top of page

Thinking In Bets - Making Smarter Decisions When You Don't Have All The Facts by Annie Duke

Very good book about decision making in an uncertain future. Annie Duke is a World Series Poker champion and uses her experience to teach us how to be better decision makers. Some things I learned were that every decision is a bet. What we choose to eat for lunch is a bet on what will better make us happy and satisfy our hunger, the route we take to work in the morning is a bet on which way will get us there safest and on time, and the job we take is a bet on which company/position will give us the best satisfaction in life based on many factors such as pay, job security, learning opportunities, our colleagues, benefits, and many other factors. It's all a bet and always making the right decision isn't possible because we aren't perfect decision makers.

Also, a lot of what we do when we look back on our decisions is we do what Annie refers to as "resulting." This means we look back at our successful decisions and assume that those are our best decisions without really analyzing the decision making process that we used to make that decision. In other words, what Annie is saying is that we can do good analytical work and make a good decision but still get a wrong outcome. Just because we got a wrong outcome doesn't mean we made a bad decision. It just means that luck plays an important factor in the outcomes as well.


A bet is a decision about an uncertain future.​

Over time, those world-class poke players taught me to understand what a bet really is: a decision about an uncertain future. The implications of treating decisions as bets made it possible for me to find learning opportunities in uncertain environments. Treating decisions as bets, I discovered, helped me avoid common decision traps, learn from results in a more rational way, and keep emotions out of the process as much as possible.

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.

Resulting is a routine thinking pattern that bedevils all of us….. I ask group members to come to our first meeting with a brief description of their best and worst decisions of the previous year. I have yet to come across someone who doesn’t identify their best and worst results rather than their best and worst decisions.

Hindsight bias is the tendency, after an outcome is known, to see the outcome as having been inevitable. When we say, “I should have known that would happen,” or, “I should have seen it coming,” we are succumbing to hindsight bias.

In the exercise I do of identifying your best and worst decisions, I never seem to come across anyone who identifies a bad decision where they got lucky with the result, or a well-reasoned decision that didn’t pan out. We link results with decisions even though it is easy to point out indisputable examples where the relationship between decisions and results isn’t so perfectly correlated. No sober person thinks getting home safely after driving drunk reflects a good decision or good driving ability. Changing future decision based on that lucky result is dangerous and unheard of (unless you are reasoning this out while drunk and obviously deluding yourself).

We recognize the existence of luck, but we resist the idea that, despite our best efforts, things might not work out the way we want. It feels better for us to imagine the world as an orderly place where randomness does not wreak havoc and things are perfectly predictable.

In [Gary Marcus’] 2008 book, Kluge: The Haphazard Evolution of the Human Mind, he wrote, “Our thinking can be divided into two streams, one that is fast, automatic, and largely unconscious, and another that is slow, deliberate, and judicious.” The first system, “the reflexive system, seems to do its thing rapidly and automatically, with or without our conscious awareness.” The second system, “the deliberate system… deliberates, it considers, it chews over the facts.” Automatic processing originates in the evolutionarily older parts of the brain, including the cerebellum, basal ganglia, and amygdala. Our deliberative mind operates out of the prefrontal cortex.

If you want to improve in any game – as well as in any aspect of our lives – we have to learn the results of our decisions. The quality of our lives is the sum of decision quality plus luck.

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.

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 a 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 accordingly, as my client the CEO and Pete Carroll both did. [My note – Annie Duke is referring to Pete Carrol’s decision to call a pass play at the goal line of the Patriot’s end-zone which led to an interception and a Super Bowl victory for the opposing team, the Patriots.]

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 (and a sample size of one) intervened.

Job and relocation decisions are bets. Sales negotiations and contracts are bets. Buying a house is a bet. Ordering the chicken instead of the steak is a bet. Everything is a bet.

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. We are constantly deciding among alternative futures: one where we go to the movies, one where we go bowling, one where we stay home Or futures where we take a job in Des Moines, stay at our current job, or take some time away from work. Whenever we make a choice, we are betting on a potential future. We are betting that he future version of us that results from the decisions we make will be better off. At stake in a decision is that the return to us (measured in money, time, happiness, health, or whatever we value in that circumstance) will be greater than what we are giving up by betting against the other alternative future version of us.

