Thinking in bets | INSPIRATTIO

Annie Duke es una autora, conferenciante y consultora en toma de decisiones. Fue una exitosa jugadora de poker profesional, siendo la única mujer en ganar la World Series of Poker Tournament of Champions y la NBC National Poker Heads-Up Championship. Antes de dedicarse al poker estudió Psicología Cognitiva en la Universidad de Pennsylvania.

Annie Duke es co-fundadora de The Alliance for Decision Education, una ONG dedicada a la enseñanza de habilidades para la toma de decisiones, y ejerce numerosos cargos en organismos públicos e instituciones privadas.

En Thinking in bets, Annie Duke enseña a reducir la incomodidad en situaciones de incertidumbre y a tomar decisiones “inteligentes”, bajo la premisa de que ganar o perder son indicadores débiles de la calidad en la toma de decisiones: el resultado de una buena decisión puede ser negativo, y viceversa, debido a la suerte o a circunstancias fuera de nuestro control. El rumbo de nuestras vidas, por tanto, depende de la calidad de nuestras decisiones, pero también de la suerte.

Nuestras notas están tomadas de la versión original del libro.

Treating decisions as bets –> find learning opportunities in uncertain environments. Thinking in bets will improve decision-making throughout our lives
Two things determine how our lives turn out: the quality of our decisions and luck

Winning and losing are only loose signals of decision quality. You can win lucky hands and lose unlucky ones

Life is poker, not chess

49^th Super Bowl, 2015: Seattle Seahawks vs. New England Patriots. Decision by Pete Carroll

Carroll got unlucky. He had control over the quality of the play-call decision, but not over how it turned out
He made a good-quality decision that got a bad result

Tendency to equate the quality of a decision with the quality of its outcome. Why are we so bad at separating luck and skill? Why do we create such a strong connection between results and the quality of the decisions preceding them? –> Hindsight bias

Our brains weren’t built for rationality

When our ancestors heard rustling on the savanna and a lion jumped out, making a connection between “rustling” and “lions” could save their lives –> survive by finding predictable connections
Incorrectly interpreting rustling from the wind as an oncoming lion is called a type I error, a false positive. The consequences of such an error were much less grave than those of a type II error, a false negative. A false negative could have been fatal: hearing rustling and always assuming it’s the wind would have gotten our ancestors eaten
The shortcuts built into the automatic processing system kept us from standing around on the savanna, debating the origin of a potentially threatening sound while its source devoured us. Those shortcuts keep us alive, routinely executing the thousands of decisions that make it possible for us to live our daily lives
We need shortcuts, but they come at a cost. Many decision-making missteps originate from the pressure on the reflexive system to do its job fast and automatically
Avoid assuming causation when there is only a correlation
The challenge is not to change the way our brains operate but to figure out how to work within the limitations of the brains we already have

Separating the luck from the skill, the signal from the noise, guarding against resulting and keeping emotions out of the process

Poker vs. chess

John von Neumann: “Chess is not a game. Chess is a well-defined form of computation. You may not be able to work out the answers, but in theory there must be a solution, a right procedure in any position. Real life is not like that”
The decisions we make in our lives involve uncertainty, risk and occasional deception. Trouble follows when we treat life decisions as if they were chess decisions
Chess isn’t a great model for decision-making in life, where most of our decisions involve hidden information and luck. Poker is a game of incomplete information; it is a game of decision-making under conditions of uncertainty; there is also an element of luck in any outcome

In chess, outcome correlates more tightly with decision quality. In poker, it is much easier to get lucky and win, or get unlucky and lose

If we want to improve in any aspect of our lives, we have to learn from the results of our decisions. The quality of our lives is the sum of decision quality plus luck
Resulting is a reasonable strategy for learning in chess. But not in poker, or life
Making better decisions starts with understanding that uncertainty can work a lot of mischief
He underestimated the amount and effect of what he didn’t know
Getting comfortable with “I’m not sure” is a vital step to being a better decision-maker. We have to make peace with not knowing –> virtue of recognizing the limits of our knowledge
What makes a decision great is not that it has a great outcome. A great decision is the result of a good process
Good poker players and good decision-makers have in common their comfort with the world being an uncertain and unpredictable place. They understand that they can almost never know exactly how something will turn out. They embrace that uncertainty and, instead of focusing on being sure, they try to figure out how unsure they are, making their best guess at the chances that different outcomes will occur. The accuracy of those guesses will depend on how much information they have and how experienced they are at making such guesses

More experience will allow the player to narrow down the possibilities. None of that experience, however, makes it possible for a poker player to know how any given hand will turn out

