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

Description

Wall Street Journal bestseller! Poker champion turned business consultant Annie Duke teaches you how to get comfortable with uncertainty and make better decisions as a result.In Super Bowl XLIX, Seahawks coach Pete Carroll made one of the most controversial calls in football history: With 26 seconds remaining, and trailing by four at the Patriots’ one-yard line, he called for a pass instead of a hand off to his star running back. The pass was intercepted and the Seahawks lost. Critics called it the dumbest play in history. But was the call really that bad? Or did Carroll actually make a great move that was ruined by bad luck?Even the best decision doesn’t yield the best outcome every time. There’s always an element of luck that you can’t control, and there is always information that is hidden from view. So the key to long-term success (and avoiding worrying yourself to death) is to think in bets: How sure am I? What are the possible ways things could turn out? What decision has the highest odds of success? Did I land in the unlucky 10% on the strategy that works 90% of the time? Or is my success attributable to dumb luck rather than great decision making? Annie Duke, a former World Series of Poker champion turned business consultant, draws on examples from business, sports, politics, and (of course) poker to share tools anyone can use to embrace uncertainty and make better decisions. For most people, it’s difficult to say “I’m not sure” in a world that values and, even, rewards the appearance of certainty. But professional poker players are comfortable with the fact that great decisions don’t always lead to great outcomes and bad decisions don’t always lead to bad outcomes.By shifting your thinking from a need for certainty to a goal of accurately assessing what you know and what you don’t, you’ll be less vulnerable to reactive emotions, knee-jerk biases, and destructive habits in your decision making. You’ll become more confident, calm, compassionate and successful in the long run.

User’s Reviews

Reviews from Amazon users which were colected at the time this book was published on the website:

⭐This book is about how to make better decisions, from the trivial to the most consequential,in all endeavors of life: personal, business, political/economic forecasting, gambling, etc.It explains how to think about potential decision options, given that most entail varyingdegrees of risky or uncertain outcomes. Without attempting to bog the reader down inthe mathematics of probability theory, the core of most textbook approachesto decision making, it clearly demonstrates how to incorporate probabilisticuncertainty into our decision-making thought processes. Since most decisionswe make lead to outcomes which have an element of probabilistic uncertainty,the book’s approach is relevant to all walks of life. Although Duke does not frame it this way, I think a brief explanationof two fundamentally different types of situations captured by the tool ofprobabilistic reasoning may be helpful. This dichotomy leads to what havebeen termed Objective and Subjective probabilities. Objective probabilities are those associated with outcomes that are truly randomwith specific known numerical probabilities governing various occurrences.For these, no amount of thinking or information on the part of those of us observingthe situation can improve on understanding inherent randomness of the underlyingactivity leading to some outcome, i.e., the known probabilities are the best we cando in anticipating the ultimate outcome of the event. In other words, we can’t improveon the odds of various outcomes however smart we may be. The best examples forthis type of probability are things happening in the world of quantum mechanics,e.g., predicting the time at which a radioactive element or a neutron will decay.A close second for most practical purposes would be the outcome of the spin of aroulette wheel or the outcome of a fair roll of a pair of dice. Objective probabilities are set bythe laws of nature, and, once known, the actual outcomes of a large number of repetitiveobservations of the same situation will lead to a predictable distribution of outcomes. Subjective probabilities, on the other hand, are probabilities we assign to variousoutcomes when faced with decisions leading to uncertain outcomes. They are notfixed or absolute numbers driven by the laws of nature. We may assigna numerical value to a particular outcome, e.g., a 70% chance the Patriots will winthe Super Bowl against the Eagles, or, they may be qualitative rankings of possibleoutcomes, e.g., highly likely, pretty likely, not sure, very unlikely, etc. Three key thingsabout Subjective probabilities are:1. Different people thinking about the same event will usually have differentestimates of the probabilistic outcomes. Subjective probabilities are not facts.They are opinions.2. The information/knowledge the decision maker has about the situation willaffect their probability estimates of different outcomes.3. Good decision makers in many particular endeavors like poker or investing will usually,i.e., more frequently but not always, have better success in predicting uncertain outcomesthan will poor decision makers. During the first couple of hundred years that mathematicians tried to develop thefield of probability, they were generally focused on thinking about things they believedwere governed by Objective probabilities. Even the game of poker was thought of in thisway for years. Early in the 20th century, thinkers began to crystallize the idea of Subjectiveprobabilities as distinctly different from Objective probabilities. John Maynard Keynesattempted to develop a full blown theory with his 1921 book “A Treatise On Probability”.Although it had some excellent ideas, it did not succeed in laying out a firm mathematical basisfor Subjective probability. This took the Italian mathematician, Bruno de Finetti, to definea mathematically rigorous treatment of Subjective probability in his 1937 book. And,thinking in bets was core to his approach. By the 1950’s, de Finetti’s approach became the basis for aspects of economics , game theory,and decision making under uncertainty. The latter pertains to virtually all decision making weencounter in daily life. So, what does Subjective probability have to do with bets. In short, everything. When we make a bet, we do so with a view of the chances of winning, either a qualitative view, or a quantitative view, i.e., a probability. A bet is the manifestation of one’s personal estimate of the Subjective probability of the outcome you are favoring. The beauty of Duke’s book is that it explains with lots of examples of how to applySubjective probabilistic thinking in all sorts of situations without having to worry aboutthe sound basis of the underlying mathematics. Poker is a great example of a situation in which aSubjective probabilistic assessment is critical, since trying to gauge how others will behave in playing a hand is truly a subjective, rather than objective, assessment. Thus her poker and human psychology background really do mark her as expert in teaching smart decision making for a broad audience. Since information and knowledge are key to making sound estimates of Subjective probabilities, Duke spends a lot of time on how to build a broad information base pertaining to prospective decisions, and how to guard against biases we naturally have that can cause us to resist relevant information that may rub us wrong. She implies that for lots of decisions, one can do better simply by stepping back and thinking about the pro’s and con’s, rather than just going on an impulse. Oftentimes we have relevant information in our head, if only we would think about it. Get external inputs as well, e.g., friends or Google. Information is key and being open to inputs that may conflict with your beliefs will improve your decision quality in the long run. Thus,the book is suitable for both the mathematically inclined and the mathematically averse. Although the math is absent, some may find some of the concepts a bit difficult or, on the surface, repetitive, as evidenced by some of the reviews posted here on Amazon. Stated differently, it may be difficult sometimes to appreciate the applicability of the advice to settings that go beyond the specific example used preceding her current point, but a little thought brings it home. No doubt, a few readers of the book will ‘get it’ and some won’t, though they may still find some of the stories entertaining. None-the-less, I highly recommend it as worthwhile for both personal improvement, as well as supplemental reading in almost any graduate school curriculum.