Things outside our control (luck) can influence the result. The futures we imagine are merely possible. They haven’t happened yet. We can only make our best guess, given what we know and don’t know, at what the future will look like. If we’ve never lived in Des Moines, how can we possibly be sure how we will like it? When we decide, we are betting whatever we value (happiness, success, satisfaction, money, time, reputation, etc.) on one of a set of possible and uncertain futures.

If we cab find ways to become more comfortable with uncertainty, we can see the world more accurately and be better for it.

Our beliefs drive the bets we make: which brands of cars better retain their value, whether critics knew what they were talking about when they panned a movie we are thinking about seeing, how our employees will behave if we let them work from home.

Part of the skill in life comes from learning to be a better belief calibrator, using experience and information to more objectively update our beliefs to more accurately represent the world. The more accurate our beliefs, the better the foundation of the bets we make.

We form beliefs in a haphazard way, believing all sorts of things based just on what we hear out in the world but haven’t researched for ourselves.

Whether it is a football game, a protest, or just about anything else, our preexisting beliefs influence the way we experience the world.

Fake news isn’t meant to change minds. As we know, beliefs are hard to change. The potency of fake news is that it entrenches beliefs its intended audience already has, and then amplifies them. The Internet is a playground for motivated reasoning. It provides the promise of access to a greater diversity of information sources and opinions than we’ve ever had available, yet we gravitate toward sources that confirm our believes, that agree with us.

Any decision whether it’s putting $2 on Count de Change at the racetrack or telling your kids they can eat whatever they want, is a bet on what will likely create the most favorable future for us. The future we have bet on unfolds as a series of outcomes.

The way our lives turn out is the result of two things: the influence of skill and the influence of luck.

When we field our outcomes as the future unfolds, we always run into this problem: the way things turn out could be the result of our decision, luck, or some combination of the two. Just as we are almost never 100% wrong or right, outcomes are almost never 100% due to luck or skill. Learning from experience doesn’t offer us the orderliness of chess or, for that matter, folding and sorting laundry. Getting insight into the way uncertainty trips us up, whether the errors we make are patterned (hint: they are) and what motivates those errors, should give us clues for figuring out achievable strategies to calibrate the bets we make on our outcomes.

Self-serving bias is a deeply embedded and robust thinking pattern. Understanding why this pattern emerges is the first step to developing practical strategies to improve our ability to learn from experience.

We think we know the ingredients for happiness. Sonja Lyubomirsky, a psychology professor at the University of California, Riverdale, and popular author on the subject of happiness, summarized several reviews of the literature on the elements we commonly consider: “a comfortable income, robust health, a supportive marriage, and lack of tragedy or trauma.” Lyubomirsky noted, however, that “the general conclusion from almost a century of research on the determinates of well-being is that objective circumstances, demographic variables, and life events are correlated with happiness less strongly than intuition and everyday experience tell us they ought to be. By several estimates, all of these variables put together account for no more than 8% to 15% of the variance in happiness.” What accounts for most of the variance in happiness is how we’re doing comparatively.

A lot of the way we feel about ourselves comes from how we think we compare with others. This robust and pervasive habit of mind impedes learning. Luckily, habits can be changed, whether the bait is biting your nails or decrying your terrible luck when you lose. By shifting what it is that makes us feel good about ourselves, we can move toward a more rational fielding of outcomes and a more compassionate view of others. We can learn better and be more open-minded if we work toward a positive narrative driven by engagement in truth-seeking and striving toward accuracy and objectivity: giving others credit when it’s due, admitting when our decision could have been better, and acknowledging that almost nothing is black and white.

Habits operate in a neurological loop consisting of three parts: the cue, the routine, and the reward. A habit could involve eating cookies: the cue might be hunger, the routine going to the pantry and grabbing a cooking, and the reward a sugar high.

Our brain is built to seek positive self-image updates. It is also built o view ourselves in competition with our peers. We can’t install new hardware. Working with the way our brains are built in reshaping habit has a higher chance of success than working against it.

In the movie, the matrix was built to be a more comfortable version of the world. Our brains, likewise, have evolved to make our version of the world more comfortable: our beliefs are nearly always correct; favorable outcomes are the result of our skill; there are plausible reasons why unfavorable outcomes are beyond our control; and we compare favorably with our peers. We deny or at least dilute the most painful parts of the message.

