Thinking in Bets by Annie Duke, Summary

Introduction: Thinking in Bets by Annie Duke

Thinking in Bets is a bestselling book written by Annie Duke, a former professional poker player turned decision strategist. She explores how embracing uncertainty and thinking in probabilities can lead to better decision-making in both personal and professional contexts.

Annie Duke draws on her experiences in the world of high-stakes poker to provide valuable insights on decision-making. She argues we live in a world of uncertainty, where outcomes are influenced by luck, hidden information, and imperfect knowledge. Duke advocates for a probabilistic approach to decision-making, where we assess the likelihood of various outcomes and make choices based on their expected value.

The book highlights the flaws in our cognitive biases and common decision-making pitfalls. Duke emphasizes the importance of embracing uncertainty and learning from the outcomes instead of focusing solely on results. She introduces concepts such as resulting, and resulting thinking, shedding light on how our decisions are often driven by the need to feel right rather than the actual quality of our choices.

Summary of Thinking in Bets by Annie Duke

A bet is a decision about an uncertain future. Most of the decisions you make in life are bets. They’re choices you make in an uncertain future.

There are two things that will determine how your life turns out: the quality of your decisions and luck. It’s important to know how to recognize the difference between the two. And that’s what thinking in bets is all about.

As I was previewing Thinking in Bets before I read it, I noticed a chapter titled, Life is Poker, Not Chess. I was intrigued by the title and wondered what it meant.

People have the tendency to equate the quality of a decision with the quality of an outcome. In poker, this tendency is referred to as resulting. This is a barrier to assessing the quality of our decisions and the role of luck in the outcome. We need to separate luck and skill.

We also suffer from hindsight bias, which is the tendency, after an outcome is known, to see it as having been inevitable. When you say, “I should have seen this coming,” that’s an example of hindsight bias. You develop these beliefs because of a tight connection between outcomes and decisions.

If your decision didn’t turn out the way you expected, don’t view it as inevitable. Instead, view the outcome as a probabilistic one.

Biases

• Resulting: Tendency to equate the quality of a decision with the quality of its outcome. Prevents you from accurately assessing the quality of your decisions and the role of luck in the outcomes we achieve.
• Hindsight bias: Our tendency to see an outcome as inevitable after an outcome is known. It is the enemy of probabilistic thinking that prevents us from seeing the many other outcomes that could have occurred.
• Loss aversion: Losses hurt more than gains feel good. The same applies to being right and wrong. Being wrong hurts more than being right feels good, unless you reframe your relationship with being wrong.
• Motivated reasoning: The beliefs you hold influence how you process new information.
• Blind-spot bias: People are better at recognizing biased reasoning in others but are blind to bias in themselves.
• Binary bias: Tendency to seek clarity and closure by simplifying complex ideas and situations into two categories.

Deliberative and Reflexive Systems

Deliberative System

• Slow
• Deliberate
• Judicious

Reflexive System

• Fast
• Automatic
• Largely unconscious

Making a living at poker requires interpolating between the deliberative and reflexive systems. The best players must harmonize otherwise irresolvable conflicts. Our goal is to get our reflexive minds to execute on our deliberative minds’ best intentions.

Poker vs Chess As a Metaphor for Life

Real life comprises bluffing, of little tactics of deception, of asking yourself what is the other man going to think I mean to do.

The decisions we make in our lives—in business, saving and spending, health and lifestyle choices, raising our children, and relationships involve uncertainty, risk, and occasional deception, prominent elements in poker. They are “real games.”

Life is not like chess. Chess has no hidden information and very little luck. Chess is a strategic game. Life is more like poker. In chess, outcomes correlate more tightly with decision quality. In poker, it is much easier to get lucky and win, or get unlucky and lose.

Learn from the results of your decisions.

I Don’t Know

“In life, we’re discouraged from saying, “I don’t know” or “I’m not sure.” However, “I don’t know” leads to enlightenment. And that’s a good thing.

What makes a decision great is not that it has a great outcome. A great decision is the result of a good process, and that process must include an attempt to accurately represent our own state of knowledge. That state of knowledge, in turn, is some variation of “I’m not sure.”

Good poker players and decision-makers are very comfortable with uncertainty and unpredictability. A great decision results from a good process. Not that it has a great outcome.

A great decision results from a good process, and that process must include an attempt to accurately represent our own state of knowledge. That state of knowledge ‌is some variation of “I’m not sure.”

Long shots will hit sometimes. Any prediction that is not 0% or 100% can’t be wrong solely because the most likely future doesn’t unfold.

When you think probabilistically, you’re less likely to use adverse results alone as proof that you made a decision error, because you recognize the possibility that the decision might have been good but luck and/or incomplete information (and a sample size of one) intervened.

Making better decisions is not about wrong or right. But about calibrating among all the shades of grey.

Betting Against Yourself

Not placing a bet on something is a bet. And most bets are bets against yourself. You’re betting against all the future versions of yourself that you’re not choosing.

