|
Key insights from
Thinking in Bets: Making Smarter
Decisions When You Don’t Have All the Facts
By Anne
Duke
|
|
|
What you’ll learn
In a world full of randomness and chance, making smarter
decisions in the face of uncertainty is a skill worth mastering. In
Thinking in Bets, professional poker player Annie Duke becomes our guru to
help us make better bets in life.
Read on for key insights from Thinking in Bets.
|
|
1. Life is far more comparable to poker
than to chess.
Life has been compared to a box of chocolates. A more
ancient comparison is to the game of chess, which has been around for about
1,500 years. But is the comparison between life and chess accurate?
Hungarian-American polymath John von Neumann didn’t think so. He called
chess a “well-defined form of computation” where there is always a solution
to a given problem, even if it isn’t readily apparent to the player. Real
life is very different. In the words of von Neumann, “it consists of
bluffing, of little tactics of deception, of asking yourself what is the
other man going to think I mean to do.”
If von Neumann is right, then real life starts to sound a
lot more like poker than chess. What he’s saying makes a great deal of
sense. In chess, you see all your pieces and all your opponent’s on a neat,
eight-by-eight grid. There’s no hidden information nor are there additional
pieces that can be marshaled halfway through the game. A roll of the dice
won’t incapacitate a rook. There’s no uncertainty. If you lost, your moves
were objectively inferior to those of your opponent.
In poker, you don’t know which cards are coming your way,
and you don’t know what your opponents have. You make decisions in spite of
a high degree of uncertainty. You can know probability and make all the
best decisions and still come up short. A novice player who just learned
poker ten minutes ago can get a lucky hand—or a string of them—and beat a
seasoned professional. Common hindsight conversations after a poker
tournament are often about doing everything right and still getting
unlucky. That’s not the kind of commentary you hear after professional
chess matches.
Chess requires computational skill more than luck. Poker,
like game theory, involves bluffing, deception, and probability.
|
|
2. We make a mistake when we evaluate good
and bad decisions based on the outcomes.
On February 1, 2015, the New England Patriots and Seattle
Seahawks fought for Super Bowl 49. The Patriots were up 28-24 against the
Seahawks in the final moments of the fourth quarter. The Seahawks had
possession at the Patriots’ one-yard line, and it was only second down.
This was a promising position for the Seahawks, but the Patriots’ defense
intercepted the quarterback’s pass, crushing Seahawk hopes for a comeback.
The Monday morning quarterbacks were not kind to Seahawks
coach Pete Carroll, who made an unconventional call for a pass instead of a
carry. Newspapers and sports commentators dubbed it “the worst call in
Super Bowl history.” Despite the overwhelming barrage of criticism, a few
fringe voices argued that the play was justifiable—and actually rather
clever. Of the 66 pass attempts from an opponent’s one-yard line during the
regular season, none had been intercepted. There was good reason to think
the play would succeed.
And how different would the headlines have been if the
receiver had caught the pass? It would have been hailed as a“brilliant” and
“innovative” play call. If it had been an incomplete, it would have been
forgotten as soon as the Seahawks set up for the third down. Pete Carroll
was just unlucky.
We humans have great difficulty distinguishing between
a good decision and a good outcome. We tend to evaluate the former based on
the latter: a decision is good if and only if the outcome is favorable. In
poker, they call this tendency “resulting,” where a player reevaluates
overall strategy based on a few unlucky hands.
Carroll understood the tendency of resulting. He stood by
his call in an interview several days after the game and made the
distinction that most of America had failed to when he called it, “the
worst result of a call ever.” The connection between the decision
and the result is not always so clear. There is ambiguity, uncertainty, and
risk involved in decision-making.
|
|
3. It’s misleading to use black-and-white
categories of “success” and “failure” when we talk about probabilities.
In some charity poker tournaments, when everyone’s put all
their chips in the pot and they can’t bet anymore, the players who’ve bet
everything will show their hand for the audience to see before being dealt
the final cards. Experienced dealers will call out the odds that certain
hands will win. If the odds of one hand winning are 76 percent, and the
other hand’s odds are 24 percent, what conclusion do we draw if the hand
with the 24 percent chance wins? Was the dealer “wrong”? Most people are
quick to assume that the dealer made a mistake, but unless we are talking
about probabilities of 100 percent (a statistical rarity), either outcome
is possible—including the less likely result.
The categories of “right” and “wrong,” “correct” and
mistaken” don’t work well with probability, but most people fall into
black-and-white vocabulary pretty readily. We saw this in the
hysterical reaction to Pete Carroll’s play-call. We witnessed it in the
outrage over Brexit and Trump. Based on the statistics that numerous polls
brought in, it was likely that the UK would remain in the EU and Hillary
would win the presidential election. People were furious at the analysts
for “misleading” them. But the analysts were not misleading anyone. Polls
are developed precisely because the future is uncertain. If Trump had a 40
percent chance of winning the election, that was still a solid chance at
securing a win. If you are playing a hand in poker that has a 60 percent
chance of winning, celebration is premature.
An event can go one way or another (or another). Decisions
in life, whether at a casino or a voting booth, are, essentially, bets on
an uncertain future. Phrases like “I should have known!” or “See, I
told you!” reflect an anguished “resulting” that leaves us unstable and
unable to see things in proper perspective. The world is full of randomness
and hidden factors we can’t understand. We’re not privy to all the facts.
