About this episode
Annie Duke is a world champion poker player and author of Thinking in Bets , a book which makes the case for embracing uncertainty in our decision-making framework. In Annie's latest book, How to Decide: Simple Tools for Making Better Choices , she answers the question, what does a good decision-making process look like and how to incorporate that into your own life. The only way we can become better at making decisions is from our own experience, and our experience is going to be the outcomes of past decisions we've made. We need to understand the way in which knowing how something turned out can mess with our ability to figure out why. In a thought experiment concerning the 2015 Super Bowl between the Seahawks and the Patriots, Annie reviews a play called by Pete Carroll in the last seconds of the game. Though widely panned as the worst play called in Super Bowl history, Annie states that it's hard to evaluate the quality of the play called when we already know the outcome. Had the outcome of Pete Carroll's play been a touchdown, the reaction would have been the opposite. This phenomenon is called Resulting, where the quality of the result is attributed the quality of the decision. Reviewing the actual odds of the result of that specific play, Annie determines that Pete Carroll's decision was far from the worst play called of all time as there was only a 25 likelihood of that specific result. Annie applies what she's learned playing poker, specifically realizing that what you see happen doesn't change the decision that you make, to other aspects of life. The paradox of experience is that while we know we need all of these experiences to learn, we see how things unfold and we take our lessons for individual experiences, not in the aggregate. Poker has some surprising similarities to real life in that your outcome is a combination of luck and the quality of your decisions. The definition of luck is what you don't have control over. You cannot control your own luck. You can control the quality of the decisions you make and reduce the chance that luck has an influence that will turn out poorly for you. While we are all under the influence of luck, we are also very much under the influence of our own decisions. In our decision making, we should see the luck clearly and make the decisions that are more likely to advance our goals. Brad ties that to ChooseFI's philosophy of the aggravation of marginal gains and striving to do 1% better. We have a lot of cognitive bias that delude us into believing things are much more stable than they really are. COVID has torn that away from us. We are also feeling the effect of imperfect information. COVID is not a special case, it's just something we can't hide from the uncertainty. COVID does give us an opportunity to think about how to navigate uncertainty which will improve all decisions we make. A pro and con list has no dimensions to it, specifically missing are the magnitude of the payoff or how much will it advance or take away from your goal, and what is the probability of each con. These lists also amply biases you already have and can be gamed to reach a predetermined decision. With inside view thinking, our personal models create cognitive trenches. When new information comes in, we mold it into a model we already have rather than be objective. An outside view is what is true of the world. To try and avoid inside view thinking, we need to expose ourselves to different perspectives of corrective information. The foundation we base our decisions on is flimsy and full of inaccuracies. We should increase the probability that we collide with perspectives and information we don't know. It's okay to say you don't know very much and decide to get more information to become a better decision-maker. Making a good decision with one stock doesn't necessarily make you a good investor, you would have to look at all the decisions made with your portfolio. When getting to your outside view, it helps to get yourself into the future because it helps us look back on ourselves. We also need to realize that we tend to believe we are more likely to be successful than we actually are. It's helpful to think about all the ways in which you might fail. A pre-mortem is the idea that time travel and negative thinking will result in an outside view and lead to better decision making. A backcast is the opposite of a pre-mortem where you look at the luck and skills that lead to a positive outcome. To find groups of people to get the best opinions from, find people who are interested in finding what is true in the world, but by putting the framework in place, you can turn anybody into an amazing true-seeking pod. When seeking other's opinions, it's best not to divulge your own opinion beforehand. It results in one of three ways: it might show the other person's opinion is right, the truth may lie in the middle somewhere, or it may show your opinion is right and help you to understand it better. Annie believes that mostly we should be making decisions faster than we do. The decision-making process is a skill and it takes time to understand which we should be taking our time we should take our time with and which could be faster. The speed of our decisions should be made by the impact of the decision and optionality available. RESOURCES MENTIONED IN TODAY'S CONVERSATION Earn $1,000 in cashback with ChooseFI's 3-card credit card strategy Switch to Mint Mobile and save with free shipping Get our #1 recommended travel rewards credit card, the Chase Sapphire Preferred and earn 80,000 points Get started on the path to financial independence at ChooseFI.com/start IF YOU WANT TO SUPPORT CHOOSEFI: Earn $1,000 in cashback with ChooseFI's 3-card credit card strategy. 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