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Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts Hardcover – Illustrated, Feb. 6 2018
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Poker champion turned business consultant Annie Duke teaches you how to get comfortable with uncertainty and make better decisions as a result.
In Super Bowl XLIX, Seahawks coach Pete Carroll made one of the most controversial calls in football history: With 26 seconds remaining, and trailing by four at the Patriots' one-yard line, he called for a pass instead of a hand off to his star running back. The pass was intercepted and the Seahawks lost. Critics called it the dumbest play in history. But was the call really that bad? Or did Carroll actually make a great move that was ruined by bad luck?
Even the best decision doesn't yield the best outcome every time. There's always an element of luck that you can't control, and there is always information that is hidden from view. So the key to long-term success (and avoiding worrying yourself to death) is to think in bets: How sure am I? What are the possible ways things could turn out? What decision has the highest odds of success? Did I land in the unlucky 10% on the strategy that works 90% of the time? Or is my success attributable to dumb luck rather than great decision making?
Annie Duke, a former World Series of Poker champion turned business consultant, draws on examples from business, sports, politics, and (of course) poker to share tools anyone can use to embrace uncertainty and make better decisions. For most people, it's difficult to say "I'm not sure" in a world that values and, even, rewards the appearance of certainty. But professional poker players are comfortable with the fact that great decisions don't always lead to great outcomes and bad decisions don't always lead to bad outcomes.
By shifting your thinking from a need for certainty to a goal of accurately assessing what you know and what you don't, you'll be less vulnerable to reactive emotions, knee-jerk biases, and destructive habits in your decision making. You'll become more confident, calm, compassionate and successful in the long run.
"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
- ASIN : 0735216355
- Publisher : Portfolio; Illustrated edition (Feb. 6 2018)
- Language : English
- Hardcover : 288 pages
- ISBN-10 : 9780735216358
- ISBN-13 : 978-0735216358
- Item weight : 413 g
- Dimensions : 14.48 x 2.54 x 21.84 cm
- Best Sellers Rank: #106,684 in Books (See Top 100 in Books)
- Customer Reviews:
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I'm now reading The Big Bluff (M. Konnikova) who takes on a similar challenge.
Printer dropped the ball on this one.
By Amazon User on January 8, 2020
Printer dropped the ball on this one.
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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.
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.
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.