Life is a series of decisions.
Avoid making stupid decisions, make the right ones a few times, and there’s a good chance you’ll end up where you want in life. It’s a simple formula, but it’s by no means an easy thing to do.
As a chess player, I like to think that I know how to make good decisions. After all, the game teaches you how to think logically and methodically. But that’s not how decision making works in the real world. Annie Duke explains this in her book, Thinking in Bets:
“Chess contains no hidden information and very little luck. The pieces are all there for both players to see. If you lose at a game of chess, it must be because there were better moves that you didn’t make or didn’t see.”
The defining difference between chess and life is information asymmetry. Off the chessboard, nobody has all the details. As she goes on to note, a better metaphor for making decisions in life is poker:
“The decisions we make in our lives […] involve uncertainty, risk, and occasional deception, prominent elements in poker. Trouble follows when we treat life decisions as if they were chess decisions.”
So if we’re unable to pierce the fog of war, how can we best make decisions that we won’t regret?
Let’s lay all the cards on the table.
Bad Results Or Bad Decisions?
Imagine you’re driving a car.
You’re speeding down a busy road without your seat-belt on. You run a few red lights. Miraculously, nobody is hurt, and law enforcement hasn’t come looking for you.
If someone were to ask you if that was a well thought-out decision, it’s unlikely you’ll say yes. There’s the possibility of getting into an accident, suffering serious injury, and then getting into trouble with the cops.
This is the thought process you’d think we use to evaluate our decisions. But according to Annie Duke, that’s not what really happens. We often decide whether a decision is good or not based on its outcome. It’s what poker players call “resulting”.
It sounds like a fallacy that’s easy to spot. Yet somehow we keep making this mistake. Here’s what Duke says in Thinking in Bets:
“When I consult with executives, I sometimes start with this exercise. I ask group members to come to our first meeting with a brief description of their best and worst decisions of the previous year. I have yet to come across someone who doesn’t identify their best and worst results rather than their best and worst decisions.”
“Resulting” happens to everyone.
One reason is that we tend to overestimate the impact of our decisions and actions. In our minds, what we get is a result of what we do.
That sounds reasonable. But as we’ve seen, good outcomes are possible even when we make bad decisions, and vice-versa. What does that say about the impact of decision making in determining outcomes?
What Are The Odds Like?
The view that outcomes are a result of decisions isn’t wrong as much as it is incomplete. Duke has a better answer:
“There are exactly two things that determine how our lives turn out: the quality of our decisions and luck. Learning to recognize the difference between the two is what thinking in bets is all about.”
Luck? That’s not something most of us are comfortable with. One might say that only the weak depend on luck; the strong make their own luck.
But as Duke would tell you, that statement is inaccurate. Making good decisions certainly increases the chances of a good outcome; it doesn’t guarantee it. You could make the best possible play at every point in the game and still lose. Similarly, you could make the worst plays and still win.
This is where the paradigm shift comes in — all decisions are bets.
It seems like an odd thing to say that we’re gambling with our future, but that’s all decisions really are. We make decisions that carry consequences with limited information all the time. Sometimes, the uncertainty bites at us, and we forgo making a decision, folding like poker players do.
It’s a strange proposition and Duke knows that:
“One of the reasons we don’t naturally think of decisions as bets is because we get hung up on the zero-sum nature of the betting that occurs in the gambling world; betting against somebody else (or the casino), where the gains and losses are symmetrical. One person wins, the other loses, and the net between the two adds to zero. Betting includes, but is not limited to, those situations.”
Who are we playing against then? More importantly, how do we win?
“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. We are betting that the future version of us that results from the decisions we make will be better off.”
Thinking In Bets
“Uncertainty is an uncomfortable position”, the French philosopher Voltaire wrote, “but certainty is an absurd one”.
When we look at history, it’s crazy how much we’ve gotten wrong. We once thought the Earth was at the centre of the universe. We believed that diseases were caused by bad air. Perhaps one of the most damaging ideas we had was treating illnesses with the practice of bloodletting.
Even more recently, we found that a lot of what we know from the most famous experiments in psychology is wrong. This tells us that we make mistakes all the time, and it’s likely that we’ll continue making them.
Those past beliefs — no matter how ridiculous they sound now — were made with the information we had then. They were reasoned conclusions that were more likely to be right than wrong at that point in time. To dismiss the thinkers behind those theories would be falling into the trap of resulting.
This is where Duke’s analogy of betting gets interesting. The very nature of betting is that no one has complete information. You’re likely to lose more often than when you win.
It’s how you lose or win that matters.
I’ve Got A Terrible Hand
Unfortunately, most of us aren’t built to play poker.
Even the best poker players struggle with making and evaluating their decisions. The fifteen-time World Series of Poker winner, Phil Hellmuth, famously remarked after a tournament exit that “if there weren’t luck involved, I would win every time.”
This, coming from one of the best players in the world.
As humans, we strive for internal psychological consistency in order to mentally function in a complex world. This leads us to reject information that runs contradictory to what we believe.
The worst part? Being smart doesn’t help. On the contrary, it can make things worse. Here’s Annie Duke:
“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. After all, people in the “spin room” in a political setting are generally pretty smart for a reason.”
We’re so good at motivated reasoning that more evidence doesn’t help. We do all sorts of mental gymnastics to reason towards a conclusion that we desire.
Incredibly, these cognitive errors are predictably patterned. We consistently have a self-serving bias: we take credit for good outcomes and blame the negative outcomes on luck and external factors. Sometimes it reaches ridiculous levels.
[…] In 75% of accounts [of auto accidents], the victims blamed someone else for their injuries. In multiple-vehicle accidents, 91% of drivers blamed someone else. Most remarkably, in single-vehicle accidents, 37% of drivers still found a way to pin the blame on someone else.
I’m sure there are many other examples from our personal lives that better illustrate this point. One thing is for sure: our capacity for self-deception has few boundaries.
Stacking The Deck
It sounds bleak, but there’s hope yet.
We talked about how thinking in bets helps you integrate uncertainty into decision making. The real magic, however, lies in how it changes the way we act in the real world.
Imagine that you have to put money on every decision you make. Now take it one step further and imagine that you have to do the same for every opinion you hold. Suddenly, you start questioning everything you know.
“When someone challenges us to bet on a belief, signaling their confidence that our belief is inaccurate in some way, ideally it triggers us to vet the belief, taking an inventory of the evidence that informed us.”
Having skin in the game changes everything. It’s easy to make decisions when you’re not the one affected. It’s even easier to have opinions and let everyone know about them. But when the stakes are high — when something is on the line — that forces you to make sure you get things right.
Here’s Annie Duke again:
“Being asked if we are willing to bet money on it makes it much more likely that we will examine our information in a less biased way, be more honest with ourselves about how sure we are of our beliefs, and be more open to updating and calibrating our beliefs. […] Offering a wager brings the risk out in the open, making explicit what is already implicit (and frequently overlooked).”
All of a sudden, we don’t care about being right anymore.
The inclination to preserve our self-esteem becomes secondary when money is at stake. We care more about being accurate. That forces us to examine all the information we have carefully. Motivated reasoning doesn’t work against us now.
If there’s a life hack for changing how we think, this is it.
Placing Your Bet
To be sure, decision making is hard.
You don’t always get the outcome you want even when you make the best decision. Even if you get a positive outcome, it’s difficult to tell if you deserve credit. There’s a double layer of complexity.
In many ways, life is one long poker game. Sometimes you win, sometimes you lose. All we can do is learn to be comfortable with uncertainty and keep making good bets.
Do that, and we’ll come out ahead in the long run.