An expert in any field will have an advantage over a rookie. But neither the veteran nor the rookie can be sure what the next flip will look like. The veteran will just have a better guess
When we think in advance about the chances of alternative outcomes and make a decision based on those chances, it doesn’t automatically make us wrong when things don’t work out. It just means that one event in a set of possible futures occurred. Any prediction that is not 0% or 100% can’t be wrong solely because the most likely future doesn’t unfold
When we think probabilistically, we are less likely to use adverse results alone as proof that we made a decision error, because we recognize the possibility that the decision might have been good but luck and/or incomplete information intervened

Maybe we committed our resources on a long shot because the payout more than compensated for the risk, but the long shot didn’t come in this time
Maybe we made the best choice based on the available information, but decisive information was hidden
Maybe we chose a path with a very high likelihood of success and got unlucky

If we aren’t wrong just because things didn’t work out, then we aren’t right just because things turned out well –> give up the good feeling of “right” to get rid of the anguish of “wrong”

Wanna bet?

If we follow the example of poker players by making explicit that our decisions are bets, we can make better decisions and anticipate (and take protective measures) when irrationality is likely to keep us from acting in our best interest
Aspects of betting: choice, probability, risk, decision, belief
Our decisions are always bets. We are betting against all the future versions of ourselves that we are not choosing. We are betting that the future version of us that results from the decisions we make will be better off. We are constantly deciding among alternative futures
For survival-essential skills, type I errors (false positives) were less costly than type II errors (false negatives): better to be safe than sorry
Beliefs can radically alter the way we process a common experience, as they drive the way we process information. Our pre-existing beliefs influence the way we experience the world
Instead of altering our beliefs to fit new information, we do the opposite, altering our interpretation of that information to fit our beliefs –> motivated reasoning: protecting that belief guides how we treat further information relevant to the belief
When additional information agrees with us, we effortlessly embrace it. How we form beliefs, and our inflexibility about changing our beliefs, has serious consequences because we bet on those beliefs
We are wired to protect our beliefs even when our goal is to truthseek. Being smart and aware of our capacity for irrationality alone doesn’t help us refrain from biased reasoning. As with visual illusions, we can’t make our minds work differently than they do no matter how smart we are. Intellect or willpower alone can’t make us resist motivated reasoning
Not much is ever certain: perpetual learning can make any prior fact obsolete

Even scientific facts can have an expiration date (e.g. species becoming “unextinct”)

If we follow the example of poker players by making explicit that our decisions are bets, we can make better decisions and anticipate (and take protective measures) when irrationality is likely to keep us from acting in our best interest
Incorporating uncertainty into the way we think about our beliefs creates open-mindedness
Declaring our uncertainty in our beliefs to others makes us more credible communicators

Communicating we aren’t sure, we open the door for others to tell us what they know
Admitting we are not sure is an invitation for help in refining our beliefs, and that will make our beliefs much more accurate over time as we are more likely to gather relevant information

It feels better to make small adjustments in degrees of certainty instead of having to grossly downgrade from “right” to “wrong”

Acknowledging that decisions are bets based on our beliefs, getting comfortable with uncertainty, and redefining right and wrong are integral to a good overall approach to decision-making

Fielding the unfolding future

While experience is necessary to becoming an expert, it’s not sufficient. What are the obstacles in our way that make learning from experience so difficult?
“Experience is not what happens to a man; it is what a man does with what happens to him” –> identify when the outcomes of our decisions have something to teach us and what that lesson might be
As outcomes come our way, figure out whether those outcomes were caused mainly by luck or whether they were the predictable result of decisions we made
Our beliefs and our bets improve with time as we learn from experience. The more information we have, the better we get at making decisions about which possible future to bet on

Luck vs. skill: fielding outcomes

The way our lives turn out is the result of two things: the influence of skill (result of our decision-making) and the influence of luck (result of things that we can’t control)
Unlike in chess, we can’t simply work backward from the quality of the outcome to determine the quality of our beliefs or decisions

A negative outcome could be a signal to examine our decision-making. But it could also be due to bad luck, unrelated to our decision
A good outcome could signal that we made a good decision. But it could also mean that we got lucky, in which case we would be making a mistake to use that outcome as a signal to repeat that decision in the future

The way things turn out can be the result of our decisions, luck or some combination of the two

“Self-serving bias” –> fielding outcomes. The way we field outcomes is patterned. Human tendency: we take credit for good things and deflect blame for bad things

Off-loading the losses to luck and onboarding the wins to skill meant he persisted in overestimating the likelihood of winning with seven-deuce. He kept betting on a losing future

100% of our bad outcomes aren’t because we got unlucky and 100% of our good outcomes aren’t because we are so awesome. Yet that is how we process the future as it unfolds

