Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts by Annie Duke

Thinking in Bets by Annie Duke

Among the things about which I am most interested, improving the quality of my thinking and of my decision making rank high on the list, so after listening to a Tim Ferriss Show interview with Annie Duke, I was excited to read her book, Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts. For those who aren’t familiar with Duke, before becoming an author, speaker, and consultant, she was a professional poker player who “won more than $4 million in tournament poker. During her career, Annie won a World Series of Poker bracelet and is the only woman to have won the World Series of Poker Tournament of Champions and the NBC National Poker Heads-Up Championship. She retired from the game in 2012. Prior to becoming a professional poker player, Annie was awarded a National Science Foundation Fellowship to study Cognitive Psychology at the University of Pennsylvania.” – quote from

“The promise of the 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 future emotional decisions.”

Candidly, I have zero interest in poker or any other form of gambling. I work in the finance industry for a living and that’s plenty of risk taking for me. But as I said at the outset, I am deeply interested in improving my decision-making processes and Duke does a great job of using poker to illustrate a better way to think about decisions and outcomes.

Unlike with slot-machines, roulette, or other games of chance where the player cannot influence the outcome (truly…gambling), poker provides a unique environment with ready feedback on decisions, sometimes hundreds of times in a session, but the key here is that none of the participants have the expectation of having complete information. Many, many players will certainly have the odds of each potential hand memorized, but that information only gets you so far as the whole point of probabilities is to inform you what is likely to happen, what will probably happen…but that’s a long way from certainty.

“What good poker players and good decision-makers have in common is their comfort with the world being an uncertain and unpredictable place. They understand that they can almost never know exactly how something will turn out. 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 chances that different outcomes will occur. The accuracy of those guesses will depend on how much information they have and how experienced they are at making such guesses. This is part of the basis of all bets.”

So, a key to improving our decision making is embracing the fact that even when we feel convinced of the outcome, there are precious few sure things. We tend to cling tightly to ill informed, or sometimes, uninformed positions, convinced of the certainty of the outcome. Thinking in bets would have us realize that there is a probability, even if very small, that we are wrong and if there’s a probability we’re wrong, our decision process should allow for it. Our level of conviction should be tempered by the amount of uncertainty in what we know. Rather than focusing on how right we are, we need to spend some time thinking about how wrong we are.

“When we think in advance about the chances of alternative outcomes and make a decision based on those chances, it doesn’t automatically make us wrong when things don’t work out. It just means that one event in a set of possible futures occurred.”

This reminds me a bit of the financial concept of “expected value.” That is, the expected value is the weighted average of all the possible outcomes. Yes, you might receive a payoff of 100, but if a payoff of zero is equally likely, your expected value is 50 so don’t make an investment of more than 50 (and preferably less). Yes, the 100 remains a possible outcome, but we forget or tend to discount the zero.

“An unwanted result doesn’t make our decision wrong if we thought about the alternatives and probabilities in advance and allocated our resources accordingly.”

Going back to my expected value example, if you invest 40 to achieve an expected value payout of 50, but the actual payout is zero, thinking in bets reminds us that it was a bad decision, only a bad outcome. The expected value of 50 contained the zero as a possible outcome. Not one we want, but still possible and factored into the decision.

Undesired outcomes are part of good decision-making. We cannot be correct all of the time and need to make allowances for when we aren’t. This includes not berating ourselves and slipping into negative habits or patterns when the undesired outcome occurs. We need to review our thought process and try and learn from the result, understanding that even when we do everything right, sometimes we still don’t get what we wanted and our decisions must allow for that negative outcome.

Unfortunately, real life is usually far more challenging that the expected value example. We often don’t really know the probabilities, we often don’t really know the potential outcomes, and there is almost always information we don’t know or, even worse, information we don’t know we don’t know. The result of this is so much of our decision making isn’t based on facts and probabilities at all, but based on belief. Sometimes people like to throw around the phrase, “I’m entitled to my opinion.” No, you’re aren’t. You’re only entitled to your opinion if it’s informed.

“We inform beliefs without vetting most of them, and maintain them even after receiving clear, corrective information.”

“Instead of altering our beliefs to fit new information, we do the opposite, altering our interpretation of that information to fit our beliefs.”

“The more we recognize that we are betting on our beliefs (with our happiness, attention, health, money, time, or some other limited resource), the more we are likely to temper our statements, getting closer to the truth as we acknowledge the risk inherent in what we believe.”

We are inherently poor decision makers because we’re inherently poor thinkers. Rather than analyzing situations and evaluating potential outcomes, we react. Rather than challenging our own thinking, we fall in love with our own ideas and hold ossified beliefs that could never stand up to the light of day.

If our goals really are clearer thinking and better decision making, we need to look these biases squarely in the eye and systematically challenge our own thought processes, read opposing views, and try to understand the truth in those opposing positions…because there will be some truth in opposing positions. But instead of looking for information that contradicts what we believe and adjusting that belief, we tend to seek out information and sources that confirm it.

“We don’t win bets by being in love with our own ideas. We win bets by relentlessly striving to calibrate our beliefs and predictions about the future to more accurately represent the world. In the long run, the more objective person will win against the more biased person.”

To bring the point back to poker, a player who knows the odds of any given hand and steadfastly refuses to consider any additional information will lose over and over again. There simply is more to consider. An investor who becomes infatuated with a given position may be proven correct, but also may be proven wrong, at least in the short term, and be wiped out.

All of this suggests that to be better thinkers, to better decision makers, what we need is a healthy dose of humility. We need to hold our positions lightly and realize there is information we simply do not yet, and may never, have. We also need to realize that there is value in the viewpoints of others, particularly those with whom we disagree.

Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts by Annie Duke is an engaging book about mechanisms through which we can improve our own decision-making using poker to illustrate its points. It’s a book that we should all want to read and, the fact that many people won’t read it and will instead turn their noses up at its concepts, actually just proves the point of the book. I enjoyed it and have found my decision-making improved as a result. I recommend it to you, as well.

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3 thoughts on “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts by Annie Duke

  1. To say that we are poor decision-makers because we are inherently poor thinkers misses the point that emotion is the biggest enemy of sound decision-making.

    1. I think that’s a fair criticism. In the book Duke points out that we still have this emotional, reactive quality to our decisions. I certainly still see that in my own life.

  2. Great review and sounds like an intriguing book. I think, though, that even good thinkers can end up as poor decision makers because of the challenge of translating our emotions into quantifications. Most of our decisions are not, actually, purely financial; as a fellow finance person, indeed, I find some solace in my work day decisions because, as an agent, I can make them and articulate them in a kind of pure form, that of a financial end point. But our decisions as individuals involve balancing a variety of preferences – most of which, frankly, are emotional or spiritual or even physical, none of which bear up to simple quantification – along with some which are amenable to quantification and future valuing and numerical odds or probabilities. Being a good decision maker means thinking carefully, but also feeling carefully – and translating between the two disciplines as well, all in the process of making that good decision.

    Our job, therefore, is to be thoughtful about all kinds of problem inputs, and to be careful to assess future potential outcomes in terms of a spectrum of both calculated expected future values and considered expected future states of being. And indeed, often, it’s the careful practice of overweighting the latter that makes outside observers think we’ve made poor decisions when thought solely in terms of the former. But it may mean the decider is both a good thinker, and a good decision maker – because, at the right time and for the right reasons, they let their emotions get the better of them, in the very finest meaning of the phrase.

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