Book Notes: Thinking in Bets

Decision Making is a Key Skill in Management and Life, however in the last years it has become a well known fact that human beings are far from being rational creatures, and our thought process is full of cognitive bias.

Annie Duke Book gives you some tips on how to become better decision makers based on her experience as a professional poker player.

In this book she explains how you can apply some of the techniques and “tricks” of poker playing in avoiding those biases and making better decisions.

These are some of my notes from the book.

Resulting and Hindsight Bias

It is very common to equate the quality of a decisión with the quality of an outcome. When this happens we might decide to change the way we make decisions or change a strategy that has been correctly analyzed and defined.

The author gives two examples:

  • NFL  Seattle Seahawks Coach Pete Carroll on his 2015 Super Bowl XLIX call against New England, to pass the bowl (instead of running) in the closing seconds of the game.  Since the ball was intercepted and Seattle lost the game. Everybody judged the decisión has some of the “worst in NFL History!”.

  • A CEO firing the president of his company: The search for the new president didn’t go well. Sales started to fall. Already two different people on the job. But the decision itself was the result of the prior president’s poor performance and his inability to improve his leadership skills.

Both examples are bad results, not bad decisions.  When we judge based only on results, we are “resulting”(it is called like that in the poker world), we do this because of hindsight bias.

Pressure to be absolutely certain before acting.

We usually get only one try at any given decision , and that puts great pressure on us to feel we have to be certain before acting, a certainty that necessary will overlook the influences of hidden information and luck.

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”.

 But we are taught that “not knowing” is a bad thing. We have to take away the negative connotation.

Good poker players and good decision-makers have in common their comfort with the world being an uncertain and unpredictable place. 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 changes that different outcomes will occur. Focusing on the Process, not only on the outcome.

We have to redefine wrong, but also redefine right: If we aren’t wrong just because things didn’t work out, then we aren’t right just because things turned out well.

Treat Decisions as Bets, and also  reinforce the belief formation process with a bet question.

Since there is potential opportunity cost in any chance we forgo, we could treat decisions as bets.  We could identify the following “betting elements” of decisions: Choice, Probability, Risk etc.

Most decisions are bets against our-selves.  But our bets are only as good as our own beliefs. The problem is that by nature,  we believe everything to be true, and once a belief is lodged it is difficult to dislodge. It takes a life of its own, leading us to notice and seek out evidence confirming our belief,  we rarely challenge the validity of confirming evidence, and ignore or work hard to actively discredit information contradicting the belief.  This is called  Motivated Reasoning. How can you prevent it? By “thinking in bets”:

When we are analyzing the “soundness” of a belief,  what about asking yourself- Wanna bet?  (i.e. Am I sure enough of this particular belief that I would accept a bet on it?)  Then , if the pattern of “beliefs formation” is:

  1. We hear something
  2. We believe it.

    Asking wanna bet? Adds a third step.

  3. Think about it?
    • Vet it, determining whether or not it is true?
    • How do I know this
    • Where did i get this information
    • What is the quality of my sources
    • How much I trust them

Self serving bias and Outcome Fielding.

When analyzing the qualities of our decision, we should try to classify outcomes (of our decisions) to identify luck vs skill. This is called fielding of outcomes or Outcome Fielding. If done well , it allows us to focus on experiences that have something to teach us (skills) and ignore those that don’t (luck)

Because self serving bias we are bad at outcome fielding. Once again, treating outcome fielding as a bet can accomplish the mindset shift necessary to reshape habit. If someone challenged us to a meaningful bet on how we fielded an outcome, we would find ourselves quickly moving beyond self serving bias.

Thinking in bets, triggers a more open minded exploration of alternative hypotheses, of reasons supporting conclusions opposite to the routine of self serving bias. It also triggers “prospect taking” comparing how we field our own outcomes vs other outcomes.

A group of trusted advisors: The Buddy System.

So besides treating decisions as bets, how do we beat motivated reasoning and self-serving bias? We know our decision-making can improve if we find other people to join us in truth seeking. 

Motivated reasoning and self-serving bias are two habits of mind that are deeply rooted in how our brains work. We have 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.  It is one thing to commit to reward ourselves for thinking in bets, but it is a lot easier if we get others to do the work of rewarding us.

Once we are in a group that regularly reinforces exploratory thought, the routine becomes reflexive, running on its own. Exploratory thought becomes a new habit of mind, the new routine, and one that is self-reinforced. In a Pavlovian way, after enough approval from the group for doing the hard work of thinking in bets, we get the same good feeling from focusing on accuracy on our own. We internalize the group’s approval, and, as a matter of habit, we begin to do the kind of things that would earn it when we are away from the group (which is, after all, most of the time).

Even research communities of highly intelligent and well-meaning individuals can fall prey to confirmation bias, as IQ is positively correlated with the number of reasons people find to support their own side in an argument. That’s how robust these biases are. We see that even judges and scientists succumb to these biases. We shouldn’t feel bad, whatever our situation, about admitting that we also need help.

A growing number of businesses are, in fact, implementing betting markets to solve for the difficulties in getting and encouraging contrary opinions. Companies implementing prediction markets to test decisions include: Google, Microsoft, GE, Eli Lilly, Pfizer, and Siemens. People are more willing to offer their opinion when the goal is to win a bet rather than get along with people in a room.

Rules of engagement

What are the rules of engagement that the group should practice? CUDOS

Be a data Sharer. That’s what experts do. We are naturally reluctant  to share information that could encourage others to find fault in our decision-making. Agree to be a data sharer and reward others in your decision group for telling more of the story.

Universalism:  Nearly any group can create an exercise to develop and reinforce the open-mindedness universalism requires.
If we hear an account from someone we like, imagine if someone we didn’t like told us the same story, and vice versa.
That requires open-mindedness of the messages that come from paces we don’t like.

Disinterestedness: Avoid conflict of interests.  If two people disagree, a referee can get them to each argue the other’s position with the goal of being the best debater.

Organized Skepticism: Skepticism gets a bump rap because it tends to be associated with negative character traits. Someone who disagrees could be considered “disagreeable”. Someone who disagrees could be considered “disagreeable”. Someone who dissents may be creating “dissention” Maybe part of it is that “skeptical” sounds like “cynical”. Yet true skepticism is consistent with good manners, civil discourse, and friendly communications.

Also Bring your past and future self to the decision table.

Just as we can recruit other people to be our decision buddies, we can recruit other versions of ourselves to act as our own decision buddies.

The best poker players develop practical ways to incorporate their long-term strategic goals into their in-the-moment decisions.

Night Jerry: This tendency we all have to favor our present-self at the expense of our future-self is called temporal discounting. We are willing to take an irrationally large discount to get a reward now instead of waiting for a bigger reward later. Bringing our future-self into the decision gets us started thinking about the future consequences of those in-the-moment decisions. “Hey, don’t forget about me. I’m going to exist and I´d like you to please take that into account”.

Moving regret in front of our decisions: Business journalist and author Suzy Welch developed a popular tool known as 10-10-10 that has the effect of bringing future-us into more of our in-the-moment decisions. What are the consequences of each of my options in ten minutes? In ten months? In ten years?

Backcasting: When it comes to advanced thinking, standing at the end and looking backward is much more effective than looking forward from the beginning. When we identify the goal and work backward from there to “remember” how we got there, the research shows that we do better.  “Prospective hindsight”, imagining that an event has already occurred, increases the ability to correctly identify reasons from outcomes by 30%.

Premortems: A premortem is an investigation into something awful, but before it happens. We all like to bask in an optimistic view of the future. We are generally biased to overestimate the probability of good things happening. 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.

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