Thinking in Bets
Thinking in Bets

Thinking in Bets

Pete Carroll was a victim of our tendency to equate the quality of a decision with the quality of its outcome. Poker players have a word for this: “resulting.” (Location 163)

Hindsight bias is the tendency, after an outcome is known, to see the outcome as having been inevitable. (Location 203)

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. (Location 231)

Poker, in contrast, is a game of incomplete information. It is a game of decision-making under conditions of uncertainty over time. (Not coincidentally, that is close to the definition of game theory.) Valuable information remains hidden. There is also an element of luck in any outcome. You could make the best possible decision at every point and still lose the hand, because you don’t know what new cards will be dealt and revealed. Once the game is finished and you try to learn from the results, separating the quality of your decisions from the influence of luck is difficult. (Location 353)

You could teach someone the rules of poker in five minutes, put them at a table with a world champion player, deal a hand (or several), and the novice could beat the champion. That could never happen in chess. (Location 362)

Like all of us, Vizzini didn’t have all the facts. He considered himself a genius without equal: “Let me put it this way. Have you ever heard of Plato, Aristotle, Socrates? Morons.” But, also like all of us, he underestimated the amount and effect of what he didn’t know. (Location 397)

We never considered that both goblets might be poisoned. (“Inconceivable” would have been Vizzini’s term, had he been able to comment on his own death.) (Location 406)

What good poker players and good decision-makers have in common is their comfort with the world being an uncertain and unpredictable place. (Location 443)

they try to figure out how unsure they are, making their best guess at the chances that different outcomes will occur. (Location 445)

A trial lawyer with a tough case could be choosing among strategies that are all more likely to fail than to succeed. (Location 456)

pick the least awful one to maximize the quality of the outcome for their client. That’s true in any business. Start-ups have very low chances of succeeding but they try nonetheless, attempting to find the best strategy to achieve the big win, even though none of the strategies is highly likely to create success for the company. (Location 458)

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. (Location 490)

Or, more likely, they’ve had those things happen throughout their lives and didn’t realize that’s what 30% or 40% feels like. (Location 517)

It would be absurd for me, after making a big bet on the best possible starting hand (a pair of aces) and losing, to spend a lot of time thinking that I was wrong to make the decision to play the hand in the first place. That would be resulting. (Location 520)

Poker teaches that lesson. A great poker player who has a good-size advantage over the other players at the table, making significantly better strategic decisions, will still be losing over 40% of the time at the end of eight hours of play. That’s a whole lot of wrong. And it’s not just confined to poker. (Location 550)

Don’t fall in love or even date anybody if you want only positive results. The world is structured to give us lots of opportunities to feel bad about being wrong if we want to measure ourselves by outcomes. Don’t fall for it! (Location 555)

What would the stakes have to be for Hennigan to get up from the table, catch a flight, and relocate to Des Moines? If he took such a bet, how long would he have to live there? (Location 586)

sensory experience, it’s reasonable to presume our senses aren’t lying. Seeing is, after all, believing. If you see a tree right in front of you, it would generally be a waste of cognitive energy to question whether the tree exists. In fact, questioning what you see or hear can get you eaten. For survival-essential skills, type I errors (false positives) were less costly than type II errors (false negatives). (Location 770)

In poker, this belief-formation process can cost players a lot of money. (Location 788)

The same belief-formation process led hundreds of millions of people to bet the quality and length of their lives on their belief about the merits of a low-fat diet. Led by advice drawn, in part, from research secretly funded by the sugar industry, Americans in one generation cut a quarter of caloric intake from fat, replacing it with carbohydrates. The U.S. government revised the food pyramid to include six to eleven servings of carbohydrates (Location 801)

More numerate subjects did a better job at figuring out whether the data showed that the skin treatment increased or decreased the incidence of rashes. (Location 921)

Subjects who identified as “Democrat” or “liberal” interpreted the data in a way supporting their political belief (gun control reduces crime). The “Republican” or “conservative” subjects interpreted the same data to support their opposing belief (gun control increases crime). (Location 925)

We hear something; We believe it; Only sometimes, later, if we have the time or the inclination, we think about it and vet it, determining whether or not it is true. (Location 958)

We would be better served as communicators and decision-makers if we thought less about whether we are confident in our beliefs and more about how confident we are. (Location 990)

We have the opportunity to learn from the way the future unfolds to improve our beliefs and decisions going forward. The more evidence we get from experience, the less uncertainty we have about our beliefs and choices. Actively using outcomes to examine our beliefs and bets closes the feedback loop, reducing uncertainty. This is the heavy lifting of how we learn. (Location 1124)

The connection between outcome quality and decision quality would be clearer because there would be less uncertainty. (Location 1131)

