack all the facts. She argues that our beliefs ultimately drive our decisions, and if we are willing to look at and adjust our beliefs, we can optimize both decisions and luck to get the best possible outcomes. The book also offers tips on having the right decision-making mindset and tools to use along the way.
This summary reflects my takeaways from a useful book I recommend to others. Reading a summary isn’t a substitute for reading the book. There’s much more than I can cover here. Plus, this is my interpretation. If these ideas resonate with you, I encourage you to get a copy from your favorite bookseller. Here are the Amazon links: e-book | Audiobook | Print.
Unless otherwise noted, all quotes should be attributed to the book’s author.
A bet is a decision about an uncertain future. Thinking in bets can help improve decision-making skills by avoiding common decision traps and removing emotions. It fosters objectivity, accuracy, and open-mindedness.
All decisions are bets
The meaning of “bet” is more expansive than we think. The dictionary definition includes “a choice made by thinking about what will probably happen,” “to risk losing (something) when you try to do or achieve something,” and “to make decisions based on the belief that something will happen or is true.” These broader aspects of betting–choice, probability, risk, decision, and belief–are part and parcel of our decisions and needn’t involve a casino.
Decisions are always bets. In some cases, the betting elements of decisions are more obvious than in others. Clearly, investments are bets. But so are our parenting choices. We bet that our decisions as parents will give our kids the future we want for them.
Most of our decisions aren’t bets against another person. Instead, they are against all the future versions of ourselves that we are not choosing.
In poker and life, you can make good decisions all along the way and still lose due to luck. If we consider alternatives and probabilities beforehand and allocate our resources accordingly, an unwanted result does not make our decision wrong.
Bets motivate us to evaluate the evidence
A wager brings risks to the surface, making them explicit. It makes us more likely to examine our information objectively, be honest about our beliefs, and be open to updating and calibrating them. The person with the most accurate beliefs wins bets over time.
Poker is better than chess as a model for decision-making. There is very little hidden information or luck involved in chess. Poker, as in life, involves making decisions in the face of incomplete or hidden information and a good deal of luck.
Outcomes are feedback
Expertise comes from knowing when our decisions can teach us a lesson and what that lesson may be. As the future we’ve bet on unfolds into a series of outcomes, we must figure out why things happened the way they did. What was luck, and what was the consequence of our decisions? The more evidence we get from experience, the less uncertainty we have. This is how experts learn.
The outcome of a decision is the result of both skill and luck.
- The product of deliberate decision-making falls under the category of skill.
- The result of factors beyond our control is classified as luck.
Like an outfielder throwing a fly ball with runners on base, we decide where to “throw” an outcome: into the “skill bucket” (which we can control) or the “luck bucket” (which we cannot control). As a result of this initial fielding of outcomes, we can focus on valuable experiences to us (skill) and ignore those not (luck). “With experience, we get closer to whatever “-ER” we aim for: better, smarter, healthier, happier, wealthier, etc.”
Learning from outcomes is a haphazard process. Due to the ambiguity involved, outcomes are hard to interpret. Even when we make the most egregious mistakes, our outcomes are rarely 100% due to skill or luck. Learning from experience does not involve the orderliness of chess.
“Resulting” is what poker players call our tendency to equate a decision’s quality with its outcome’s success, or when we decide whether a decision is good or bad based on a small set of outcomes. That’s a reasonable chess strategy, but not for poker or life. Because of resulting, we are tempted to change strategies just because one or two hands didn’t turn out well.
Working backward from the results, we need to be aware of common traps:
- Mistaking correlation for causation where we assume a false cause-and-effect relationship.
- Hindsight bias, where, after the fact, we see the result as inevitable rather than one of several probabilities.
- Confirmation bias, where we cherry-pick information that confirms the view we prefer.
These biases lead us to under or overestimate the role luck plays in our outcomes and leave unquestioned the accuracy of the beliefs that underpin our decisions.
Our bets are only as good as our beliefs
We make bets/decisions based on our beliefs about the world, and the more accurate our beliefs are, the better our bets will be. This requires two skills: the ability to calibrate our beliefs and identify when our thinking patterns are leading us astray. We must first understand how beliefs are formed and recognize that some may be way off.
Hearing is believing
Beliefs are formed haphazardly, based on what we hear in the world, without researching for ourselves. Harvard psychology professor Daniel Gilbert summarized a vast body of research: “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.”
- How we think we form abstract beliefs: Hear something→think about it, vet it, determine if it is true or false→form a belief.
- How we actually form abstract beliefs: Hear something→believe it’s true→form a belief→maybe, sometimes think about it, and vet it.
