Thinking In Bets

By Annie Duke

Original Publication Date2018
TopicsPsychology, Poker
Similar TitlesThe Biggest Bluff
Works from Same AuthorYes, Several

Life has more in common with poker than chess – an assertion by Annie Duke in her excellent book, Thinking in Bets. So what does she mean? What’s the difference? Chess is a game of certainty where both players have complete and identical information about the state of play. For any configuration of the board there is a correct play and for this reason skill (i.e. knowing the correct move) matters. In chess, the role of luck is small; A skilled player will consistently beat a novice. Contrast that with poker where information is incomplete and uncertainty is high. No player sees all the card and good players attempt to broadcast false or misleading information to others. Over many hands, the expert poker player generally ends up winning, but in the short term, luck rules and the novice will often beat the pro.

Most of life’s big choices are like poker, not chess – we don’t have complete information, the uncertainty is high and the best action is only available with the benefit of hindsight. This book is a guide to help readers understand the ways in which the human brain is flawed when it comes to making decisions under uncertainty and delivers numerous techniques to help combat our innate biases.

I note that some people seem to object to the idea of comparing investing to gambling, a naïve conclusion in my opinion, to anybody who objectively considers the details and similarities of each problem. While Duke herself was a successful professional poker player (as is her brother!), my sense is that here she uses poker as a convenient metaphor (and even a laboratory in some cases) to help vibrantly illustrate many of our innate biases. She writes about what she knows best, but her lessons apply to all manner of big decisions: “Should I take that job offer?”, “Should I buy that house?”, “Should I sell my Apple shares?”, “Should I move to a new city or country?”

The list below contains an non-exhaustive list of topics covered. I’d encourage the reader of this post to dive into the book to get full color as it’s a great read:

  • Resulting: Our tendency to think in terms of realized outcomes instead of what could or might have happened. Winning at Russian Roulette doesn’t mean that playing was a smart decision in the first place. Readers can combat this bias by focusing on their decision making process is sound, instead of focusing on outcomes.
  • Existing Views: Humans are credulous by nature, which is on average probably a good thing. We tend think that our natural process is: “Receive information, judiciously evaluate, decide whether to believe” whereas in fact there is ample research to show that what we do in practice is closer to “receive information , believe it, then evaluate”. If you’re like me you’ll think “nope, not me! I’m not like that.” Well, interestingly, the above appears to be true when we are dealing with novel or new info, but when the info conflicts with your existing view, our tendency will be to NOT believe it, even if it’s true. And even more interesting, this tendency is stronger in the more numerate and intelligent! As a means to combat this bias, the Duke suggests thinking probabilistically (“thinking in bets”) and ideally actually making bets to help converge to what is true. My sense is that the idea here is to interrupt the brain’s innate bias by assigning a real penalty to being wrong – our views are likely to be less absolute if there’s an explicit cost assigned to being incorrect. This is similar to Nassim Taleb’s “Skin in the game heuristic”… don’t trust those who have no skin in the game.
  • Self Serving Bias: We have an overwhelming tendency to attribute our successes to our own skill, talent, intelligence and conversely, our failures to factors outside of our control (bad luck, random events, cheating). This bias flips when we are considering others – we view their success as a function of luck and their failures due to lack of skill. Self serving bias prevents us from properly dissecting or “fielding” outcomes, which prevents growth and learning. If you “know” that your bad outcomes are due to things beyond your control, you are absolved (falsely, obviously) from responsibility and are unlikely to analyze your failures in order to learn from them. Similarly, no need to analyze the successes of others if you “know” that they only succeeded due to luck. Duke discusses how some of the best poker players in the world combat this by rigorously reviewing outcomes with other pros in order to learn, grow and improve.
  • Past & Future: The author suggests backcasting and pre-mortems as useful tools to help avoid biased thinking. To me, these are two sides of the same coin and I’d encourage readers to go even further and think about the entire distribution of outcomes, rather than just “best” and “worst” cases. These techniques are valid for any task with an uncertain outcome: sports, business, investing, etc…
    • Backcasting: Project ahead to a successful outcome. You’re there, you won. What steps did you take to get there? If done well, this process forces the brain to consider all the variables that might matter for a successful outcome. What skills, knowledge, resources make your decision work?
    • Pre-Mortem: Project ahead to a bad outcome. What went wrong? This kind of thinking forces the brain to consider risks, many of which will never materialize on the actual path you travel in the future, but if not considered beforehand, may prove fatal.

Duke readily admits that there’s no defeating these biases entirely and that she herself is not immune, but she also explains interesting ways in which they can be mitigated. At their core, most of the defensive techniques she discusses center around recalibrating away from seeking “correctness” and towards “seeking truth”. If you focus on making good decisions via good process, rather than focusing on the outcome, and if you surround yourself with like-minded people who are devoted to the same ideas, you won’t be able to help but improve in your decision making. In all, a worthwhile read.