Thinking in Bets: making Smarter Decisions When You Don't Have All the Facts
The promise of this book is that thinking in bets will improve decision-making throughout our lives. We can get better at separating outcome quality from decision quality, discover the power of saying, “I’m not sure,” learn strategies to map out the future, become less reactive decision-makers, build and sustain pods of fellow truthseekers to improve our decision process, and recruit our past and future selves to make fewer emotional decision s
- A bet is a decision about an uncertain future.
- Two things determine how our lives turn out: the quality of our decisions and luck. The rub lies in differentiating between the two.
- Good quality decisions can get a bad result, and bad quality decisions can get a good result.
- Having results oriented thinking, and sometimes hindsight bias, can dramatically effect the way we deploy our decision making framework.
- These patterns are the result of our need for certainty, our need to have our outcomes line up with our decisions.
- When making decisions, we should try to be concious of when Traversky and Khaneman’s1 System 1 (fast thinking) and System 2 (slow thinking) are at play.
- Poker provides a lab for studying decision making because of the volume of choices made and the financial stakes of making those choices.
- Execution is an important part of poker: deploying our well deliberated intentions (System 2) within the context of speedy decision making (System 1). Essentially interpolating between the two decision making systems.
- Poker is a game of incomplete information, unlike chess where every decision can eventually be determined to be correct or incorrect. In that way, Poker more closely models real life.
- Getting comfortable with “I’m not sure” is a key part of decision making.
- Not knowing is a key part of scientific discovery
- A good poker player will make the best guesses based on the chances that an outcome will occur.
- I’m not sure is a more accurate representation of the world
- Often outcomes are not binary (black or white), they exist on a spectrum (gray).
- For most decisions, there will be a lot space between unequivocally right and wrong.
- A great decision is the result of a great process, and the process must account for the state of knowledge. Given that we rarely have perfect knowledge, we therefore must be comfortable with identifying that we are not sure.
- Simply because an event happened, does not mean we were right to bet on it’s outcome or wrong to bet against it’s outcome.
- All decisions are bets, decisions are choices about alternate futures, both with risks and benefits.
- Not placing a bet on something is in itself a bet.
- By explicitly stating that our decisions are bets, we can make better decisions and anticipate when irrationality is likely to prevent us from making the best decision.
- In most cases we are not betting aginst someone, rather we are betting aginst all the future versions of ourselves that we are not choosing.
- We bet based on what we believe about the world, but our belief formation is flawed. The skill of life is being a better belief calibrator: using experience and information to more objectively update our beliefs to more accurately reflect the world.
- How we form beliefs is flawed, we typically:
- We hear something
- We believe it to be true
- Only sometimes later, do we vet and determine whether it is true
- This belief system has been borne out in literature showing that people will trust information even when flagged as false.
- Initially trusting something to be true is a survival mechanism. In the wild, we had to trust our senses: the risk of a false positive are less negative that a false negative (ignoring a sound that might be a jungle cat).
- With intellectual pursuits, this circuit of initial trust was carried over to second hand experiences and knowledge
- Our beliefs affect how we process all new things. E.g. our biases and world view will impact how we view events
“ Whether it is a football game, a protest, or just about anything else, our pre-existing beliefs influence the way we experience the world. That those beliefs aren’t formed in a particularly orderly way leads to all sorts of mischief in our decision-making.”
- Fake news isn’t meant to change minds, it’s meant to entrench the views of it’s audience. Disinformation is more insidious because it has true elements, embellished to spin a particular narrative.
- Being smart actually does not make us better at resisting disinformation or fake news. Intelligence allows us
- Blindspot bias is bias is greater the smarter you are, experiments have shown that more numerate people are more likely to miss-interpret data to support their beliefs.
- When challenged with “Wanna bet?”, our confidence in a belief is challenged and it engages us to re-evaluating the belief.
- Thinking about beliefs and facts within the context of “Wanna bet” allows us to acknowledge the element of uncertainty.
- Expressing Confidence in knowledge is an important part of being a good communicator and decision maker.
Betting on the future:
Belief -> Bet -> Set of outcomes
Determining whether a given outcome is the result of skill or luck is vital in feeding back into our next bet.
Belief -> Bet -> Set of outcomes -> Bet 2 –> Belief
In an ideal world, we would gather more information from an outcome, our beliefs would improve and from there our bets and decisions. Unfortunately, a single outcome can have happen for multiple reasons and causes.
We can identify our long term goals, but in order to execute on the path forward (make decisions towards that goal) we have to identify how outcomes should inform our future decisions.
For a given outcome we have to determine if it was luck (do not modify our decision strategy) or skill (feedback to our decision making process). Alternatively, the outcome can be a result of a combination of the two.
- Self-serving bias makes it particularly difficult to sort skill from luck with outcomes.
- All or nothing thinking is problematic, since both skill and luck can contribute to an outcome.
Learning from others experiences is potent, but we are subjected to the inverse of the self-serving bias: we tend to attribute good outcomes for others to luck and bad outcomes to their failure in skill. This bias can prevent us from learning but also hurt our compassion for others who had a bad luck outcome. People do this because others outcomes reflect on us through the lens of competition. If another loses, they “deserve” it in the same way we “deserve” to win. This occurs occurs because we ground our selves in competition with others.
Changing how we view success and failure via habit change by substituting our competition with others across the domains of being a better credit giver, more willing to admit mistakes, more willing to explore possible reasons for an outcome.
Truthseeking is the way we handle outcomes is a bet, specifically focused on considering a greater umber of alternative causes than we otherwise would.
Thinking in bets triggers an open minded exploration of alternative hypotheses, of reasons supporting conclusions opposite to the routine of self-serving bias.
- Author argues for creating a truthseeking group for vetting decision making. You only need three people in the group, two to disagree and one to referee. However, the group needs to have a strict set of operating guidelines that encourage exploratory thought over confirmatory thought (group think).
- The group must:
- Be focused on accuracy over confirmation, which means they must reward truthseeking, objectivity, and open-mindedness
- Have accountability (willingness to answer for actions, e.g. pay up on a bet)
- Openness to a diversity of ideas
- Assessing the accuracy of our beliefs
- Federal judges on an appellate court are more likely to be ideologically damped by the presence of one other judge in the group of three from the other political spectrum.
- CUDOS lays a framework for having a productive decision making group;
- Get all the data evidence in front of the group, leaving something out or not sharing may be a protective mechanism that prevents clear decision making
- Don’t shoot the messenger, more over don’t evaluate the idea in the context of the messenger
- Outcome blind analysis
- Encourage dissenting opinions
- Remove the stigma from dissent by expressing it a less challenging way:
- “I’m not sure about that” / “Are you sure about that?”
- “have you considered this other way of thinking about it?”
- Remove the stigma from dissent by expressing it a less challenging way:
- Communicating with others on thinking in bets:
- Express uncertainity to foster truth seeking
- Lead with assent: “state the things you agree with” and then bridge with an “and”. This is similar to the improv idea of “Yes.. and”
- Ask for temporary engagement in truth seeking
- Focus on the future rather than the past to decrease defensiveness
- Ground our thinking in past selves and future selves helps with decision making. The goal should be to ground our day-to-day execution in our long term strategic goals.
- Temporal discounting
- The thinking pattern that we use when imagining our future selves is similar to the one we use to remember our past.
- One goal of time travel goals is to create moments for our future selves where we re-evaluate our decision making, for example with loss limiting.
- The way we feel about outcomes is path dependent e.g. winning money first and then losing it vs losing money first and then winning it back.
- Ulysses contracts