Our default setting is to believe what we hear. Our early ancestors formed new beliefs solely based on physical experience. Seeing was and still is believing. We didn’t develop much skepticism when our beliefs were based on direct experience, especially when our lives were at stake. Today, that lack of skepticism affects how we form abstract, language-based beliefs. Thus, we trust what we hear.
Beliefs are stubborn
We don’t naturally take in information in a way that supports truth-seeking. Instead, we tend to adjust our interpretations to align with our existing beliefs in a process known as “motivated reasoning.” This reinforces those beliefs in a self-perpetuating cycle.
We all have blind spots when it comes to recognizing our biases. People are better at recognizing biased reasoning in others than recognizing bias in themselves.
We’re predictably irrational
Self-serving bias and motivated reasoning kick in when our self-image is at stake. We take credit for the good stuff and blame the bad on luck. We act as if good outcomes are perfectly correlated with skill and bad outcomes are perfectly correlated with luck. As a result, we don’t learn well from experience.
In all-or-nothing thinking, complex things are boiled down into two categories to provide clarity and closure. With no shades of gray between the extremes, “somewhat” is not an option.**
Motivated reasoning and self-serving bias are exacerbated by all-or-nothing thinking. If our only choices are 100% right or 100% wrong or skill versus luck with no middle ground, then any information that contradicts a belief must be changed or discarded. **We can’t make wise choices when we view the world from the extremes.
Learning from others comes with biases
We use the same black-and-white thinking when assessing the outcomes of our peers, except in reverse–their bad outcomes are clearly their fault, while their good outcomes are because they got lucky.
Using uncertainty to our advantage
Good poker players and decision-makers are comfortable in an uncertain and unpredictable world. Knowing that they rarely know exactly how something will turn out, they sort out how uncertain they are and make their best guess based on the probability of different outcomes. The accuracy of their guesses depends on how much information they have and how experienced they are.
A healthy response to information that disagrees with our beliefs starts with embracing uncertainty. It’s thinking in degrees of certainty instead of black or white.
The more we calibrate our beliefs, the less judgemental we become. Information that doesn’t agree with us stops being a threat. Changing degrees of certainty is easier than making complete reversals. Our internal narrative becomes less about being right or wrong but how well we incorporate new information.
When we express degrees of certainty, we signal to ourselves and others that we’re trying to get at the truth, and thoughtful and self-aware people are more credible. It’s an invitation to others to work with us–that vetting our beliefs is a work in progress.
Science advances quickly because scientists involve their communities in testing and challenging their findings and explanations. By sharing our uncertainties with others, we encourage them to act like “scientists” in our lives, which advances our beliefs faster.
Using probabilistic thinking, we’re less likely to view negative results as proof of a bad decision. Instead, we recognize that a sound decision can be influenced by other factors such as luck, incomplete information, or small sample size.
Losses hurt us twice as much as wins. We need two favorable results for every unfavorable result to break even emotionally since being right feels like winning, and being wrong feels like losing.
The more productive habit of thinking in bets requires a shift in mindset. A way to start is to recognize what we have at stake as we sort our outcomes into luck and skill buckets and begin to act accordingly.
One way to develop this habit is by treating outcome fielding like a bet. If we were challenged to bet on how we handle our outcomes, we would be less likely to rely on self-serving bias. We’d be more objective in acknowledging both luck and skill. We’d consider alternative hypotheses and explore opposing arguments, bringing us closer to the truth. And we’d take a more objective perspective in evaluating our own outcomes versus those of others.
“Truthseeking pods” or a buddy system can be an effective way to help each other think in terms of bets. Accuracy, accountability, and openness to alternative viewpoints should be the priorities. “Doing it on our own is just harder.” The group must be committed to exploratory rather than confirmatory thought, which reinforces our beliefs and views. (The book contains an extensive discussion of these groups’ roles, framing, and work.)
Skepticism often gets a bad rap. Skepticism simply questions why things might not be true. While there is an objective truth, not everything we believe about the world is true. Skepticism is embodied by thinking in bets, which encourages us to examine our knowledge, beliefs, and confidence level. Skepticism should be the cornerstone of effective decision-making as it moves us closer to what is objectively true.
In the broader world (which lacks rigor to truth-seeking), to maximize our ability to engage in truthseeking communication, we need to take its most constructive, civil elements and introduce them carefully.
- Express uncertainty. Uncertainty improves truthseeking by inviting everyone around us to share helpful information as well as dissenting opinions.
