Thinking in bets book summary

Our problem

Life is Poker, not Chess

Author argues that life is more like poker than chess. In poker, you have incomplete information about your opponents’ cards. Whereas in chess, you have complete information about the board. Unlike poker, chess contains no hidden information and very little luck.

There are 2 bad mindset people often have:

  • Resulting: Judging the quality of a decision based on the quality of the result. The fact is, you could make bad decision then have good result and vice versa
  • Hindsight bias: Accepting the outcome as inevitable once it occurs. Meanwhile, there are many other possibilities could happen, it could have been worse or better

Beliefs & emotions

This is how we think we form beliefs:

  1. We hear something
  2. We determine whether it is true or false.
  3. We form the belief based on the calibration.

Unfortunately, this is how we actually form beliefs:

  1. We hear something
  2. We believe it
  3. Only sometimes, later we have the time or because of some special event, we rethink about it and determine whether it is true or not

The default setting of our brain is to believe everything we hear.

Our brains evolved to create certainty and order, so we are uncomfortable with the idea that luck plays a significant role in our lives. We recognize the existence of luck, but resist the idea that, despite our best efforts, things might not work out the way we want.

Everything is a bet

Jobs and relocation decisions are bets. Sales negotiations and contracts are bets. Buying a house is a bet. Ordering chicken over steak is a bet, etc. Ignoring the risk and uncertainty in every decision might make us feel better in the short run, but the cost to the quality of our decision making can be immense.

The solution

Acknowledging uncertainty

You won’t win or get good outcomes with everything you do. The important thing is to continue to learn, evaluate, and improve over time. But don’t expect to always win, even if you make a great decision.

A great poker player who makes significantly better strategic decisions, will still be losing over 40% of his games.

Luck vs. Skill

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”

The quality of our lives = the sum of decision quality (bets) + luck

In the long run, the cumulative effect of being a little better at decision-making like compounding interest — can have huge effects on everything that we do. In the long run, the more objective person will win against the more biased person.

Redefining confidence

We are generally discouraged from saying “I don’t know” or “I’m not sure”. People regard those expressions as vague, unhelpful, and even evasive. But getting comfortable with “I’m not sure” is a vital step to being a better decision-maker.

In fact, there is rarely absolute “100% right” or “100% wrong” in real life. Most of the time it’s somewhere in between. We assume that if we don’t come off as 100% confident, people will not value our opinion. This is usually not true. A “64% sure” claim with good backup evidence is more believable than an unverified “100% sure” claim.

Mental time travel

For us to make better decisions, we need to have a vision for our future.

Ulysses Contract

An Ulysses Contract is when our past-selves prevent our present-selves from doing something stupid.

For example:

  • If you want to eat healthy and have a penchant for potato chips, you could choose not to ever have potato chips in the house. That way, when you’re feeling hungry and impulsive late at night, you won’t have them available to you. You could always go to the store, but this requires much more effort, and you’re less likely to do it.
  • Imagine that you have trouble waking up when your alarm goes off. When you’re half-asleep, you reach over, hit the snooze button, and doze off for a few more minutes. This obviously doesn’t work. So you decide to put your alarm on the other side of the room. Now, to turn it off, you have to get out of bed and walk over to it. You could still crawl back into bed afterwards—but, you’ve reduced the likelihood of making that choice. You’re forcing yourself to take an extra step before you can get to that bad decision.

The next time you anticipate a future decision, make a Ulysses contract with your future self.

The power of regret

The author argues that we hate to lose more than we love to win. A 50$ loss inflict as much pain as a $100 give us happiness. Take 2 scenarios:

  1. First you win $1000, then you lose $900. In the end you win $100
  2. First you lose $1000, then win $900. You ended up losing $100

In the first case, the $1000 was ours and we lose. In the second case, we felt we achieved something by gaining most of our loss back. We tend to feel better in the second scenario despite losing.

The power of regret can be harnessed in decision-making. We can utilize 2 strategies to optimize our vision:

  • Backcasting: Working backward from a positive future, thinking about why did we got there. What could we do from now to encourage this to happen? This is the positive frame that helps you visualize what you want.
  • Pre-mortems: Imagine a negative future, thinking about why we ended up there. What could we do to prevent this? This helps you create a plan that reduces the probability of these things from happening.

Place a bet

Judges and Scientists are known for being truth seekers, yet they still fall prey to bias. But by placing a bet, the chance of being biased is reduced. An experiment shows there is a difference of 58% accuracy (without betting) vs. 71% accuracy (with betting). By placing a bet, you are held accountable for your decisions, thus improving the quality.

Join a group

Join a group can help you gain more information and improve the quality of your decision-making. Make sure that you are surrounded by people with a diversity of opinions and perspectives. Otherwise, you are just amplifying your bias. Your group needs to have a goal to seek accuracy and objectivity.

Buy the book

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Annie Duke has a website. You can checkout books she wrote here:

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