⭐I read Ms. Duke’s poker instruction book and found it solid. She is a wordy writer so not the most enjoyable read but she came across as friendly and lively. Accordingly, I was willing to read this book as I was intrigued by its title. If, like me, you assumed based upon the title that Ms. Duke provides clear insight as to how thinking is like betting and, thereafter, provides instruction on how to think “in bets”; well, then you also will be unhappy with this book.Now, if you go to merriam-webster.com and enter “bet”, you find the word primarily means “something that is laid, staked, or pledged typically between two parties on the outcome of a contest or a contingent issue”.You will note that this definition clearly shows that a “bet” involves at least two people or a person and an entity (i.e. casino) willing to wager/gamble and that generally “bets” are primarily over “contests”, which would be a gambling game (i.e. craps, blackjack, poker) or a sporting event in which the wager is on who would win. You will also note that “bets” are placed on contests/contingency in which the outcome can be determined with certainty so that it is clear to both parties who “won” the bet.The above definition, however, is not how Ms. Duke uses the word, “bet”. She too references Merriam Webster, but she parses out part of the various definitions to “prove” that “betting” is about “choosing”. [In other words, she basically uses “bet” to mean “decision”; however, a title like “Thinking in Decisions” was be tautological and, otherwise, is not a saleable title.]Having decided that “bet” is not so much about wagering with another person but about the choices involved in determining the wager. Ms. Duke, thereafter, argues that every decision you make in life is a “choice” and, so, it is a “bet.”So, while betting involves two or more persons, Ms. Duke exclusively addresses “betting” with yourself. The problem is that, unlike a typical bet in which an adversarial relationship arises with two specific, opposing viewpoints/sides and a clearly determined and certain result which allows the betting parties to determine who will win; Ms. Duke’s twisted version of “betting” has no such objective parameters. Even her examples implicitly show this.One of her examples is a professional gambler, living in Las Vegas, who entered a proposition bet with his colleagues in which he bet he could live in Des Moines, Iowa for 30 days. The wager was $30,000. However, as it is not difficult to live anywhere for 30 days, particularly a city in the USA, the colleagues set the condition that he could not leave his residential block during the entire 30 days, so a modified version of “house arrest”.This is a clear bet. There are two adversarial parties, a specific act, which permits both parties to determine with certainty if the condition of the bet was met.Ms. Duke, however, tries to coach this bet as the professional gambler being tired of Las Vegas and moving to Des Moines to see if he might like living there instead. This is clearly not his intention since you cannot “decide” if you like a city if you are prohibited from leaving the one block on which your residence is located. Ms. Duke ignores all of this and argues that, despite the fact this is a clear bet, it was actually a “bet” by the professional gambler with himself to see if he personally liked Des Moines.Similarly, she recounts how the Seattle Seahawks lost the Super Bowl when their coach, Pete Carroll, decided to try a pass play from the one-yard line. Rather than try to run it in from one-yard out, the Seahawks passed and the pass was intercepted. Ms. Duke argues this was a “bet” by Coach Carroll. It wasn’t. It was a decision. By her definition, every time you decide to take the long way home, you are “making a bet with yourself” because you cannot be “certain” it will turn out as you hoped.Which would be fine, I suppose, if Ms. Duke made any attempt to assist the reader in understanding how to see decisions as “bets” by providing a system or structured analysis of the steps required to treat a decision as a “bet with yourself”. However, she does not. She just basically says ‘start seeing every decision as a bet. It will feel strange at first, but you will get use to it.”So, I guess when I wake up, I have to “make a bet with myself” as to whether I will regret getting out of bed and then as to whether the flouride in the toothpaste is healthy for me and then as to whether I will enjoy my coffee or belatedly wish I had drunk tea … . Somehow, without setting any stakes nor particularly being clear how I will be certain I ‘won’ or ‘lost’ the “bet with myself”, I am to futilely proceed throughout the day “betting” against myself”.This makes no sense and as may be clear to you as it is to me, Ms. Duke came up with a clever idea and, rather than put in the necessary effort to seriously develop it, she simply decides to use her “celebrity” as a poker player, e.g. a bettor, to imply she knows what she is talking about – even if she is just talking in circles.She never seems to understand that being a good “bettor” at poker is entirely different from everyday life. In poker, you generally know the odds and, so, know what probability you have of winning. Deciding is much easier when you know the reasonable likelihood of success. Further, it is clear what is at stake and you can always stop betting (i.e. walk away from your decision), something you cannot easily do in life. FInally, you are provide clear and decisive information on the success of your bet, you either won or lost, and so betting trains you quickly to make decisions at the table because, otherwise, you will go broke. There is no such negative reinforcement of bad decisions in life. In short, it is easy to determine whether or not to bet on a hand at a card table, to determine whether to fold the hand to a raise, and the determine whether your bet was a probable winner, even if you lost the hand. It is not so easy to determine whether the person you intend to marry is a “good bet”, nor to “walk away from the bet”, nor to determine until years later if the “bet was a probable winner”. Bets are a very limited and situational type of decision and do not truly model life decisions – despite the cliched argument that “poker is more like life than chess”. I could easily argue that contract bidding in bridges is a more complete analogy to decisions than is betting on a poker hand, but it would still be a poor model of actual decisions in life, simply because games have immediately and clear results which life decisions often do not.Ms. Duke cites to several sources to show people tend toward absolutes in their judgment, along with confirmation bias and group think when deciding (or when “betting” by her very loose definition); however, she never gives any clear instruction as to how one can overcome such ingrained thought patterns – other than, as noted above, to keep trying to be aware of such patterns and trust by being aware that somehow the pattern will be mitigated.If you, like me, expect an author to do more than cite to psychological reports which merely prove what most of us already know about bias and such in our decision-making and, otherwise, would like a workable system then you should pass on this book and read Alan Jessop’s “Let the Evidence Speak”; in which he provides a system to use Bayesian analysis to revise your opinions as new information is learned by you.

