Thinking in Bets was released in 2018. It focuses on how luck always impacts on the outcomes of our decisions. Hence, the best decision will not always yield the best outcome. The key to long-term success is to think about decisions in percentages. We must accept when an outcome was highly unlikely and when we just got lucky. Plus, we must not kick ourselves if a decision with a 90% likelihood of a positive outcome fails. We must look at these failures as the influence of luck rather than wrong decision making.
About Annie Duke
Annie Duke is an American professional poker player. She previously held the award for leading money winner of any woman in the history of the World Series of Poker. Plus, she holds a gold bracelet from the 2004 World Series of Poker. In 2007, Annie co-founded a non-profit called Ante Up for Africa. The non-profit provides funding for charities working in African nations by raising money through charitable poker tournaments.
“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.” – Annie Duke
Our Brains Weren’t Built For Rationality
“The secret is to make peace with walking around in a world where we recognize that we are not sure and that’s okay. As we learn more about how our brains operate, we recognize that we don’t perceive the world objectively. But our goal should be to try.” – Annie Duke
Our brains have evolved to create certainty and order in the world around us. However, this is not the case. Luck plays a significant role in our lives. Ignoring the importance of luck might be more comfortable, but it is undoubtedly less rational.
When we work backward from results to identify how things happened, we are often susceptible to cognitive biases. For example, we often assume causation when only a correlation exists. Additionally, we tend to cherry-pick data that confirms our narrative.
We are willing to lie to protect ourselves from the idea that our decisions, combined with luck, can lead to bad outcomes. The sooner we understand this, the more rational our decisions can be.
Every Decision as a Bet
“The approach of thinking in bets moved me toward objectivity, accuracy, and open-mindedness. That movement compounds over time to create significant changes in our lives.”
The trap that many people fall into is thinking in absolutes. We often think about decisions as either being right or wrong. Which category the decision falls into depends on the outcome. Therefore, issues arise when we believe our decision to be entirely right before an event. If the outcome does not align with our prediction, our confidence will be knocked.
The strength of thinking about every decision as a bet is that you stop to gather more information and think more logically. When you start to think of decisions as bets, you begin to see a range of possible futures and adjust your degree of certainty accordingly.
Thinking in bets also allows you to be more compassionate with yourself. You are no longer attaching an ego to your decisions. These decisions could lead to a different outcome than you expected. Detaching your ego from these decisions is liberating.
Positive Expected Value
As well as thinking about decisions as bets, we also have to consider the possible rewards. The expected value of decisions is calculated by multiplying the likelihood of an outcome by the possible reward associated with the outcome. Here is the equation:
Expected Value = Possible Reward x Likelihood of reward
You should always make a decision that has a positive expected value. A positive expected value is when the expected value is greater than your personal cost. Personal cost includes the time it takes to carry out your decision and the cost of money and attention you have to commit.
Think of an example related to poker. If a poker player has a 50% chance of winning a $200 pot, they have an expected value of $100. If this poker player only has to commit $50 to the pot to see if their hand is better than her opponents, they have a positive expected value. This is because the expected value ($100) is greater than the personal cost ($50). Even if this poker player loses, they have still made the right decision. If individuals make this right decision enough times, they will still make money in the long run. So, you can apply this to your life. Commit with confidence to decisions that have a positive expected value. If you do not get the desired result, move on with the knowledge that it was still a good decision.
“What makes a decision great is not that it has a great outcome. A great decision is the result of a good process.” – Annie Duke
The quality of an outcome does not equal the quality of the decision. In life, you can make terrible decisions that still produce good results. However, if you do not critically assess that decision and continue to make the same mistakes, you will be punished. You will have more bad outcomes than good.
Annie recommends adopting a specific practice after receiving a good result. We must find at least two mistakes and admit them to a friend, a coworker, or a partner. This will keep us level-headed. Plus, it will help us make the shift from being results-focused to being process-focused. It is much easier talking about mistakes we have made en route to a good outcome than mistakes that led to a loss.
One of the biggest mistakes that you can make is to attribute good outcomes with how great you are. When things go wrong, you will blame factors that you claim are out of your control. We need to eliminate this self-serving bias. If we can eliminate this bias, we can obtain an objective truth.
If we do not accept our bad decisions as part of the reason for bad outcomes, we will never learn. We close down the opportunity to better ourselves every time we blame external factors.
Instead of thinking of confidence as all-or-nothing, we should accept that uncertainty is a normal part of life. Annie highlights several benefits to incorporating uncertainty into how we view our decisions:
- We are less likely to succumb to motivated reasoning. We will feel better in making small adjustments if we no longer view decisions as either right or wrong
- We become less judgmental of ourselves, as we understand that uncertainty is a part of life. We might have made the correct decision, and things just didn’t work out at that time. Next time you make that decision you might get the outcome you expected
- People will respect our opinions more. Most people believe that 100% confidence in a view is required for people to value your opinion. This is not the case. People actually value your opinion less if you are unwilling to accept that certain circumstances could impact the outcome
- People will look to collaborate and create with us. If we declare something 100% correct, we are shutting down any creative conversation about new ideas. People will not offer new information if you are already certain about your decision. Accept uncertainty around your preferred decision, and you could produce a decision with an even greater positive expected value
In the long run, the cumulative effect of us making better decisions is like compound interest. These small improvements in our decision making can have huge effects on everything that we do.
“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.” – Annie Duke
As humans, we tend to compare ourselves to others. This includes comparing our outcomes based on decisions. Comparisons only cloud our decision-making. They add unnecessary layers of complexity. Instead of comparing ourselves to others, we should consider our own decisions and seek to improve their quality. Although another person may have had a good outcome from a specific decision, this could have been down to luck. As with your own decisions, make sure you logically consider others’ decisions. Do not copy others’ decisions based on their outcomes, but based on their expected outcomes.
The 10-10-10 Rule
The 10-10-10 Rule is to always think about your future self. Try not to focus on what is happening right now. Instead, focus on what is going to happen in the future. We should consider how we would feel about a decision in 10 minutes, 10 months, and 10 years.
If you can make a decision that is likely to benefit you in the future, then you should do it. If the cost today is less than the expected value of the future outcome, then you should do it. Don’t be lazy and think ‘this is a problem for my future self.’
We also have to be patient if we want to reach our goals. If we continue to engage with decisions that have positive expected values we will reach our life goals.
Backcasting: Working Backward From a Positive Future
We will make better decisions in life if we identify a goal and work backward from there. This type of approach allows us to see the impact of small positive decisions and the impact of low-probability events that were influenced by chance. This should help us accept that even the most ambitious goals are not too ambitious. A combination of low-probability events and good decision-making can help you reach any goal.
“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.” – Annie Duke
Thinking about the steps required to reach a positive goal is a useful approach. However, we should never neglect what Annie calls pre-mortems. It is a popular idea that we must visualize success to achieve it. Plus, we must block out any negative thoughts. However, negative visualization is vital for achieving our goals.
Undoubtedly, it is less enjoyable considering the potential failures in your long-term plan. However, in the long run, this approach will help you to think more logically. Plus, it will help you to make the best decisions when it comes to it.
All of the tips Annie provides are reliant on the action. If you do not act and make decisions today, you will not become better educated for making decisions in the future. Once you have enough information input, you can start to increase your probability of success. Failures and successes will help you iterate your future decisions.
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