All-or-nothing thinking

Black-and-white thinking, uncolored by the reality of uncertainty, is a driver of both motivated reasoning and self-serving bias
When our self-image is at stake, we treat our fielding decisions as 100% or 0%: right vs. wrong, skill vs. luck, our responsibility vs. outside our control. There are no shades of grey
The motivation to update our self-image in a positive way underlies self-serving bias
Pattern of blaming others for bad outcomes and failing to give them credit for good ones [Chicago Cubs vs. Florida Marlins and Steve Bartman story, 2003. Catching Hell, ESPN]

Learning from experience

Blaming the bulk of our bad outcomes on luck means we miss opportunities to examine our decisions to see where we can do better. Taking credit for the good stuff means we will often reinforce decisions that shouldn’t be reinforced and miss opportunities to see where we could have done better
For him [Phil Ivey], the opportunity to learn from his mistakes was much more important. He earned a half-million dollars and won a lengthy poker tournament over world-class competition, but all he wanted to do was discuss with a fellow pro where he might have made better decisions
Field more of our outcomes in an open-minded, more objective way, motivated by accuracy and truthseeking to drive learning

When we look at the people performing at the highest level of their chosen field, we find that the self-serving bias that interferes with learning often recedes and even disappears

Training ourselves in testing alternative hypotheses and perspective taking, it becomes clear that outcomes are rarely 100% luck or 100% skill
If we field just a few extra outcomes more accurately, if we catch just a few extra learning opportunities, it will make a huge difference in what we learn, when we learn, and how much we learn
The cumulative effect of being a little better at decision-making, like compounding interest, can have huge effects in the long run

The buddy system

I had to learn to focus on the things I could control (my own decisions), let go of the things I couldn’t (luck), and work to be able to accurately tell the difference between the two
If we can find a few people to choose to form a truthseeking pod with us and help us do the hard work connected with it, we will be more successful in fighting bias, seeing the world more objectively, and, as a result, we will make better decisions. Doing it on our own is just harder
–> Our decision-making can improve if we find other people to join us in truthseeking
Being in a group can improve our decision quality by exploring alternatives and recognizing where our thinking might be biased, but a group can also exacerbate our tendency to confirm what we already believe

Confirmatory thought vs. exploratory thought –> group agreement to avoid confirmatory thought and promote exploratory thought

Challenge biased thinking –> accountability, accuracy, diversity of perspective
John Stuart Mill –> importance of diversity of opinion

Diversity of viewpoints in a group can reduce uncertainty due to incomplete information by filling in the gaps in what we know
We can’t know the truth of a matter without hearing the other side

Diversity is the foundation of productive group decision-making, but we can’t underestimate how hard it is to maintain. We all tend to gravitate toward people who are near clones of us. After all, it feels good to hear our ideas echoed back to us

The more homogeneous we get, the more the group will promote and amplify confirmatory thought –> guard against gravitating toward clones of ourselves

There is a natural drift toward homogeneity and confirmatory thought. We all experience this gravitation toward people who think like we do. Scientists, overwhelmingly trained and chartered toward truthseeking, aren’t immune

Even among those who are committed to truthseeking, judges and academics, we can see how strong the tendency is to seek out confirmation of our beliefs

We win bets by relentlessly striving to calibrate our beliefs and predictions about the future to more accurately represent the world
Examine the accuracy of our beliefs:

Why might my belief not be true?
What other evidence might be out there?
Are there similar areas I can look toward to gauge whether similar beliefs to mine are true?
What sources of information could I have missed or minimized?

Dissent to win

CUDOS – communism, universalism, disinterestedness, and organized skepticism — can be broadly applied and adapted to push a group toward objectivity
Communal ownership of data within groups, openness in the sharing of information. Sharing data is the best way to move toward accuracy

When presenting a decision for discussion, we should be mindful of details we might be omitting and be extra-safe by adding anything that could possibly be relevant

Apply uniform standards to claims and evidence, regardless of where they came from

Disentangle the message from the messenger –> “how would we feel about this if we heard it from a much different source?”
Leave the source out –> let the group form an impression without shooting (or celebrating) the message based on their opinion of the messenger, avoid bias to agree or discredit the message depending on their opinion of the messenger
John Stuart Mill: the only way to gain knowledge and approach truth is by examining every variety of opinion

Vigilance against potential conflicts that can influence our evaluation

Telling someone how a story ends encourages them to be resulters, to interpret the details to fit that outcome
Many expert poker players often omit the outcome when seeking advice about their play

Approaching the world by asking why things might not be true rather than why they are true

Figure out reasons why we might be wrong –> devil’s advocate
Seeing ourselves and the world more accurately and objectively is hard and makes us think about things we generally avoid

When the new information is presented as supplementing rather than negating what has come before, our listeners will be much more open to what we have to say. The simplest rhetorical touches can make a difference

Adventures in mental time travel

A visit from past or future versions of us helps present-us make better bets
Improving decision quality is about increasing our chances of good outcomes, not guaranteeing them
Battle between our immediate desires and long-term goals: we struggle in the present to take care of our future-self [e.g. “night guy” staying up late vs. “morning guy”]
Temporal discounting: tendency we have to favour our present-self at the expense of our future-self

