In this episode of The Agent of Wealth Podcast, the Bautis Financial team discusses the most recent book assignment in their monthly Book Club, Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts by Annie Duke.
Poker champion turned business consultant Annie Duke teaches readers how to get comfortable with uncertainty and make better decisions as a result.
In this episode, we discuss:
- Why it’s important to think in terms of “bets.”
- How and why life is more like a game of Poker than it is a game of Chess.
- What it means to make probabilistic decisions.
- How to become aware of your trading biases and look for contrarian opinions.
- What a feedback loop is, and how to utilize it in your decision-making process.
- And more!
Resources:
Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts | Bautis Financial: 8 Hillside Ave, Suite LL1 Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call
Disclosure: The transcript below has been edited for clarity and content. It is not a direct transcription of the full episode, which can be listened to above.
Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. Today I’m joined by the Bautis Financial team – John, Kyra and Kayla – for another book club discussion. Today we’re going to talk about Thinking in Bets. Kayla, this is your pick, so I’m going to pass it off to you.
Thanks, Marc. The full title of the book is Thinking In Bets, Making Smarter Decisions When You Don’t Have All the Facts. It’s by Annie Duke, and Duke is a former professional poker player. She’s won over $4 million in a bunch of World Series of Poker events. Before that, she went to graduate school for cognitive psychology.
She has a lot of experience in high-pressure decision making situations, and also a unique understanding of how people make decisions.
I saw this book on a recommended list for financial planners and I thought it would be an interesting pick. Poker is a good example of making decisions because you don’t know all the facts. It relies on probability and luck too. Looking at probabilities is something that we often do with our clients, especially when we’re looking at how people are tracking towards their goals.
For instance, we could look at someone’s retirement goals and then stress test that against a thousand different trials of market simulations. Then that report could tell us how successful someone will be based on those scenarios alone. I thought that was unique correlation between the two things. Really, the point of the book is that Duke wants us to be become probabilistic thinkers, which we’re not naturally wired to do. So she wants us to think of every decision as a bet, and then she also explores some of the different biases that prevent us from making the best decisions. So now I was going to pass it to each of us to talk about a different chapter that we liked. John, I was going to start with you.
Yeah, thanks, Kayla. I picked the first chapter and she really lays a lot of the groundwork and really just extrapolates what were just talking about, Kayla and the concept behind the book and the idea of our decision making and its relationship with the Game of poker. The chapter is actually called Poker, not chess. The idea is that life is more like a game of poker than it is chess and gives you some really good examples. I really, really liked one of the first things she talks about in the book about Pete Carroll and the Seattle Seahawks. I remember exactly where I was for that Super Bowl in 2015. It’s one of those things where you remember everything like what was on the table. It was just this crazy event and I just cannot stand Patriots. I really wanted them to lose. So I’m just really, really rooting for the Seattle Chaw pull this off, but long and short of it isn’t on the two yard line and they have one of the best running backs in the league.
Pete Carroll decides to throw the ball and the Patriots intercept the ball and they end up losing the game because they have one of the best, Mark Sean Lynch, one of the best running backs in the league at the time. You can imagine people were really hard on Pete Carroll and even I was, I just remember being shocked like you’re on the two yard line. You have this amazing running back and looking back on that and her insight into Coker and this concept of the book, it really made me recall, I remember thinking how crazy it was for him to pick that running play, but then after thinking about it and hearing some of the stats and some of the reasons why he actually picked it, it made a little bit more sense that the decision itself was actually a good decision. And she takes that example and takes it to the next level and says, can you imagine ever asking somebody what were the best decisions and the worst decisions they had?
Typically the best decision has a good result connected to it, and the worst decision has a bad result connected to it. She then pulls that into what she calls resulting and how we actually be connect our good decisions with good results and our bad decisions with bad results. This isn’t human nature, it really is. As you start to think about it, you’re like, yeah, that’s right. That makes a lot of sense. It’s the way we think. She uses a couple of other examples of this executive, I guess it was the CE of this company who had this president of the company. The company was underperforming and they fired him, and then they look back on that as a really, really bad decision because at that point the company started to even underperform even worse than it was before. But when they really broke it down with the process they had in place to actually make that decision, everyone agreed, it seemed very sound, it made perfect sense.