- Lead with assent. Listen for what you agree with, and state it expressly. Use “and” instead of “but.” Present new information as a supplement instead of a replacement. Assent makes dissent more palatable.
- Get a temporary agreement for truthseeking. If someone is off-loading emotion to us, we can ask if they are venting or seeking advice.
- Focus on the future. Mutually recognize that the problem usually isn’t identifying the positive goals we strive for but how we execute the decisions along the way.
“Don’t shoot the message.” An idea should not be disparaged or ignored simply because we dislike who or where it came from. A negative opinion about the messenger can close our minds and prevent learning. A positive opinion may lead us to accept a message without much scrutiny. Information should be evaluated independently of its source to determine accuracy.
Temporal discounting is the tendency to favor our present self at the expense of our future self. Instead of waiting for a bigger reward later, we’re willing to take an irrationally significant discount now. Our brains are designed for temporal discounting.
A solution is to “remember the future.” Considering the past and future improves our rational decision-making. Imagining the future uses the same neural network we used to remember the past. Thinking about the future involves creatively combining memories to imagine a possible outcome. We can invoke that thinking to help us avoid the consequences of temporal discounting. We are more likely to make better decisions by considering past decisions and their consequences.
Moving regret in front of our decisions
If regret occured before a decision, it could help us make better choices. To achieve this, we can interrupt our decision-making process to consider our past and future selves. Imagining how we might feel about that decision in the future or how we would feel today if we made the decision in the past can help. Either method can improve decision-making.
The 10-10-10 strategy
The 10-10-10 tool brings future-us into our present decisions. It involves asking, what are the consequences of my decision in 10 minutes, 10 months, and 10 years? Duke suggests turning the tool around, asking, how would I feel if I had made this decision 10 minutes ago, 10 months ago, or 10 years ago? It forces us to look at the present moment in perspective and prevents us from getting tilted.
Zooming out is a more objective way to view our happiness. Our problem is that we see happiness as a stock ticker. We zoom in and magnify moment-by-moment and day-by-day changes. Instead, we should think of happiness as a long-term stock holding. Zooming in not only magnifies, it distorts, causing us to react emotionally and disproportionately to momentary fluctuations.
Beware of tilt
Tilt is when we drastically overreact to something. The brain’s emotional center starts pinging, and the amygdala shuts down the prefrontal cortex. This is like when you shake a pinball machine; it lights up, pings, and shuts off. We light up and shut down our cognitive control center. On tilt, we are emotionally unhinged and can’t make good decisions. “Tilt is the poker player’s worst enemy.”
A Ulysses contract is a current action that prevents your future self from engaging in harmful behavior. We can do something like Ulysses did when his ship passed the Sirens. We can make commitments that avoid falling into the trap in the future. For example, setting up automatic savings deposits or only keeping healthy snacks in the house.
Decision swear jar
A “decision swear jar” is a precommitment or a Ulysses contract in action, where we promise to take a moment when we start to stray from seeking the truth. It’s a “stop and think” moment when we find ourselves using words or thinking in ways we’ve been trying to avoid because they’re signs of irrationality.
Scenario planning involves considering a wide range of possibilities for how the future may unfold in highly uncertain conditions. It involves imagining potential futures and estimating the probabilities involved. It is not about perfection but acknowledging that every decision we make is already a prediction. We can avoid black-and-white, 0%, or 100% thinking by assigning probabilities and getting closer to reality.
Backcasting & premortems: working backward from the future
Backcasting is envisioning a positive outcome and then working backward to identify the steps needed. It allows you to “time-travel” to a successful future and determine the necessary steps for achieving your goals. It’s a form of “prospective hindsight,” which research has found increases by 30 percent the ability to identify reasons for future outcomes correctly.
Premortems are a way to investigate potential adverse outcomes before they happen. They encourage skepticism and dissent in decision-making so that everyone feels free to identify potential problems and failures. This leads to a more thorough and well-rounded decision-making process.
Considering both positive and negative future possibilities helps us plan and prepare for broader challenges. We can respond quickly to unexpected changes by anticipating negative outcomes, making us better equipped to handle adverse situations. A process that Gabriele Oettingen of NYU calls “mental contrasting.”
Life, like poker, is one long game. [R]ecognizing that we’ll never be sure of the future… 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.
Book details and where to buy it:
Get the book on Amazon: e-book | Audiobook | Print (affiliate links*)
Amazon rating: 4.3
Goodreads rating: 3.9
Page count: 288
Publication date: February 6, 2018
Author website: Annie Duke – Author. Speaker. Decision Strategist.
*These are affiliate links. We may receive a small commission from Amazon on your purchase at no additional cost to you.