But we fall short in achieving our “-ER” because of the difficulty in executing all the little decisions along the way to our goals. The bets we make on when and how to close the feedback loop are part of the execution, all those in-the-moment decisions about whether something is a learning opportunity. (Location 1152)

The way our lives turn out is the result of two things: the influence of skill and the influence of luck. (Location 1157)

The quality of our decision-making was the main influence over how things turned out. If, however, an outcome occurs because of things that we can’t control (like the actions of others, the weather, or our genes), (Location 1160)

When a golfer hits a tee shot, where the ball lands is the result of the influence of skill and luck, whether it is a first-time golfer or Rory McIlroy. (Location 1164)

An outcome like losing weight could be the direct result of a change in diet or increased exercise (skill), or a sudden change in our metabolism or a famine (luck). (Location 1168)

Chalk up an outcome to skill, and we take credit for the result. Chalk up an outcome to luck, and it wasn’t in our control. For any outcome, we are faced with this initial sorting decision. That decision is a bet on whether the outcome belongs in the “luck” bucket or the “skill” bucket. This is where Nick the Greek went wrong. (Location 1172)

We make similar bets about where to “throw” an outcome: into the “skill bucket” (in our control) or the “luck bucket” (outside of our control). (Location 1179)

Of course, we know now that obesity rose significantly during the low-fat craze. (Michael Pollan used the phrase “SnackWell’s Phenomenon” in describing people increasing their consumption of something that has less of a bad ingredient.) (Location 1192)

When our self-image is at stake, we treat our fielding decisions as 100% or 0%: right versus wrong, skill versus luck, our responsibility versus outside our control. There are no shades of grey. (Location 1309)

An experienced player will choose to play only about 20% of the hands they are dealt, forfeiting the other 80% of the hands before even getting past the first round of betting. That means about 80% of the time is spent just watching other people play. (Location 1333)

bad driving. When I started in poker, I followed the same pattern (and still fight the urge in every area of my life to this day). Even though I was quick to take credit for my own successes and blame bad luck for my losses, I flipped this when evaluating other players. I didn’t give other players enough credit for winning (or, viewed another way, give other players credit for my losing) and I was quick to blame their losses on their poor play. (Location 1388)

If I field my win as having to do with my skillful play, then my opponent in the hand must have lost because of their less skillful play. Likewise, if I field my loss as having to do with luck, then my opponent must have won due to luck as well. Any other interpretation would create cognitive dissonance. (Location 1416)

Our genes are competitive. As Richard Dawkins points out, natural selection proceeds by competition among the phenotypes of genes so we literally evolved to compete, a drive that allowed our species to survive. Engaging the world through the lens of competition is deeply embedded in our animal brains. It’s not enough to boost our self-image solely by our own successes. (Location 1421)

“To change a habit, you must keep the old cue, and deliver the old reward, but insert a new routine.” (Location 1466)

The key is that in explicitly recognizing that the way we field an outcome is a bet, we consider a greater number of alternative causes more seriously than we otherwise would have. (Location 1536)

Likewise, when we close the big sale, let’s spare a little of the self-congratulations and, instead, examine that great result the way we’d examine it if it happened to someone else. (Location 1551)

Once we start actively training ourselves in testing alternative hypotheses and perspective taking, it becomes clear that outcomes are rarely 100% luck or 100% skill. This (Location 1555)

Certainly, in exchange for losing the fear of taking blame for bad outcomes, you also lose the unadulterated high of claiming good outcomes were 100% skill. (Location 1563)

Despite the difficulties, striving for accuracy through probabilistic thinking is a worthwhile routine to pursue. (Location 1581)

Poker’s compressed version of real-world decision-making showed me how being a little better at decision-making could make a big difference. (Location 1588)

My instinct was to complain about my bad luck and to marvel at how poorly others played, decrying the injustice of any hand I might have lost. (Location 1667)

I learned from this experience that thinking in bets was easier if I had other people to help me. (Even Neo needed help to defeat the machines.) (Location 1678)

“For right now, I just need to moan about my bad luck.” The key was that when we did that, we recognized it was a temporary exception from the hard work we were doing together and to which we would return when the emotional rawness of the moment passed. (Location 1710)

We win bets by relentlessly striving to calibrate our beliefs and predictions about the future to more accurately represent the world. (Location 1760)

don’t want to hear it. I’m not trying to hurt your feelings, but if you have a question about a hand, you can ask me about strategy all day long. I just don’t think there’s much purpose in a poker story if the point is about something you had no control over, like bad luck.” (Location 1766)

Accountability is a willingness or obligation to answer for our actions or beliefs to others. A bet is a form of accountability. If we’re in love with our own opinions, it can cost us in a bet. Ira the Whale held the other gamblers accountable for their beliefs about whether he could eat 100 White Castle burgers. (Location 1827)