With that said, that decision, like a lot of the decisions that we have in our lives, we don’t have all the information, and she contrasts that with a game of chess versus poker where you don’t know what cards are going to come out next. You don’t know what the other person’s cards are going to have, but you put yourself in the best probability of winning as you can. Where with chess, it’s really nothing like life. Everything is right there in front of you. The ponds aren’t disappearing, popping back into play, there’s no dice. If you lose, you can always look back on the game and all the moves and figure out where you made a mistake. She also, another really interesting example and insight into the differences between chess and poker, because it’s 100% possible for someone who never has played the game before to come in and actually beat in a hand of poker, a world series of poker champion, just because there’s so much unknown and there’s a lot of luck and probability involved where she said it’s literally impossible for that to ever happen in the world of chess.
So this correlation between poker and how we look at our decisions in our lives and those unknowns and how those parallels really, really resonated with me. I really, really enjoyed her insight and the way she made those parallels. It got me also to thinking how it relates to our profession and really what we’re doing as advisors is we’re managing the unknown. If you really think about it, we don’t know if the market’s going to go up and going down, but we’re putting our clients in the best probability of success, putting ’em in the right strategy, understanding their timelines, but also helping them manage and understand what those probabilities are and setting them up for success based off of what we don’t know. So yeah, I think all in all, I thought it was a great book for being in. I really, really enjoyed it and I thought it was very insightful.
Thanks, John. Kyra, what’d you think about the second chapter?
The second chapter, “Wanna Bet?”, delves into the idea that decision-making mirrors the principles of poker and betting.
Duke argues that decisions are essentially wagers on the future, where individuals allocate resources based on their beliefs about potential outcomes.
She emphasizes the need to assess probabilities accurately, akin to how poker players evaluate the likelihood of different hands winning.
Introducing the concept of “thinking in bets,” Duke encourages readers to adopt a probabilistic mindset and consider multiple possible outcomes when making decisions, thereby accounting for uncertainty.
The chapter contrasts focusing solely on outcomes with evaluating the quality of the decision-making process, stressing that while outcomes matter, they don’t always reflect the process’s quality. By prioritizing process over outcomes, individuals can learn and improve regardless of the result.
Overall, Chapter 2 lays the groundwork for the book’s central thesis by illustrating how principles from poker can inform decision-making in various facets of life, highlighting the importance of understanding probabilities, embracing uncertainty, and adopting a strategic mindset to make better bets on the future.
Thanks Kyra. Marc, what were your thoughts on chapter three?
In this chapter, Duke talks about the benefits of outcome fielding, which is learning from the outcome. So your decisions. And what she does is she makes the observation that an expert isn’t someone who’s just merely experienced, but they’re one that’s actively reflected on their experience or on their different outcomes from their different decisions that they make. And she claims that outcomes are feedback. You can look at an outcome and you can kind of attribute that outcome to luck or skill. And what tends to happen with people is what’s called self-serving bias is that if it’s a good outcome, they tend to attribute it to skill. And if the outcome turned out bad, they attribute it to luck. And in reality, most decisions or most outcomes are a combination of some luck and some scale. And in this chapter, again, she references chess and how chess someone can go back and look at a game and know exactly why they won or lost.
You can tell at some point they probably made a bad decision on a move that they made. Whereas in poker, not all the information is there and it’s hard to go backwards because you could have made the best decision and it turned out bad and vice versa, you could have made a bad decision that turned out okay. And an example she uses for that is someone who runs a red light, you make it through the intersection and not get hit. It’s a good outcome, but it was a bad decision that actually led to that. Or vice versa. You could have a green light go through and still get hit from someone who went through the red light. What I liked about this chapter and kind of also correlating it to what we do as advisors this time on the investment side of things, and it’s an exercise that I’ve seen before, prior to this book, it’s look at your investment decisions, how they turned out and try and trace back, and that decision you made to either invest or sell or buy or whatever on the investment side and what happened.