If we cling to a possibility like its prophecy, we set ourselves up for
disappointment.
Understanding life decisions in terms of probability instead
of insisting on certainty allows us to develop mental fortitude. Life gives
us plenty of opportunities to feel bad if we measure our decisions purely
by how they turn out. Who enters into a dating relationship in the hopes of
deriving only positive feelings? (Unfortunately, a lot of people do.)
|
|
|
|
4. Everyday decisions are “bets,” and most
of the bets you make are against your future alternative self.
For most people, the word “bet” brings images of lottery
tickets and horse races, but this is too narrow a conception.
Merriam-Webster defines “bet” as “a choice made by thinking about what will
probably happen.” Whenever you choose between multiple possible futures,
you are betting. When you tell your kids to eat their vegetables, you are
betting that incorporating healthy foods in their diet will leave them better
off than giving them ice cream at every meal. When you order a burrito
instead of tacos, you’ve made a bet. When you decide to move to a new city
for work or school, you are placing a bet that you will be happier, more
fulfilled, and better off for doing so.
Part of the reason most fail to see personal life decisions
as bets is because, where casinos are bets against the house or against
other players, most decisions are bets made against future versions
of ourselves that we don’t choose. That pang of regret, that shout of “I
should have known better!” or “I should have gotten the red one” is the
belief that you have lost a bet. The alternative future self that you
didn’t select is essentially saying, “Told you so!”
How do we know when we’re making a good bet? Can we be sure
that we’re choosing the best possible future? Of course not. Life is full
of uncertainty. To be comfortable in the face of uncertainty is vital to
making solid decisions. There are short-term benefits to evading risks and
opportunities, but doing so is not a viable long-term approach to life.
Kicking the can down the road is a “bet” too, but it’s one you’ll
lose and will cost you in the ability to make decisions effectively. Be
okay with uncertainty, and watch your bets get better as you see the world
with more clarity.
|
|
5. Differentiating luck and skill helps us
make sense of past outcomes.
Outcomes are a form of feedback, whether we consciously
evaluate them or not. These experiences give us an opportunity to learn,
but experience does not become expertise unless we consistently distill
lessons from those experiences that can be leveraged in the future.
The most helpful way to vet past experiences is to discern
what was skill and what was luck in past decisions. Entire books have
teased out the nuances and interplay between luck and skill, but for our
purposes here, let’s call outcomes heavily influenced by decisions the
result of skill, and outcomes that can’t easily be traced to decisions “luck.”
The feedback loop that develops is a belief leading to a bet
that leads to one of a number of possible outcomes. When we review the
outcome of a decision, we are mentally sorting it, putting it either in a
“luck bin” or the “skill bin.” If we put an outcome in the skill bin, we
have reinforced the belief that led to that bet and are more likely to
repeat the loop. If we chalk an outcome up to luck, it is dismissed instead
of reinforcing the feedback loop. It is tough to differentiate between luck
and skill at times, and there are many bets in which both play a role.
Getting better at distinguishing between the two helps us focus on the
things we can control and improve upon (skills) and let go of the things
that are beyond our control (luck).
|
|
6. It’s more effective and less
overwhelming to “remember the future” rather than to plan from the present.
Lao-Tzu’s famous aphorism that, “A journey of a thousand
miles begins with a single step” may not actually be the best approach to
long-term goals. Instead of looking at the far-off destination from a
step-one position, it might be better to imagine yourself at the end of a
successful journey, looking backward from where you’ve come.
When most people take the present as their starting point
for planning, they think about what their next step needs to be, and
attempt to anticipate all potential outcomes from that next step. With each
new step, you end up with a dizzying array of possible outcomes and heaps
of uncertainty that stymie rather than stimulate. The future hangs heavily
on the limits of our consciousness and the immediacy of our circumstances.
Studies have revealed that working backwards from a goal
(also called prospective hindsight or backcasting) increases a person’s
ability to correctly identify factors leading to success by 30 percent.
Envision yourself or your team popping champagne bottles and holding up a
newspaper in which the front page story headline is about your successful
project. Reminisce on the journey. What was involved?
When Central Park was first landscaped and open to the
public in 1858, it looked barren and war-torn. Today the park is full and
lush. It took the designer’s ability to envision the final product to carry
the project through to completion. He knew what it was going to look like
before the groundbreaking.
Just as backcasting can help you think about all the
strategies and tactics that will go into success, it is also
important to do the same with disasters. The “premortem” exercise also
works backward from the goal, but instead of the headline reading “We’ve
Reached Our Goal!” it reads “We Totally Failed.” What happened? Where did
things go wrong?
“Remembering the future” to discern likely positive and
negative inflection points will help you arrive at the most realistic
picture of the future possible. Does this eliminate uncertainty? No, but it
will improve your odds and help you make the best bet possible.
|
|
Endnotes
These insights are
just an introduction. If you're ready to dive deeper, pick up a copy of Thinking
in Bets here. And since we get a commission on
every sale, your purchase will help keep this newsletter free.
*
This is sponsored content
|
|
|
This newsletter is powered by Thinkr, a smart reading app for the
busy-but-curious. For full access to hundreds of titles — including audio —
go premium and download the app today.
|
|
No comments:
Post a Comment