Accountability, like reinforcement of accuracy, also improves our decision-making and information processing when we are away from the group because we know in advance that we will have to answer to the group for our decisions. (Location 1836)

that the ratio has grown to greater than 10-to-1, sometimes far greater. A tendency to hire for a conforming worldview combined with the discouraging aspects of being so decisively outnumbered ideologically suggests that, unchecked, this situation won’t get better. According to the surveys establishing this trend toward homogeneity, about 10% of faculty respondents identified as conservative, compared with just 2% of grad students and postdoctoral candidates. (Location 1971)

As the authors of the BBS paper recognized, “Even research communities of highly intelligent and well-meaning individuals can fall prey to confirmation bias, as IQ is positively correlated with the number of reasons people find to support their own side in an argument.” That’s how robust these biases are. We see that even judges and scientists succumb to these biases. We shouldn’t feel bad, whatever our situation, about admitting that we also need help. (Location 1989)

One might guess that scientists would be more accurate if they had to bet on the likelihood that results would replicate as compared to traditional peer review, which can be vulnerable to viewpoint bias. (Location 2009)

Be a data sharer. That’s what experts do. In fact, that’s one of the reasons experts become experts. They understand that sharing data is the best way to move toward accuracy because it extracts insight from your listeners of the highest fidelity. (Location 2113)

the size of the bets and the size of the pot after each action; what they know about how their opponent(s) has played when they have encountered them in the past; (Location 2118)

I’ve encouraged companies to make sure they don’t define “winning” solely by results or providing a self-enhancing narrative. If part of corporate success consists of providing the most accurate, objective, and detailed evaluation of what’s going on, employees will compete to win on those terms. That will reward better habits of mind. (Location 2131)

Blaming fat and exonerating sugar affected the diets of hundreds of millions of people for decades, a belief that caused a shift in eating habits that has been linked to the massive increase in obesity rates and diabetes. (Location 2190)

It was recently discovered that a trade group representing the sugar industry had paid the three Harvard scientists to write the paper, according to an article published in JAMA Internal Medicine in September 2016. (Location 2192)

Richard Feynman recognized that in physics—a branch of science that most of us consider as objective as 2 + 2 = 4—there is still demonstrable outcome bias. (Location 2211)

Outcome blindness enforces disinterestedness. (Location 2218)

Win a case at trial, the strategy is brilliant. Lose, and mistakes were made. We treat outcomes as good signals for decision quality, as if we were playing chess. If the outcome is known, it will bias the assessment of the decision quality to align with the outcome quality. (Location 2223)

When members of the group disagree, a debate may be of only marginal value because the people debating are biased toward confirming their position, often creating stalemate. (Location 2244)

Skepticism is about approaching the world by asking why things might not be true rather than why they are true. (Location 2260)

Just as we can wrap our uncertainty into the way we express our beliefs (“I’m 60% sure the waiter is going to mess up my order”), when we implement the norm of skepticism, we naturally modulate expression of dissent with others. (Location 2269)

Fear of being wrong (or of having to suggest someone else is wrong) countervails the social contract of confirmation, often causing people to withhold valuable insights and opinions from us. (Location 2298)

“It must be hard to have a teacher like that. Do you think there’s anything you can do to improve your grade in the future?” (Location 2345)

Accountability to a truthseeking group is also, in some ways, a time-travel portal. (Location 2352)

Poker players have unique decision challenges that get them thinking a lot about how to get this collision of past-, present- and future-self to occur at the moment of making a decision and executing on it. (Location 2378)

course, the direction in which the chips flow in the short term only loosely correlates with decision quality. (Location 2382)

The best poker players develop practical ways to incorporate their long-term strategic goals into their in-the-moment decisions. (Location 2392)

As Nietzsche points out, regret can do nothing to change what has already happened. We just wallow in remorse about something over which we no longer have any control. (Location 2473)

Whichever frame we choose, we draw on our past experiences (including similar decisions we may have regretted) in answering the questions, recruiting into the decision those less-reactive brain pathways that control executive functioning. In poker, because the decisions are all made in the moment and the (Location 2495)

That’s how it feels in the moment. But if the flat tire had happened a year ago, do you think it would have an effect on your happiness today, or your overall happiness over the past year? Not likely. It likely wouldn’t cause your overall happiness to tick up or down. It would probably have faded to a funny story (or a story you try to make sound funny) told at cocktail parties. (Location 2521)

We make a long-term stock investment because we want it to appreciate over years or decades. Yet there we are, watching a downward tick over a few minutes, consumed by imagining the worst. (Location 2533)

dependent. It doesn’t so much matter where we end up as how we got there. What has happened in the recent past drives our emotional response much more than how we are doing overall. That’s how we can win $100 and be sad, and lose $100 and be happy. (Location 2572)