And obviously at that time you made that decision, you don’t know what’s going to happen in the future, and there are many different unknowns that can happen, but try to then go back and see, okay, this happened because, and maybe you missed something in the analysis or maybe you didn’t think about something. And that’s just going back to learning from your outcomes. And by learning, you’re kind of going through this learning loop where you’re constantly learning. And then by doing that, you’ll never weed out all the luck. But by learning and by gaining more experience over time, you’ll be able to reduce the uncertainty in a lot of our decisions. So yeah, this is another chapter I thought was good. Another one I thought correlated to what we do, and I can see why it was recommended on a book list for financial advisors.
Yeah, thanks, Marc. The chapter that I wanted to talk about was chapter six, adventures and Mental Time Travel. In this chapter, Duke explores the concept that mental time travel is crucial for decision making. She talks about and give specific examples how can use certain skills to project themselves into the future and then look back on how they would’ve viewed things in the past. And then by using those tools, she was able to anticipate her opponent’s moves when playing poker and strategize accordingly. And some of the different biases that she talks about. She gives a handful of them and then just strategies to go into the past or into the future. But some of them were, she used the example of how you could think about your retirement, where it’s easy to just use all of your money today and then not really think about how that’ll affect you tomorrow.
I think in the book she used the Seinfeld episode where Night Jerry is more fun and he stays up all night, he eats, he goes out and does all this, and then in the morning he screws his future self. So that’s kind of the example that she used there. And then she uses, you could think about scenario planning, which we do a lot in financial planning. Another strategy was, I think she called it pre-mortem, where you think about one year into the future and then something went wrong and blew up the entire plan, what went wrong and how could we have avoided that? And then another strategy that she talks about is the 10, 10, 10 method where you think about what are the consequences of this decision in 10 minutes, 10 months or 10 years. Those questions will trigger a mental time travel. But yeah, I really liked this chapter. I’ve never thought about all the things that go into decision making like that. And then I think the last thing that we wanted to talk about was taking one of the things from the book and choosing that and how will we implement that into our lives. Kyra, I’ll start with you.
To give you some background, we recently had a guest on the Agent of Wealth Podcast: Nick Hutchinson, the founder of Book Thinkers. Nick talked about how to master your reading habits, and one of the best ways to benefit from the books you read is by implementing at least one lesson into your daily life.
Related: Episode 198 – How to Master Your Reading Habits With Nick Hutchinson
I plan on implementing the concept of making probabilistic decisions. Instead of viewing a decision as a binary choice with fixed outcomes, I’m going to try to think probabilistically by looking at the percent that the decision will or will not have a specific outcome. Annie Duke talked about using this concept in poker, but I’m going to apply it to everyday decisions.
I liked the 10-10-10 method from the chapter that I spoke about. This decision-making framework forced you to think about consequences of a decision in three different timeframes:
- 10 minutes.
- 10 months.
- 10 years.
By looking at a decision from those three perspectives, you can have a more comprehensive view of the potential outcomes.
Marc, what was your takeaway?
My biggest takeaway was the buddy system, which was a chapter we didn’t discuss yet. She started off by talking about the most successful one, which is Alcoholics Anonymous. But she talks about the buddy system in these groups in the context of how being in a group can improve your decision making. Because what it does is it basically forces you to explore alternatives. And by doing that, it encourages open-mindedness, it helps combat some of the biases that we talked about. And then when she does it, she gives a framework on what a good group needs to happen it. So you want to have a focus on accuracy over confirmation. Confirmation meaning that, okay, this is what I believe. I’m going to figure out a way how I can prove that my belief is right. And then you want to have accountability where people are obviously accountable for whatever the topic or whatever is going to be part of the discussion. And then the most important is that there’s an openness or to diversity of ideas. You may go in with your set idea, but you need to be open to listening to why someone may have a different idea. And then what she claims is the person who’s more objective will win against the one who’s more biased. So one of my takeaways is to a buddy or find some buddies and create a group to help with decision making.
Nice. And John, what was your takeaway?
I think the one thing that could be helpful is addressing my beliefs and opinions. It’s human nature for us to focus on all the things we do know – not just with decision-making, but also when it comes to forming opinions. In the book, she talks a bit about political leanings and related topics like gun control. There was some sort of nonpolitical study Duke referenced that found a huge disparity between biases of individuals’ political views versus non-political views. I think that in general I want to look at decisions and form opinions while also considering what I don’t know.
Okay, that just about wraps up today’s discussion. Thank you all for joining me today. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.