⭐Thinking in Bets’ by Annie Duke is probably the best book on decision making that I have read. The Basic idea of the book is that thinking in bets will substantially improve the decision-making skills in our day-to-day life. Annie Duke is a professional poker player and according to her life imitates poker, not chess. Poker is a decision making game under uncertainty over time. It has valuable information hidden, there is element of luck in any outcome. The decision we make in our lives- raising kids, health, business- have uncertainty, hidden information & luck.What a bet really is?A bet a decision about an uncertain future. Thinking in bets starts with recognizing that there are exactly two things that determine how our lives turn out:the quality of our decisionsluck.Learning to recognize the difference between the two is what thinking in bets is all about.What’s your best and worst decision?Take a moment to imagine your best decision in the last year. Now take a moment to imagine your worst decision. Chances are you will equate the outcome of the decision to the quality of the decision. This is because we’re susceptible to “resulting” and hindsight bias.We must disassociate outcome with decision. A great decision is the result of a good process and that process must represent an accurate picture of our state of knowledge.Resulting: tendency to equate the quality of a decision with the quality of its outcomeHindsight bias: tendency, after an outcome is known, to see the outcome as having been inevitable.When we work backward from results to figure out why those things happened, we are susceptible to a variety of cognitive traps, like assuming causation when there is only a correlation, or cherry- picking data to confirm the narrative we prefer. We will pound a lot of square pegs into round holes to maintain the illusion of a tight relationship between our outcomes and our decisions.Two Brains:We’re susceptible to these mental traps because our brains are not built for rationality. Our brains work basically in two modes. Daniel Kahneman popularized the labels of “System 1” and “System 2”.System 1: encompasses reflex, instinct, intuition, impulse and automatic processing.System 2: is how we choose, concentrate and expend mental energy.Both systems are necessary for survival. Mistakes happen when System 1 overtakes System 2 in decision-making.Since most of what we do daily exists in automatic processing. We are used to thinking in System 1 mode. The challenge is to figure out how to make decisions within the limitations we already have.Embrace uncertainty and Redefine wrong:Embracing “I’m not sure” is difficult. We are trained in school that saying “I don’t know” is a bad thing. Not knowing in school is considered a failure of learning.Of course, we want to encourage acquiring knowledge, but the first step is understanding what we don’t know. “I don’t know” is not a failure but a necessary step toward enlightenment.There are many reasons why wrapping our arms around uncertainty and giving it a big hug will help us become better decision- makers. Here are two of them. First, “I’m not sure” is simply a more accurate representation of the world. Second, and related, when we accept that we can’t be sure, we are less likely to fall into the trap of black- and- white thinking.Decisions are bets on the future, and they aren’t “right” or “wrong” based on whether they turn out well on any particular iteration. An unwanted result doesn’t make our decision wrong if we thought about the alternatives and probabilities in advance and allocated our resources.Redefining wrong allows us to let go of all the anguish that comes from getting a bad result. First, the world is a pretty random place. The influence of luck makes it impossible to predict exactly how things will turn out, and all the hidden information makes it even worse. Second, being wrong hurts us more than being right feels good.All decisions are bets:All our decisions are always bets. We routinely decide among alternatives, put resources at risk, assess the likelihood of different outcomes, and consider what it is that we value.The betting elements of decisions— choice, probability, risk, etc.