Thinking in Bets

1. Life is more like poker than chess: embrace uncertainty

Unlike in chess, we can't simply work backward from the quality of the outcome to determine the quality of our beliefs or decisions.

Uncertainty is inevitable. In life, as in poker, we make decisions with incomplete information and unpredictable outcomes. Unlike chess, where all pieces are visible and moves are deterministic, real-world scenarios involve hidden information and chance events.

Embrace probabilistic thinking. Instead of seeking certainty, focus on making the best decisions possible given the available information. Recognize that even good decisions can lead to unfavorable outcomes due to factors beyond our control.

Adapt to changing circumstances. Be prepared to adjust your strategy as new information becomes available. Flexibility and adaptability are crucial in navigating the uncertainties of life and decision-making.

2. Our beliefs shape our decisions, but they're often flawed

We form beliefs in a haphazard way, believing all sorts of things based just on what we hear out in the world but haven't researched for ourselves.

Beliefs are often unchallenged. Most of our beliefs are formed passively, based on information we encounter without critically examining its validity. This can lead to misconceptions and biased decision-making.

Recognize cognitive biases. Our brains are wired to take shortcuts, which can result in flawed reasoning:

• Confirmation bias: Seeking information that confirms existing beliefs
• Availability bias: Overestimating the likelihood of events we can easily recall
• Anchoring bias: Relying too heavily on the first piece of information encountered

Actively challenge your beliefs. Regularly question your assumptions and seek out diverse perspectives. Be open to changing your mind when presented with new evidence or compelling arguments.

3. Resulting: the dangerous habit of judging decisions by outcomes

Outcomes don't tell us what's our fault and what isn't, what we should take credit for and what we shouldn't.

Avoid outcome bias. Resist the temptation to judge the quality of a decision solely based on its result. Good decisions can lead to bad outcomes due to chance, and poor decisions can sometimes yield positive results.

Focus on the decision-making process. Evaluate decisions based on the information available at the time and the reasoning behind the choice. Consider:

• Was the decision well-informed?
• Were alternative options considered?
• Was the risk appropriately assessed?

Learn from both successes and failures. Analyze the factors that contributed to outcomes, distinguishing between elements within your control and those that were unpredictable or external.

4. Redefine "wrong" to improve decision-making

Redefining wrong allows us to let go of all the anguish that comes from getting a bad result.

Embrace uncertainty in outcomes. Recognize that few decisions have guaranteed results. Instead of labeling decisions as "right" or "wrong," consider them in terms of probability and potential outcomes.

Shift focus to decision quality. Evaluate choices based on the thought process and available information, rather than solely on results. Ask yourself:

• Did I consider all relevant factors?
• Was my reasoning sound?
• Did I account for potential risks and uncertainties?

Cultivate a growth mindset. View "mistakes" as learning opportunities rather than failures. This approach promotes continuous improvement and reduces decision paralysis caused by fear of being wrong.

5. Treat decisions as bets to make better choices

Thinking in bets starts with recognizing that there are exactly two things that determine how our lives turn out: the quality of our decisions and luck.

Frame decisions as bets. Approach choices as if you're wagering on potential outcomes. This mindset encourages more careful consideration of risks and probabilities.

Consider the stakes. Evaluate the potential consequences of each decision:

• What's the best possible outcome?
• What's the worst-case scenario?
• How likely are various outcomes?

Improve your odds. Focus on factors within your control to increase the likelihood of favorable outcomes:

• Gather more information
• Seek expert advice
• Consider alternative perspectives

6. Combat bias by learning from experience objectively

Experience can be an effective teacher. But, clearly, only some students listen to their teachers.

Actively seek feedback. Regularly review the outcomes of your decisions to identify patterns and areas for improvement. Be open to both positive and negative feedback.

Avoid self-serving bias. Resist the temptation to attribute successes solely to skill and failures entirely to luck. Strive for an objective assessment of your decisions and their outcomes.

Create a decision journal. Document important decisions, including:

• The context and available information
• Your reasoning and expectations
• The actual outcome and any unexpected factors

Periodically review this journal to identify trends and improve your decision-making process.

7. Form a decision-making pod for better outcomes

Just as we can recruit other people to be our decision buddies, we can recruit other versions of ourselves to act as our own decision buddies.

Assemble a diverse group. Create a "decision pod" of trusted individuals with varied perspectives and expertise. This diversity helps combat individual biases and blind spots.

Establish ground rules. Set clear guidelines for group interactions:

• Encourage respectful disagreement
• Focus on the quality of reasoning, not just outcomes
• Maintain confidentiality when appropriate

Leverage collective wisdom. Use your decision pod to:

• Brainstorm alternative options
• Identify potential risks and opportunities
• Challenge assumptions and biases

8. Communicate effectively within and outside your group

Expressing our beliefs this way also serves our listeners. We know that our default is to believe what we hear, without vetting the information too carefully.

Practice transparency. Be open about your level of certainty and the reasoning behind your beliefs. Use phrases like "I'm X% confident that..." to convey uncertainty.

Encourage constructive dissent. Create an environment where disagreement is viewed as valuable input rather than criticism. Ask questions like:

• "What perspectives might we be missing?"
• "Can anyone play devil's advocate?"

Tailor communication to your audience. When sharing ideas outside your decision pod:

• Lead with areas of agreement
• Use "and" instead of "but" to build on ideas
• Frame suggestions in terms of future improvements rather than past mistakes

9. Use mental time travel to make smarter decisions

Backcasting and premortems complement each other. Backcasting imagines a positive future; a premortem imagines a negative future.

Envision future scenarios. Use mental time travel techniques to anticipate potential outcomes and prepare for various possibilities:

• Backcasting: Imagine a successful future and work backward to identify necessary steps
• Premortems: Envision potential failures and plan preventive measures

Consider long-term consequences. Use the "10-10-10" rule to evaluate decisions:

• How will you feel about this decision in 10 minutes?
• In 10 months?
• In 10 years?

Recruit your future self. Imagine how your future self would advise your present self. This perspective can help align short-term actions with long-term goals.

10. Implement backcasting and premortems in decision-making

By keeping an accurate representation of what could have happened (and not a version edited by hindsight), memorializing the scenario plans and decision trees we create through good planning process, we can be better calibrators going forward.

Backcast for success. Start with a desired future outcome and work backward:

1. Clearly define the goal
2. Identify key milestones and necessary actions
3. Consider potential obstacles and how to overcome them

Conduct premortems. Imagine a future where your decision has failed:

1. Envision worst-case scenarios
2. Identify potential causes of failure
3. Develop preventive measures and contingency plans

Document your process. Keep a record of your scenario planning and decision trees. This helps:

• Avoid hindsight bias when reviewing past decisions
• Improve future decision-making by learning from previous experiences
• Maintain perspective on the range of possible outcomes, not just what actually happened

Last updated: August 8, 2024