Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts Paperback – May 7, 2019

This book is about how to make better decisions, from the trivial to the most consequential,in all endeavors of life: personal, business, political/economic forecasting, gambling, etc.It explains how to think about potential decision options, given that most entail varyingdegrees of risky or uncertain outcomes. Without attempting to bog the reader down inthe mathematics of probability theory, the core of most textbook approachesto decision making, it clearly demonstrates how to incorporate probabilisticuncertainty into our decision-making thought processes. Since most decisionswe make lead to outcomes which have an element of probabilistic uncertainty,the book's approach is relevant to all walks of life.Although Duke does not frame it this way, I think a brief explanationof two fundamentally different types of situations captured by the tool ofprobabilistic reasoning may be helpful. This dichotomy leads to what havebeen termed Objective and Subjective probabilities.Objective probabilities are those associated with outcomes that are truly randomwith specific known numerical probabilities governing various occurrences.For these, no amount of thinking or information on the part of those of us observingthe situation can improve on understanding inherent randomness of the underlyingactivity leading to some outcome, i.e., the known probabilities are the best we cando in anticipating the ultimate outcome of the event. In other words, we can't improveon the odds of various outcomes however smart we may be. The best examples forthis type of probability are things happening in the world of quantum mechanics,e.g., predicting the time at which a radioactive element or a neutron will decay.A close second for most practical purposes would be the outcome of the spin of aroulette wheel or the outcome of a fair roll of a pair of dice. Objective probabilities are set bythe laws of nature, and, once known, the actual outcomes of a large number of repetitiveobservations of the same situation will lead to a predictable distribution of outcomes.Subjective probabilities, on the other hand, are probabilities we assign to variousoutcomes when faced with decisions leading to uncertain outcomes. They are notfixed or absolute numbers driven by the laws of nature. We may assigna numerical value to a particular outcome, e.g., a 70% chance the Patriots will winthe Super Bowl against the Eagles, or, they may be qualitative rankings of possibleoutcomes, e.g., highly likely, pretty likely, not sure, very unlikely, etc. Three key thingsabout Subjective probabilities are:1. Different people thinking about the same event will usually have differentestimates of the probabilistic outcomes. Subjective probabilities are not facts.They are opinions.2. The information/knowledge the decision maker has about the situation willaffect their probability estimates of different outcomes.3. Good decision makers in many particular endeavors like poker or investing will usually,i.e., more frequently but not always, have better success in predicting uncertain outcomesthan will poor decision makers.During the first couple of hundred years that mathematicians tried to develop thefield of probability, they were generally focused on thinking about things they believedwere governed by Objective probabilities. Even the game of poker was thought of in thisway for years. Early in the 20th century, thinkers began to crystallize the idea of Subjectiveprobabilities as distinctly different from Objective probabilities. John Maynard Keynesattempted to develop a full blown theory with his 1921 book "A Treatise On Probability".Although it had some excellent ideas, it did not succeed in laying out a firm mathematical basisfor Subjective probability. This took the Italian mathematician, Bruno de Finetti, to definea mathematically rigorous treatment of Subjective probability in his 1937 book. And,thinking in bets was core to his approach.By the 1950's, de Finetti's approach became the basis for aspects of economics , game theory,and decision making under uncertainty. The latter pertains to virtually all decision making weencounter in daily life.So, what does Subjective probability have to do with bets. In short, everything. When we make a bet, we do so with a view of the chances of winning, either a qualitative view, or a quantitative view, i.e., a probability. A bet is the manifestation of one's personal estimate of the Subjective probability of the outcome you are favoring.The beauty of Duke's book is that it explains with lots of examples of how to applySubjective probabilistic thinking in all sorts of situations without having to worry aboutthe sound basis of the underlying mathematics. Poker is a great example of a situation in which aSubjective probabilistic assessment is critical, since trying to gauge how others will behave in playing a hand is truly a subjective, rather than objective, assessment. Thus her poker and human psychology background really do mark her as expert in teaching smart decision making for a broad audience. Since information and knowledge are key to making sound estimates of Subjective probabilities, Duke spends a lot of time on how to build a broad information base pertaining to prospective decisions, and how to guard against biases we naturally have that can cause us to resist relevant information that may rub us wrong. She implies that for lots of decisions, one can do better simply by stepping back and thinking about the pro's and con's, rather than just going on an impulse. Oftentimes we have relevant information in our head, if only we would think about it. Get external inputs as well, e.g., friends or Google. Information is key and being open to inputs that may conflict with your beliefs will improve your decision quality in the long run.Thus,the book is suitable for both the mathematically inclined and the mathematically averse. Although the math is absent, some may find some of the concepts a bit difficult or, on the surface, repetitive, as evidenced by some of the reviews posted here on Amazon. Stated differently, it may be difficult sometimes to appreciate the applicability of the advice to settings that go beyond the specific example used preceding her current point, but a little thought brings it home. No doubt, a few readers of the book will 'get it' and some won't, though they may still find some of the stories entertaining. None-the-less, I highly recommend it as worthwhile for both personal improvement, as well as supplemental reading in almost any graduate school curriculum.

