Annie Duke is a professional poker player. She has one world series of poker (WSOP) bracelet. If life were to be thought of as a game, it wouldn’t be, as popular perception suggests, Chess, it would be Poker. Poker is a potent mix of luck and decision making. In her book Thinking in bets, she explains how different kinds of biases affect our thinking. The core concept of the book is how we fail to acknowledge uncertainty and fall prey to ‘I knew this would happen’. The book builds over the System 1 and System 2 concepts from Thinking fast and slow and aims to provide some tactics you can use for making decisions. Here are some of the lessons from this very interesting book.
Decisions should not be evaluated based on their outcomes. There are always n number of future outcomes, each dependent on the various decisions and uncertain events. The future that plays out, is one of the possible futures. When we look at the result and qualify the quality of decisions, we don’t acknowledge that luck had a role to play in the final outcome. This is called ‘resulting’. The quality of the decisions have to be evaluated on the basis of the process that led to it. Another bias that is around us all the time is the hindsight bias. When something happens we need to acknowledge that it was one of the possible scenarios. Just because it happened doesn’t mean it was inevitable.
Contrary to how we think, our beliefs are not formed after careful consideration of the information available to us. How we form beliefs is quite simple. We hear something, we form a belief. That’s it. Once a belief is formed, we then carefully consider the information available to us and retrofit it to suit the belief we just formed. It’s just how we evolved. Our decisions and reasonings are based on whatever beliefs we hold on to and not the other way around. This is called motivated reasoning and it is a type of bias that affects us everyday.
I know you’re thinking, now that you know about this, you are somehow immune to forming snap judgements suffering from motivated reasoning but that’s not how it works. Even the knowledge of how our belief system works does not prevent us from behaving this way. In fact, studies have shown that people with higher IQ’s find it even more harder to resist motivated reasoning.
We tend to think in rights and wrong or blacks and whites. In reality, our thoughts are probabilistic in nature. We are never really simply right or wrong but in degrees of rightness and wrongness. We don’t acknowledge uncertainty and don’t evaluate the probabilities of various events.
Imagine a scenario when you are thinking and talking in probabilistic terms. You may say an event X has a 30% chance of happening and then if it doesn’t happen you’re not completely wrong. You just made a little error in estimating the probability of event X. This is much easier to digest than accepting ‘we were wrong’. If you and people around you, talk in probabilities, it makes discussions easier as you don’t challenge anyone’s core beliefs. It becomes easy to accept new information and change the probabilities associated with various events, rather than switching your belief completely.
Just knowing about biases does not help in avoiding the pitfalls associated with them but having a peer group that holds you accountable, does. It helps you get diverse opinions and get exposed to multiple hypotheses. Diversity also helps you evaluate how you are perceived. In essence, diversity gets you closer to objective reality.
CIA introduced the concept of ‘red teams’, whose job is to challenge conventional wisdom in the intelligence community. We can all benefit from having our own internal red teams who can bring in disagreeing views and shed light on information that contradicts with our opinions. Conscious truth seeking requires a culture that encourages dissent and contradiction.
Jerry Seinfeld jokes how there are two Jerry’s in his life. The night time Jerry loves to stay awake and party and watch TV but the day time Jerry wants to wake up early and work. The night time Jerry always wins and screws the day time Jerry. This joke explains how we make poor short term decisions for instant wins that ultimately work to our disadvantage in the future. This is called temporal discounting. It means we usually accept some immediate wins at a huge discount to our future. Early retirement schemes are built on this concept.
The long term vs short term view differences are important to internalise. We all know that looking at the stock market ticker is useless (in fact detrimental) if you’re investing in the long run. If you look at a day’s ups and downs on your stock you gain nothing but anxiety. You’re much better off looking at your wealth in longer terms durations. Similarly, looking too deeply or pondering over happinesses and sorrows that befall us daily is like looking at the stock ticker of our life.
Efficient decision making requires us to do ‘mental time travel’. Imagine you’ve taken a decision in the future. Now work out how your decision has affected you. Two interesting concepts of Backcasting (sort of the opposite of forecasting) and Premortem (opposite of post-mortem) come in handy. Backcasting requires you to assume that you’ve become successful at something. Now work backwards to see how it happened. Which things went your way for it to happen. The underlying idea here is that the neural pathways that are employed in thinking about the future are the same as those that are used when dwelling on past memories. Thinking backwards expose you to think more deeply about the assumptions you have now.
Premortem helps you simulate a fail case and then think of all the reasons why you must have failed. Doing both of these prepares you for a lot more sets of future outcomes than just linear planning.
Regret is another interesting instrument to keep in the back of the mind. Regret when used properly can help avoid poor decisions. A simple hack of ’10-10-10’ can help here. It requires you to think how would you feel about the decision you’re making 10 minutes from now, 10 months from now and 10 years from now. You can also do mental time travel and think from a future scenario. How do you feel about having done something 10 years ago, 10 months ago and 10 minutes ago.
I run a startup called Harmonize. We are hiring and if you’re looking for an exciting startup journey, please write to jobs@harmonizehq.com. Apart from this blog, I tweet about startup life and practical wisdom in books.