Decision Making —

 Thinking in Bets

Jean-Marie BuchillyFollow
Aug 24

Thinking in Bets — the main idea: Great decisions don’t

always lead to great outcomes, bad decisions don’t
always lead to bad outcomes.
Life Is Poker, Not Chess
“Resulting” is a word that is used in the poker world to
describe the tendency to equate the quality of a decision
with the quality of its outcome. The thing is that a good-
quality decision can get a bad result. And vice versa.

“Life Is Poker, Not Chess” — Annie Duke, Thinking in Bets

Chess contains no hidden information and very little luck.

Poker, in contrast, is a game of incomplete information.
It’s a game of decision-making under conditions of
uncertainty over time. Valuable information remains
hidden and there is also an element of luck in any
outcome.

The real world is closer to poker than chess. Uncertainty

and luck take part to the game. The outcome is a
combination of both luck and the quality of our decisions
under uncertainty.

“I’m not sure”: using uncertainty to our

advantage
“Thoroughly conscious ignorance is the prelude to every
real advance in science” — James Clerk Maxwell, physicist

What makes a decision great is not that it has a great

outcome. A great decision is the result of a good process.
And a good process includes an attempt to accurately
represent our own state of knowledge.
Wanna Bet ?
The way we think we form abstract beliefs is as follow:
1. we hear something;
2. we think about it and vet it, determining whether it is
true or false, only after that,
3. we form our belief.

But most of the time, it rather happens as follow:

1. we hear something;
2. we believe it to be true;
3. only sometimes, later, if we have time or the
inclination, we think about it and vet it, determining
whether it is, in fact, true or false.

On top of that, instead of altering our beliefs to fit new

information, we do the opposite, altering our intepretation
of that information to fit our beliefs.

We are humans. And humans are predictably irrationals as

Dan Ariely mentionned in his book.

Admitting we are not sure is an invitation to help in

refining our beliefs, and that will make our beliefs much
more accurate over time as we are more likely to gather
relevant information.

Outcomes are feedback

A classical decision-making process looks like this:
Thinking in Bets by Annie Duke

Why did something happen the way it did ?

Asking and trying to answer this question is the best way

to improve our mental models. Using the outcomes to
refine our beliefs makes our decision-making process
more accurate and robust.

However, one has to be very careful about the outcome.

Outcome don’t tell us what’s our fault and what isn’t, what
we should take credit for and what we shouldn’t. Unlike in
chess, we can’t simply work backward from the quality of
the outcome to determine the quality of our beliefs or
decisions.

It can be the result of two things: the influence of skill and

the influence of luck. It’s essential to determine this before
upgrading our models.

The updated version of the decision-making process

according to what I just mentionned is as follow:
Thinking in Bets by Annie Duke

Every outcome in which luck is involved is rejected from

the learning process and only the ones involving skills are
looped to improve our beliefs.

Adventures in Mental Time Travel

Business journalist and author Suzy Welch developed a
popular tool known as 10–10–10 that has the effect of
bringing the future-us into more of our in-the-moment
decisions.

Every 10–10–10 process starts with a question: “What are

the consequences of each of my options in 10 minutes ? In
10 months ? In 10 years ?”

Proceeding this way reduces the weight of the emotion of

the moment and brings more rationality to the decision-
making process, considering the way we field outcomes is
path dependent. What has happened in the recent past
drives our emtotional response much more than how we
are doing overall.

Doing a Premortem, which means working backward from

a negative future is another tool that can be used to make
more robust decisions. By doing this, everybody’s voice
has a value and even those who have a dissenting opinion
are represented.

Hindsight Bias
An event A has a probability P(A)=X% of chance to occur
and an event B has a probability P(B)=(100-X)% to occur.
You have to bet either on A or B. At a certain moment, the
event occurs and the outcome is A or B as highlighted on
the two drawings below.

The most probable outcome B happens

The less probable outcome A happens

The decision has been made before the outcome occurs.

Before the outcome occurs, every outcome has a

probability. The decision is a bet.

After the outcome occurs, one of the outcome has a

probability of 100%, because it happened, and all the
others have a probability of 0%, because they did not
happen. Probability are transformed in boolean. It
happenend (1) or not (0).

The main mistake we do is that we analyze the decision

AFTER the outcome happened, on the basis of the
outcome, without considering the probability levels
(information, knowledge & beliefs) that were
available at the moment the decision has been
made. By doing this, we consider a decision to be the
same quality as its outcome, which is potentially wrong.
This creates a unaccurate learning loop that can lead to a
poor evolution of our decision making capabilities, making
the situation worse for the next time. This is a clear
viscious circle as we could mix up skills and luck.

Applying this to the A versus B example above could lead

to false conclusion.

Imagine that we bet on A (lowest probability) and A

happens. It looks like we have made the right decision
based on the outcome, which is not the case if we consider
the low probabilty of A. The fact we bet on a low probabilty
should question the model.
In contrast, imagine that we bet on B (highest probability)
and A happens. It looks like we have made the wrong
decision based on the outcome, which is not the case if we
consider the high probability of B. The outcome here
should be analyzed and not automatically be used to
upgrade the model.

A virtuous circle would be to increase the

awareness/consciousness about the way we see the world
(our stance, our worldview, our biases), the state of our
knowledge (we dont’ have all the facts) and the fact that a
decision is a bet and involves probabilities (the world is
uncertain). By doing this, we could build a more accurate
model that will not directly link the quality of our
decisions to the outcomes. On top of that, every decision-
outcome event has the potential to make the model
stronger.

That’s what it means to Think In Bets, That’s what it

means to Make Smarter Decisions.