SYNOPSIS
What book are we doing?
Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts, by Annie Duke
Why are we doing it?
On this Friday the 13th, a book about luck.
How can we use it?
To make decisions more consciously.
To appreciate the tailwinds outside our control.
To get better at the variables within our control.
“Grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.”
– Reinhold Niebuhr
“Business is good. We must be doing something right.” This is a common belief in business. But correlation does not imply causation.
Donald Trump attributes his success to his business acumen: “My father gave me a very small loan in 1975, and I built it into a company that’s worth many, many billions of dollars.” In Lucky Loser, Russ Buettner and Susanne Craig highlight a key factor in Trump’s success: luck. They conclude that his father provided not a small loan but contributed half a billion dollars to pave his son’s path to fortune.
Resulting – the tendency to attribute a good outcome to our good decision-making – isn’t unique to Trump. It’s “a routine thinking pattern that bedevils all of us.” As a former professional poker player, Annie Duke believes we all can improve our decision making by approaching decisions like poker players do.
Three themes emerge in Thinking in Bets which will make us better decision makers if we decide to use them:
1 Think in probabilities
A poker player almost never knows absolutely, “I am going to win this hand.” They know what cards they have and the probability of various other cards being drawn. Doctors don’t know the future either. In medicine, practitioners follow algorithms based on probabilities. In situation X, do Y because it leads to better outcomes 87% of the time, compared to Z, which leads to better outcomes only 13% of the time. Risk management follows similar principles, assigning probabilities and impacts to better evaluate each possible outcome. In many areas of business, though, decisions are made on subjective intuition in absolute terms (this will work; that won’t work; X is better than Y; I like this one; that feels right). The likelihood of this being an effective and repeatable approach is about 50/50. In Marketers’ Intuitions about the Sales Effectiveness of Advertisements,[1] Nicole Harnett et al found that marketers, relying on intuition and absolutes, were no better at predicting ad effectiveness than random chance. Many areas of business can improve if they stop thinking in subjective absolutes and start thinking in objective probabilities like doctors, risk managers, and poker players.
2 Disentangle decisions from outcomes
Poker players know that decisions and outcomes are interconnected, but not symmetrical. Bad outcomes happen to good decisions. And vice versa.
Thinking in probabilities, a player may place a bet based on the high probability that a face card (which they want) will be drawn and the tiny probability that the two of diamonds (which their opponent wants) is drawn, and then lose when the unlikely becomes reality – the two of diamonds is drawn. This is not the result of a bad decision. It’s the result of bad luck. Outcomes are the sum, not only of what we control, but also of what we don’t control.
Outcome = Decisions + Luck
Last week, the Toronto Maple Leafs lost back-to-back games. On Friday, they were tied 1-1 with the Washington Capitals when, with about 10 minutes remaining in the third period, the puck hit an official and took a bad bounce toward Toronto’s net which ultimately led to a goal. In post-game interviews, Leafs players didn’t attribute their outcome to bad luck. They took responsibility for their loss. Yes, that puck bounce was unlucky, but their (perhaps unconscious) decision not to execute coach Craig Berube’s game plan was a much bigger reason for their loss.
3 Always be learning
Self-serving bias leads us not only to take credit for good outcomes, but also to blame bad outcomes on luck. Our Outcome formula shifts from
Outcome = Decisions + Luck
to
Good Outcome = Good Decision; Bad Outcome = Bad Luck.
This shorthand provides a quick path to certainty. Win or lose, you know the reason. According to Duke, “What good poker players and good decision makers have in common is their comfort with the world being an uncertain and unpredictable place.” When we’re certain, we stop learning.
On Saturday, the Leafs played the Penguins. Like the night before, their opponent went into the lead in the third period, and ultimately defeated Toronto. In post-game interviews, Leafs players (and coach Berube) told a different story than they did on Friday. They made good decisions, executed well, and were pleased with the way they played. They just didn’t get the result they would have preferred. Luck wasn’t on their side. As a Leafs fan, it’s reassuring to see how this team has grown to own their decisions, evaluate them objectively, learn from their experience, and act on what they’ve learned.
We all have a decision to make about how we make decisions.
If you decide to think in probabilities and disentangle decisions from outcomes, you set yourself up well to learn and, in turn, keep getting better.
If you decide to assume, “Business is good, so we must be doing something right,” instead of asking, “Are we doing something right? If so, what is it? How can I replicate it and/or improve it?” it seems inevitable that you’ll eventually get the answer to another question: “What happens when your luck runs out?”
[1] Source: Hartnett, Nicole & Kennedy, Rachel & Sharp, Byron & Greenacre, Luke. (2016). Marketers’ Intuitions about the Sales Effectiveness of Advertisements. Journal of Marketing Behavior. 2. 10.1561/107.00000034.