Become a Calibrator

You can become a better calibrator by using experience and information to update your beliefs to more accurately represent the world. The more accurate your beliefs, the better the foundation of the bets you make. The better the foundation of the bets you make, the more likely you’ll achieve favorable outcomes in the future.

Default Believers

Duke says this is how you think you form beliefs:

1. You hear something;
2. You think about it and vet it, determining whether it is true or false.
3. You form your belief.

But you actually form abstract beliefs like this:

1. You hear something.
2. You believe it to be true.
3. Only sometimes, later, if you have the time or the inclination, you think about it and vet it, determining whether it is, in fact, true or false.

Your default belief means you hold beliefs you’ve never validated. Your ancestors could form new beliefs only through what they directly experienced in the physical world. For perceptual beliefs from direct sensory experience, it’s reasonable to presume your senses aren’t lying.

You didn’t develop high skepticism when your beliefs were about things you directly experienced, especially when your life was at stake.

Your system:

1. Experienced it.
2. Believed it to be true.
3. Maybe, and rarely, questioned it later.

Your older system is still in charge, though. “Wanna bet?” triggers you to engage in that third step that you only sometimes get to.

Stubbornness of Beliefs

If you think of beliefs as only 100% right or 100% wrong, when confronting new information that might contradict your belief, you have only two options:

1. Make the massive shift from 100% right to 100% wrong.
2. Ignore or discredit the new information.

It feels bad to be wrong, so you choose (B).

Fake News

“Fake news works because people who already hold beliefs consistent with the story generally won’t question the evidence. Disinformation is even more powerful because the confirmable facts in the story make it feel like the information has been vetted, adding to the power of the narrative being pushed.”

The purpose of fake news isn’t to change minds since beliefs are so difficult to change. It entrenches the beliefs of the intended audience and amplifies them.

Luck vs Skill in Outcomes

The way your life turns out results from the influence of skill and luck.

In life you make bets. Any decision you make is a bet that will likely create the most favorable outcome for you. The future you bet on unfolds as a series of outcomes. The outcomes can teach you how to make better bets.

Experience can be an effective teacher. Identify when the outcomes of your decision can teach you and what it might teach you. Analyze the outcome of your bets. “Why did something happen the way it did?” To learn from the question, figure out the role between luck and skill.

Luck is what you can’t control. This includes how others act, your genes, and the weather. Skill is how clearly you understand the world and the quality of the decisions you make based on that.

The way you look at outcomes is predictable. When something good happens you attribute it to skill. When something bad happens, you attribute it to bad luck. That’s self-serving bias. You don’t learn from your experience well. When you don’t objectively examine your decisions to see how you can improve them, you miss opportunities.

“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.”

How You View Yourself

If you want to view yourself realistically, you need different perspectives. Question everything.

• What sources of information might I have missed?
• Why might this belief be untrue?
• Why do others have differing beliefs?
• What other perspectives are there?

Scenario Planning

When you plan scenarios, you make better decisions and plans. You anticipate how things may or may not work out. This enables you to improve the quality of your plan. Every time you decide, you’re predicting the future, so make it explicit.

There are two types of scenario planning: backcasting and premorten.

“Let’s say an enterprise wants to develop a three-year strategic plan to double market share, from 5% to 10%. Each person engaged in the planning imagines holding up a newspaper whose headline reads “Company X Has Doubled Its Market Share over the Past Three Years.” The team leader now asks them to identify the reasons they got there, what events occurred, what decisions were made, what went their way to get the enterprise to capture that market.

This enables the company to better identify strategies, tactics, and actions that need to be implemented to get to the goal. It also allows it to identify when the goal needs to be tweaked. Backcasting makes it possible to identify when there are low-probability events that must occur to reach the goal.”

Backcasting: You imagine you achieved your goal. You work backward to determine how you got there. This enables you to imagine the outcome you want and identify when there are low-probability events that must occur to reach the goal. Remembering the future is a better way to plan for it.

Premortem: You imagine you didn’t achieve your goal. What went wrong? Why did the plan fail? What barriers and obstacles did you face? When you think of the possible reasons why the plan failed, you can create a that reduces the probability of failure happening. Negative visualization improves your chances of achieving your goals.

Backcasting and premortems are very useful, However, premortems are more effective in helping you to achieve good outcomes. When you imagine a future where you fail, you decrease the likelihood that your plan is overly optimistic.

The likelihood of a negative and positive future must add up to 100%.

Impossible to Win All the Time

It’s not possible to have good outcomes with everything you do. Learn, evaluate and improve. Don’t expect to always win, even when you make good decisions. Life and poker are long games.

Conclusion: Thinking in Bets by Annie Duke

Thinking in Bets triggers a more open-minded exploration of alternative hypotheses, or reasons supporting conclusions opposite to self-serving routine. You’re more likely to explore the opposite side of an argument more seriously and more often. This moves you closer to the truth.

Agree to be open-minded to those who disagree with you. And give credit where it’s due. Take responsibility when appropriate to do so.

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