Issue#4
Hi all,
this week I would like to recall some notes on a good read: “Thinking in Bets” by Annie Duke.
The main idea of his book centres around the level of uncertainty in decision-making and how luck impacts the outcomes of our decisions. A bet is a decision about an uncertain future. As such most decisions in life, like switching a job, starting a business or choosing a partner, really are bets, thus made facing varying degrees of uncertainty.
The key message of "Thinking in Bets" therefore, is to embrace probabilistic thinking and consider potential outcomes of different decisions to make smarter decisions in uncertain situations.
Separate luck from the outcome
There is a natural tendency to equate the quality of a decision with the quality of its outcome.
Therefore Amie Duke offers a different view on this phenomenon, also called “resulting” poker terms:
“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 state of knowledge. That state of knowledge, in turn, is some variation of ‘I’m not sure.’”
People can make a bad decision and act very irresponsibly while still getting favourable outcomes while a good decision can turn out poorly.
But if we learn to look closer at the underlying components of the outcome, we can improve our thinking and understanding of our world.
Our brains weren’t built for rationality
The reason why humans tend to delete luck from the outcome equation is that we are uncomfortable with the idea that luck plays a significant role in our lives. We can acknowledge it, but it just eases our minds to imagine a world as a place of order.
“The approach of thinking in bets moved me toward objectivity, accuracy, and open-mindedness.”
When we work backwards from results to identify how things happened, we are often susceptible to cognitive biases. For example, we often assume causation when only a correlation exists. Additionally, we tend to cherry-pick data that confirms our narrative.
We are willing to go to great lengths and lie to ourselves to protect ourselves from the idea that our decisions, combined with luck, can lead to bad outcomes. But the sooner we understand this, the more rational our decisions can be.
Implement bet-thinking to enhance decision-making
- Redefine Wrong: Decisions are bets on the future. They aren’t “right” or “wrong” based on whether they turn out in our favour or not. Making better decisions stops being about wrong or right. It is about calibrating among all the shades of grey.
- Redefine Confidence: Instead of communicating, whether you are confident in your beliefs, express how confident you are. Confidence is not all-or-nothing, our expression of our confidence should capture all the shades of grey in between.
- Be aware of motivated reasoning: Once we lodge a belief, it becomes difficult to dislodge. It starts to work on its own, leading us to notice and seek out confirming evidence and rarely challenging the validity of that evidence. We resist and work to actively discredit information that is contrary to our beliefs. This irrational information-processing pattern is called motivated reasoning.
- Use the 10–10–10 Rule: Take a look forward: How would you feel about a decision
- in 10 minutes?
- 10 months?
- and 10 years?
- Backcasting: Divide and conquer a positive future: We will make better decisions in life if we identify a goal and work our way backwards from there. This approach is called backcasting. It allows us to see the impact of small positive decisions and the impact of low-probability events that were influenced by chance. Working backwards divides even our most ambitious goals into little many, more manageable tasks. Overwhelming and lofty goals suddenly appear to be within reach.
- Memento mori through pre-mortems: Visualizing a positive future is powerful and inspiring. But… “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.”
In contrast to backcasting, a Pre-mortem imagines a negative future. While including a focus on the negative space might feel uncomfortable during the planning process it supports us in seeing the world more objectively. Plus thus making better decisions will feel better than overlooking negative scenarios.
Have an awesome week everyone,
Florian