Annie Duke's fundamental point is that nothing is a "sure thing" & life is a game of odds; the outcomes you experience will always be the product of 2 factors : Luck & the quality of your decision-making.Annie credits her success to a paradigm shift to Thinking in odds & percentages vs absolutes. Her key idea is to unhitch outcomes from the quality of decisions & realize that sometimes an 80% chance of success will land in the unlucky 20% of outcomes, but , in that case you should probably play ot the same way next time. & it's always a mistake to repeat an unnecessary riak just because a bad decision had a lucky outcome this time.Her message is that by shifting your thinking from a need for certainty to a goal of accurately assessing what you know and what you don't, you'll be less vulnerable to reactive emotions, knee-jerk biases, and destructive habits in your decision making.Further she advises to then act as if you were betting big money on your decision.... how sure are you now? If our decisions are bets, we can start to let go of the idea that we’re 100 percent “right” or “wrong," and start to quanitfy uncertainty to budget what we're willing to risk. Putting something at stake makes us more closesly vet our info & beliefs. When we discover & scrutinize our assumptions, we think more accurately.Annie suggests gaming out your decisions for perspective and an assessment of their quality. She encourages a practice where you think through your options by anticipating the impact of the likely outcomes & Play them out against 10-min from now, 10 mo's , & 10 years.Despite the popular advice that we achieve success through positive visualization, it turns out that incorporating negative visualization makes us more likely to achieve our goals. Gabriele Oettingen, professor of psychology at NYU and author of Rethinking Positive Thinking: Inside the New Science of Motivation, 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.”Annie prescribes what she calls "backcasting" & a "Pre-Mortem" (vs a post-mortem). To take advantage of our human propensity for hysterisis; Backcasting imagines a positive future; a premortem imagines a negative future.Looking at the world through rose-colored glasses is natural and feels good, but Beware of self-serving bias. Use the outcome as a feedback loop to learn objectively without sentiment.A premortem is an investigation into something awful, but before it happens. We all like to bask in an optimistic view of the future. We generally are biased to overestimate the probability of good things happening.We can’t create a complete picture without representing both the positive space and the negative space. Backcasting reveals the positive space. Premortems reveal the negative space. Backcasting and premortems complement each other. Stand in the future & experience the outcome & analyze how you got there.Remember, the likelihood of positive and negative futures must add up to 100%. The positive space of backcasting and the negative space of a premortem still have to fit in a finite amount of space. When we see how much negative space there really is, we shrink down the positive space to a size that more accurately reflects reality and less reflects our naturally optimistic nature.Act now... all the analysis is for naught without action. Each action is just one hand/ one bet / one test of your hypothesis. Focus on getting higher quality information for making higher quality decisions & you'll significantly improve your odds of success.

I enjoyed that this book brought a completely fresh perspective (to me at least) which doesn’t often happen when reading popular nonfiction. As hard as it is to picture negative outcomes and their potential it is a good paradigm to be better off in life that I will try to remember!