Tilt is the poker player’s worst enemy, and the word instantly communicates to other poker players that you were emotionally unhinged in your decision-making because of the way things turned out.* If you blow some recent event out of proportion and react in a drastic way, you’re on tilt. (Location 2599)

Every several hands, you hear a raised voice in an incredulous tone: “Seriously? Again?” or “I don’t know why I bother playing. I should just hand over all my money.” (Imagine the inflection of exasperation and a lot of swearing.) (Location 2608)

We can take some space till we calm down and get some perspective, recognizing that when we are on tilt we aren’t decision fit. Aphorisms like “take ten deep breaths” and “why don’t you sleep on it?” capture this desire to avoid decisions while on tilt. (Location 2618)

At the very beginning of my poker career, I heard an aphorism from some of the legends of the profession: “It’s all just one long poker game.” That aphorism is a reminder to take the long view, especially when something big happened in the last half hour, or the previous hand—or when we get a flat tire. (Location 2629)

This action—past-us preventing present-us from doing something stupid—has become known as a Ulysses contract. (Most translations of Homer use the hero’s ancient Greek name, Odysseus. The time-travel strategy uses the hero’s ancient Roman name, Ulysses.) (Location 2639)

One of the simplest examples of this kind of contract is using a ride-sharing service when you go to a bar. A past version of you, who anticipated that you might decide irrationally about whether you are okay to drive, has bound your hands by taking the car keys out of them. (Location 2644)

Ulysses contracts can help us in several ways to be more rational investors. When we set up an automatic allocation from our pay into a retirement account, that’s a Ulysses contract. (Location 2669)

The Normandy landings still succeeded, though, because they prepared for as many potential scenarios as possible. Reconnaissance has been part of advance military planning for as long as horses have been used in battle. The modern military, of course, has evolved from sending scouts by horse and reporting back to the main forces to planes, drones, satellites, and other high-tech equipment gathering information about what to expect in battle. (Location 2742)

Even if our assessment results in a wide range, like the chances of a particular scenario occurring being between 20% and 80%, that is still better than not (Location 2772)

guessing at all. (Location 2773)

Third, anticipating the range of outcomes also keeps us from unproductive regret (or undeserved euphoria) when a particular future happens. (Location 2797)

They pointed to the column of the award amounts sought. At that point, I realized we were working from different ideas about how to determine worth. The misunderstanding came from the disconnect between the expected value of each grant and the amount they would be awarded if they got the grant.* (Location 2807)

For example, if they applied for a $100,000 grant that they would win 25% of the time, that grant would have an expected value of $25,000 ($100,000 × .25). (Location 2812)

Turns out, if we were contemplating a thousand-mile walk, we’d be better off imagining ourselves looking back from the destination and figuring how we got there. When it comes to advance thinking, standing at the end and looking backward is much more effective than looking forward from the beginning. (Location 2868)

Just as great poker players and chess players (and experts in any field) excel by planning further into the future than others, our decision-making improves when we can more vividly imagine the future, free of the distortions of the present. By working backward from the goal, we plan our decision tree in more depth, because we start at the end. (Location 2882)

They “found that prospective hindsight—imagining that an event has already occurred—increases the ability to correctly identify reasons for future outcomes by 30%.” (Location 2886)

Backcasting makes it possible to identify when there are low-probability events that must occur to reach the goal. That could lead to developing strategies to increase the chances those events occur or to recognizing the goal is too ambitious. The company can also make precommitments to a plan developed through backcasting, including responses to developments that can interfere with reaching the goal and identifying inflection points for re-evaluating the plan as the future unfolds. (Location 2900)

Looking at the world through rose-colored glasses is natural and feels good, but a little naysaying goes a long way. A premortem is where we check our positive attitude at the door and imagine not achieving our goals. (Location 2915)

Imagining a headline that reads “We Failed to Reach Our Goal” challenges us to think about ways in which things could go wrong that we otherwise wouldn’t if left to our own (optimistic, team-player) devices. (Location 2919)

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. (Location 2931)

has conducted over twenty years of research, consistently finding that people who imagine obstacles in the way of reaching their goals are more likely to achieve success, a process she has called “mental contrasting.” (Location 2933)

The key to a successful premortem is that everyone feels free to look for those reasons, and they are motivated to scour everything—personal experience, company experience, historical precedent, episodes of The Hills, sports analogies, etc.—to come up with ways a decision or plan can go bad, so the team can anticipate and account for them. (Location 2952)

we don’t try to hold all the potential futures in mind before one of them happens, it becomes almost impossible to realistically evaluate decisions or probabilities after. (Location 3022)