— are more obvious in some situations than others. Investments are clearly bets. A decision about a stock (buy, don’t buy, sell, hold, not to mention esoteric investment options) involves a choice about the best use of financial resources. Incomplete information and factors outside of our control make all our investment choices uncertainMost bets are bets against ourselves:In most of our decisions, we are not betting against another person. Rather, we are betting against all the future versions of ourselves that we are not choosing.Whenever we make a choice, we are betting on a potential future.Our bets are only as good as our beliefs:Our bets are only as good as our beliefs. our default setting is to believe what we hear is true.We might think of ourselves as open- minded and capable of updating our beliefs based on new information, but the research conclusively shows otherwise. Instead of altering our beliefs to fit new information, we do the opposite, altering our interpretation of that information to fit our beliefs. Our pre- existing beliefs influence the way we experience the world. This irrational, circular information- processing pattern is called motivated reasoning. The way we process new information is driven by the beliefs we hold, strengthening them. Those strengthened beliefs then drive how we process further information, and so on.Being smart makes it worse:Being smart makes it worse the smarter you are, the better you are at constructing a narrative that supports your beliefs, rationalizing and framing the data to fit your argument or point of view. we all have a blind spot about recognizing our biases. The surprise is that blind- spot bias is greater the smarter you are.Wanna bet?Offering a wager is the best way to fight these mental traps and brings the risk out in the open, making explicit what is already implicit. We can train ourselves to view the world through the lens of “Wanna bet?”Once we start doing that, we are more likely to recognize that there is always a degree of uncertainty, that we are generally less sure than we thought we were, that practically nothing is black and white, 0% or 100%. We don’t need someone challenging us to an actual bet to do this. We can think like a bettor, purposefully and on our own, like it’s a game even if we’re just doing it ourselves.Instead of thinking of confidence as all- or- nothing (“ I’m confident” or “I’m not confident”), our expression of our confidence would then capture all the shades of grey in between. Incorporating uncertainty into the way we think about our beliefs comes with many benefits.Use CUDOS:CUDOS stands forCommunism (data belong to the group)Universalism (apply uniform standards to claims and evidence, regardless of where they came from)Disinterestedness (vigilance against potential conflicts that can influence the group’s evaluation)Organized Skepticism (discussion among the group to encourage engagement and dissent)Techniques to become a better bets:Techniques like Suzy Welch’s 10-10-10, temporal discounting problem, pre-commitment, pre-mortem can help us make better bets on our futures.Our irrational, impulsive & instant gratification tendency are because we favor our present-self at the expense of our future-self. This is called “temporal discounting”. Thinking about the future and recognizing when we commit temporal discounting and helps us maintain the right frame of mind.Suzy Welch’s 10-10-10 has the effect of bringing the future-us into more of our in the moment decisions. Before taking a bet/decisions visualize how it will affect us in the next 10 minutes, 10 months and 10 years.Tilt is a poker term when a player is not in a mental or emotional state to choose optimal strategy.whenever you feel you are experiencing “tilt”, pre-commit to walk away from the situation.Backcasting is a useful time-travel exercise where we imagine a successful future and identify necessary steps for reaching our goals. Working backward helps even more when we give ourselves the freedom to imagine an unfavorable future. It also makes it possible to identify when there are low-probability events that must occur to reach the goalPremortems: working backward from a negative future. It’s an investigation into something awful, but before it happens. Asking “Okay, we failed. Why did we fail?” frees everyone to identify potential points of failure without the for fear of being viewed as a naysayer. 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.We are going to do better, and be happier, if we start by recognizing that we’ll never be sure of the future.Final thoughts:Although the book becomes repetitive places, this is easily one of the best books have read on decision making and cognitive psycology. If you are planning to read only one book for the year, I recommend you pick this up.In case if you are looking for super-short and concise book summary of the same, you can check out my twitter thread.

