Compendium 09 — Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts

"There is no sin in finding out there is evidence that contradicts what we believe. The only sin is in not using that evidence as objectively as possible to refine that belief going forward."

📖 Brief Overview

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Thinking in Bets is a book by professional poker player Annie Duke that explores decision-making through the lens of poker. Duke argues that life, like poker, involves decision-making with incomplete information, uncertain outcomes, and plenty of luck. Therefore, we can't always judge the quality of a decision by the result.

She introduces the concept of "resulting," where we mistakenly believe that good outcomes are the result of good decisions and bad outcomes result from bad decisions. This binary thinking ignores the complexity and uncertainty that often influence results.

Instead, Duke suggests thinking in terms of bets. A bet is a decision about an uncertain future, and acknowledging the uncertainty helps us to detach from binary right/wrong thinking. By evaluating decisions as bets, we recognize the role of luck, minimize the impact of biases, and approach decisions more analytically.

Duke encourages readers to form "truth-seeking" groups that foster open dialogue and constructive criticism to challenge beliefs and improve decision-making. These groups can provide feedback without falling into the trap of confirming biases.

She also emphasizes the importance of probabilistic thinking, considering various outcomes and their likelihoods. This allows for more nuanced decisions that account for the uncertainty inherent in every choice.

Thinking in Bets offers a new framework for making decisions in the face of uncertainty, promoting more rational, unbiased thinking that acknowledges the complexities of real life, much like a game of poker.

🏆 Main Takeaways

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The Complex Nature of Human Decision-Making and Perception

1. Evolutionary Roots of Certainty and Order: Humans have evolved to crave certainty and order, finding discomfort in the role of luck in our lives. This desire for predictability stems from our need to create order from chaos, essential for our survival. In "The Believing Brain," Michael Shermer explores how our minds have historically looked for connections, even falsely, and describes the consequences of false positives and negatives in terms of survival.

2. Cognitive Traps in Understanding Outcomes: When analyzing why certain results occur, humans are prone to cognitive biases like assuming causation from correlation or cherry-picking data to fit a preferred narrative. These tendencies lead us to force connections between our decisions and outcomes, often misleading our understanding of cause and effect.

3. The Dichotomy of Fast and Slow Thinking: Nobel laureate Daniel Kahneman's "Thinking, Fast and Slow" identifies two systems that govern our thinking: System 1, or "fast thinking," controls reflexes, instincts, and automatic processes; System 2, or "slow thinking," governs deliberate decisions and concentration. Kahneman explains how these systems usually divide our decision-making but can conflict, causing problems.

4. Reflexive vs. Deliberative Mind: Psychologist Gary Marcus's labels of "reflexive mind" and "deliberative mind" offer further insight into our dual thought processes. In his book "Kluge: The Haphazard Evolution of the Human Mind," he contrasts the automatic, rapid functioning of the reflexive system with the slow, careful considerations of the deliberative system. This dichotomy underscores the complexity of our thinking, reflecting both our evolved survival mechanisms and our intellectual deliberations.

5. Inherent Nature of Our Brains: Our brains, divided into deliberative and reflexive thinking, are not going to change. While our deliberative capacity is already maximized, both systems are necessary for our survival. The deliberative mind plays a role in making big decisions, while the reflexive mind manages everyday decisions. These shortcuts in automatic processing, evolved for survival, enable us to make thousands of decisions necessary for daily living.

6. The Cost of Cognitive Shortcuts: While shortcuts are essential, they come with a cost. Decision-making errors often arise from the reflexive system's need to act quickly and automatically. For instance, the impulse to dismiss a coworker without considering their input can lead to lost opportunities for valuable information. These automatic responses are a natural part of our thinking but can result in biased or closed-minded actions.

7. The Challenge of Changing Habits: Most of our daily activities reside in automatic processing, where we develop habits and defaults that we rarely examine. The real challenge is not altering how our brains operate, but understanding how to work within these inherent limitations. Awareness of irrational behavior and a desire to change is not enough, as knowing about a visual illusion doesn’t make it disappear. The task lies in recognizing and accepting our cognitive constraints and finding ways to work effectively within them.

Making better decisions starts with understanding this: uncertainty can work a lot of mischief.