Motivated reasoning and self-serving bias are two habits of mind that are deeply rooted in how our brains work. We have a huge investment in confirmatory thought, and we fall into these biases all the time without even knowing it. Confirmatory thought is hard to spot, hard to change, and, if we do try changing it, hard to self-reinforce.

Accountability is a willingness or obligation to answer for our actions or beliefs to others. A bet is a form of accountability. If we’re in love with our own opinions, it can cost us in a bet.

It is almost impossible for us, on our own, to get the diversity of viewpoints provided by the combined manpower of a well-formed decision pod. To get a more objective view of the world, we need an environment that exposes us to alternate hypotheses and different perspectives. That doesn’t apply only to the world around us: to view ourselves in a more realistic way, we need other people to fill in our blind spots.

Others aren’t wrapped up in preserving our narrative, anchored by our biases. It is a lot easier to have someone else offer their perspective than for you to imagine you’re another person and think about what their perspective might be.

We tend to think about conflicts of interest in the financial sense, like the researchers getting paid by the sugar industry. But conflicts of interest come in many flavors. Our brains have built-in conflicts of interest, interpreting the world around us to confirm our beliefs, to avoid having to admit ignorance or error, to take credit for good results following our decisions, to find reasons bad results following our decision were due to factors outside our control, to compare well with our peers, and to live in a world where the way things turn out makes sense. We are not naturally disinterested. We don’t process information independent of the way we wish the world to be.

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. That’s how we can win $100 and be sad, lose $100 and be happy. The zoom lens doesn’t just magnify, it distorts. This is true whether we are in a casino, making investment decisions, in a relationship, or on the side of the road with a flat tire.

Our feelings are not a reaction to the average of how things are going. We feel sad if we are breaking even (or winning) on an investment that used to be valued much higher. In relationships, even small disagreements seem big in the midst of the disagreement. The problem in all these situations (and countless others) is that our in-the-moment emotions affect the quality of the decisions we make in those moments, and we are very willing to make decisions when we are not emotionally fit to do so.

We’ve all had this experience in our personal and professional lives: blowing out of proportion a momentary event because of an in-the-moment emotional reaction. By recognizing in advance these verbal and physiological signs that ticker watching is making us tilt, we can commit to develop certain habit routines at those moments. We can pre-commit to walk away from the situation when we feel the signs of tilt, whether it’s a fight with a spouse or child, aggravation in a work situation, or losing at a poker table. We can take some space till we calm down and get some perspective, recognizing that when we are on tilt we aren’t decision fit. Aphorisms like “take ten deep breaths” and “why don’t you sleep on it?” capture this desire to avoid decisions while on tilt.

At the very beginning of my poker career, I heard an aphorism from some of the legends of the profession: “It’s all just one long poker game.” That aphorism is a reminder to take the long view, especially when something big happened in the last half hour, or the previous hand – or when we get a flat tire. Once we learn specific ways to recruit past and future versions of us to remind ourselves of this, we can keep the most recent upticks and downticks in their proper perspective. When we take the long view, we’re going to think in a more rational way.

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…. People who imagine obstacles in the way of reaching their goals are more likely to achieve success, a process she has called “mental contrasting.”

Oettingen recognized that we need to have positive goals, but we are more likely to execute on those goals if we think about the negative futures. We start a premortem by imagining why we failed to reach our goal: our company hasn’t increased its market share; we didn’t lose weight; the jury verdict came back for the other side; we didn’t hit our sales target. Then we imagine why. All those reasons why we didn’t achieve our goal help us anticipate potential obstacles and improve our likelihood of succeeding.

Imagining both positive and negative futures helps us build a more realistic vision of the future, allowing us to plan and prepare for a wider variety of challenges, than backcasting alone. Once we recognize the things that can go wrong, we can protect against the bad outcomes, prepare plans of action, enable nimble responses to a wider range of future developments, and assimilate a negative reaction in advance so we aren’t so surprised by it or reactive to it. In doing so, we are more likely to achieve our goals.

Life like poker, is one long game, and 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. That changes our task from trying to be right every time, an impossible job, to navigating our way through the uncertainty by calibrating our beliefs to move toward, little by little, a more accurate and objective representation of the world. With strategic foresight and perspective, that’s manageable work. If we keep learning and calibrating we might even get good at it.

bottom of page