⭐This book probably deserves one star but I give it two because it is not entirely gibberish. In fact it is quite entertaining, and has some interesting points on the making of bets. The better books on the area of decision-making – if that is what you, like me, want – are Daniel Kahneman’s ‘Thinking, Fast and Slow’, and Leonard Mlodinow’s The Drunkard’s Walk’. Thinking in bets, as a book on betting, is probably for people who have been losing badly in casinos, in which case, this book won’t help much either. Hence, if you are stuck with no much choice and wish to spend an afternoon reading on light reading, this book is a candidate.

⭐I was in doubt whether this is a 3 or 4 star book.Duke writes well and tells many anecdotes – making her points more memorable.Some of the points are somewhat trivial – and is covered in by greater works by Daniel Kahneman (Thinking fast and slow) and Nassim Taleb (Fooled by randomness). Duke prefers to use the term of “luck” over “randomness” – although it does feels like, quite a bit of inspiration comes from Taleb.I like the book, although, especially the first 100 pages are rather repetitive, re. the simple message of recognizing randomness (luck) from skill when evaluating the outcome of a decision.I recommend you to hang in there and finish the book – the last 50-80 pages are quite good.The list of recommended readings is quite useful.I settled on the 3 stars due to the points being made in a repetitive manner – but it is close to a 4.I might read more from Duke. There are some real world (mine is in investing) lessons that are useful to keep in mind.

⭐To guess is to gamble. Applying some methodology to decision-making reduces, if not eliminates, guesswork thus making any decision less of a gamble. Thinking in Bets describes that sort of methodology quite comprehensively.For example, considering negative predictions, besides positive ones, can insert some scepticism into a decision so rendering it more realistic. A smart decision involves knowing all the pros and cons of each option, which is where history comes in, then weighing up those pros and cons. A few hands, of poker, come to mind where if I had done exactly that I would have folded a cooler.Annie Duke describes how to manage the decision-learning process. Not all negative outcomes are down to flawed decisions. Random factors will also influence the outcome. Outcome quality is different from decision quality.Thinking in Bets is useful because it helps you to identify the flawed assumptions in your decision making.

⭐Annie Duke, the author of “thinking in bets” is a former World Series of Poker champion, turned business consultant. In the book, Annie discusses the importance of the different types of decisions. Good decisions can generate, bad outcomes and bad decisions can generate great outcomes. This is something she has learned from playing poker.She also discusses the difference between “skill” and “luck”, often in life if we had a good outcome we put that down to skill and a bad outcome, we put down to bad luck. Surely everything is about skill? Annie discusses that if you say to people “will you take a bet on that?” people will start unpacking their belief systems and the knowledge we have which we assume to be true. Once pushed, to put our money where our belief systems are will we really do it?Finally she discusses the need to have an open mind in life and a lifelong learner.I certainly enjoyed the book and it’s worth adding to the reading list.

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