Decisions as bets

I’ve been listening to Annie Duke’s Thinking in Bets. In it she emphasises the importance of separating judgements about the quality of your decisions from their outcomes.

Of course the outcomes still matter – her point is that the results of decisions made with incomplete information about future events (that is, almost all of your decisions) are uncertain by definition. In the absence of absolute certainty, good decisions will sometimes have bad outcomes: even if you’re 99% confident of something, one-in-a-hundred failures will still happen from time to time – which doesn’t mean that those are bad odds.

It comes down to this: you can never be sure of winning an individual bet (decision). Good poker players still lose individual hands to absolute beginners – and always will – but they will win pretty consistently over hours of play involving multiple hands, and even more so over weeks and months of playing.

In the same way, it’s inevitable that you’ll experience bad outcomes from some of your decisions. The important things are:

1. To see that most decisions that matter have uncertain outcomes – that is, they can be understood as bets;
2. To seek to improve the quality of your decisions by evaluating them honestly rather than celebrating or regretting them based on the luck of the outcome – i.e. “resulting” (Duke points out that luck is completely beyond our control and therefore uninteresting);
3. To understand that you will “win” gradually by keeping the quality of your decisions / bets as high as possible over the long term, and build up your “winnings” incrementally through multiple decisions, rather than on one big bet;
4. To avoid making bets you can’t afford to lose (i.e. bets that would mean that you can’t play another day);
5. To recognise that the benefits from making small bets (those whose losses can be quickly reversed) quickly will often outweigh their losses. You might regard these losses – when the occur – as a way of paying for information. For decisions like these, faster is better: whether you win or lose, it’s easy to end up “paying” far more time and attention to make small decisions than they are worth.