When we make in-the-moment decisions (and don’t ponder the past or future), we are more likely to be irrational and impulsive
Bringing our future-self into the decision gets us started thinking about the future consequences of those in-the-moment decisions

If regret occurred before a decision instead of after, the experience of regret might get us to change a choice likely to result in a bad outcome –> interrupt an in-the-moment decision and take some time to consider the decision from the perspective of our past and future
10-10-10: what are the consequences of my option in ten minutes? In ten months? In ten years?
We aren’t that good at accessing the past and future to get a better view of how any given moment might fit into the scope of time. It just feels how it feels in the moment and we react to it –> “time-travel” strategy discourages us from magnifying the present moment
The overestimation of the impact of any individual moment on our overall happiness is the emotional equivalent of watching the ticker in the financial world

We know from the first chart, the big picture, that all those minute-to-minute and even day-to-day changes had little effect on the investment’s general upward trajectory
We’re ticker watchers of our own lives. Happiness is not best measured by looking at the ticker, zooming in and magnifying moment-by-moment or day-by-day movements. We would be better off thinking about our happiness as a long-term stock holding

The way we field outcomes is path dependent. It doesn’t so much matter where we end up as how we got there. What has happened in the recent past drives our emotional response much more than how we are doing overall. The zoom lens doesn’t just magnify, it distorts
Our in-the-moment emotions affect the quality of the decisions we make in those moments

Tilt [poker jargon]: being emotionally unbalanced on your decision making because of the way things turned out; blowing out of proportion a momentary event because of an in-the-moment emotional reaction

Precommit to walk away from the situation when we feel the signs of tilt: take some space until we calm down and get some perspective, recognizing that when we are on tilt we aren’t decision fit (e.g. “take ten deep breaths”)

Gain perspective by asking whether this will have a real effect on our long-term happiness
Ulysses contract: past-us preventing present-us from doing sth stupid by raising a barrier against irrationality
Commit to vigilance around words, phrases and thoughts that signal that we might not be our most rational selves

Reconnaissance and scenario planning

Reconnaissance: we shouldn’t plan our future without doing advance work on the range of futures that could result from a decision and the probabilities of those futures occurring [cnfr. árbol de decisión]

To make better decisions, we need to perform reconnaissance on the future –> scenario planning: mapping out the potential futures
Make our best guess at the probability of each of those futures

In addition to increasing decision quality, scenario planning:

reminds us that the future is inherently uncertain
we are better prepared for how we are going to respond to different outcomes that might result from our initial decision (plan our strategy rather than being reactive)
we are less likely to fall prey to resulting or hindsight bias

–> Reconnaissance of the future dramatically improves decision quality and reduces reactivity to outcomes

Backcasting and premortem

Backcasting: imagining ourselves looking back from the destination and figuring how we got there. Standing at the end and looking backward is much more effective than looking forward from the beginning

Imagine we’ve already achieved a positive outcome. Then we think about how we got there

Premortem: thinking about ways in which things could go wrong; imagining why we failed to reach our goal

Those reasons why we didn’t achieve our goal help us anticipate potential obstacles and improve our likelihood of succeeding

Backcasting and premortems complement each other. Backcasting imagines a positive future; a premortem imagines a negative future
We achieve success through positive visualization, but incorporating negative visualization makes us more likely to achieve our goals. People who imagine obstacles in the way of reaching their goals are more likely to achieve success
Conducting a premortem frees everyone to identify potential points of failure they otherwise might not see or might not bring up for fear of being viewed as a naysayer –> a planning process that includes a premortem creates a much healthier organization because it means that the people who do have dissenting opinions are represented in the planning

Hindsight bias

[Analogy: time as a tree] The trunk is the past. The branches are the potential futures
When one of those many branches happens to be the way things turn out, when that branch transitions into the past, present-us cuts off all those other branches that didn’t materialize and obliterates them
Hindsight bias: human tendency to believe that whatever happened was bound to happen, and that everyone must have known it

Once something occurs, we no longer think of it as probabilistic, or as ever having been probabilistic. This is how we get into the frame of mind where we say, “I should have known” or “I told you so.” This is where unproductive regret comes from

When he looked back at his decisions, he couldn’t see all those branches and their likelihoods. He could only see the trunk. All he saw was a bad result
None of us is guaranteed a favorable outcome, and we’re all going to experience plenty of unfavorable ones. We can always, however, make a good bet

There are going to be a lot of losses, even after making the best possible bets. We are going to do better, and be happier, if we start by recognizing that we’ll never be sure of the future

Basado en Annie Duke. Thinking in bets. Portfolio Penguin (2018)