10 lessons risk managers should learn from Annie Duke’s Thinking in Bets RISK-ACADEMY Blog

Every year I update my must read list for risk and insurance managers. Annie Duke’s Thinking in Bets is a new addition to my list. A risk manager on my team just finished reading it and he used RAW@AI to summarise they key points for risk professionals. Enjoy!

1. Life is poker, not chess

Our brains seek certainty and resist the idea of luck influencing our lives, leading us to equate decision quality with outcomes. We prefer life to be like chess, with clear moves and predictable results, but it’s more like poker, filled with uncertainty and hidden information. Great decisions can still lead to poor outcomes due to unknown factors. To counter this, acknowledge uncertainty and admit when you’re unsure. Recognize hindsight bias, distinguish between lucky outcomes and well-reasoned decisions, and be wary of cognitive traps. As John von Neumann noted, life involves bluffing and deception, not just clear-cut responses. A great decision comes from a good process that honestly assesses our knowledge, often summed up as “I’m not sure.” Embracing uncertainty helps avoid the pain of being “wrong,” though it also means losing the comfort of being “right.”

2. Wanna bet?

Our beliefs are the compass that guides our decisions, but we seldom stop to calibrate that compass, ensuring it truly points towards reality. Humans are, by nature, inclined to believe; we are credulous creatures. When faced with uncertain choices, we should reframe them as bets, encouraging a candid assessment of alternatives, consequences, and probabilities. Take the eccentric gambler John Hennigan, whose wager to live in Des Moines, however wild, exemplifies the power of logical analysis in the face of a bet. To sharpen our decision-making, we must stop viewing our beliefs as binary, as either 100% right or wrong. Instead, ask yourself: would I bet on the truth of this belief? This fosters a spirit of curiosity and a relentless pursuit of truth.

Many of our decisions are, in essence, bets against future versions of ourselves. We form beliefs often by simply hearing something, implicitly accepting it as true, and only occasionally bothering to evaluate its veracity. As a species, we prioritize the efficient transfer of information over its accuracy. Once formed, beliefs are stubbornly resistant to change, influenced by motivated reasoning and confirmation bias, all driven by our deep-seated desire to maintain a positive self-narrative. So, the next time you find yourself in a discussion, acknowledge the uncertainty that inevitably exists. Express your confidence levels; it not only enhances your credibility but invites others to join you in the collaborative pursuit of truth.

3. Learn honestly from past decisions

To navigate future life’s uncertainties, we must become students of our past decisions. Like a poker player reviewing their hand history, we need to distinguish between outcomes driven by luck and those driven by skill, for it’s only the latter we can hope to improve. This is a tricky game, as our minds are prone to self-deception, often attributing good outcomes to our brilliance and bad outcomes to sheer misfortune.

Effective learning, like any worthwhile pursuit, requires immediate feedback and the wisdom to know how to learn from it. Treat the act of categorizing outcomes into skill or luck as a crucial bet, a wager against your own self-serving biases. Remember, more information and experience don’t automatically translate into better decisions. It’s about focusing on the outcomes driven by skill, those where your choices truly mattered. You needn’t dissect every decision; learning from some will compound over time, like interest on a well-placed investment. And when others stumble, learn from their experiences with compassion, resisting the temptation of schadenfreude. Let’s shift our focus from feeling good about the outcomes to feeling good about the lessons we extract from them.

4. The buddy system

We are not solitary decision-makers; we thrive in the company of others. To truly elevate our choices, we benefit most from collaborating with a carefully curated group. Think of it as forming a “good decision group,” a collective of minds focused on thinking in bets, seeking alternative opinions, and illuminating each other’s blind spots. But like any successful team, this group requires mutual buy-in and operates under a specific set of rules.

Accuracy, mutual accountability, and a genuine openness to diverse ideas are the cornerstones of this collaborative endeavor. A productive group needs at least three individuals—two to disagree and one to act as the impartial referee. The emphasis should be on exploratory thought, challenging assumptions, rather than merely confirming existing beliefs. In this environment, social approval is bestowed upon those who demonstrate accuracy and intellectual honesty. The group becomes a support system, keeping members grounded during triumphs and focused during setbacks. Embrace methods like anonymous dissent channels or “red teams” to expose flaws in conventional thinking. Diversity and dissent are not threats but catalysts for growth. When faced with the familiar lament about bad luck, steer the conversation back to strategy and controllable factors, maintaining a productive and empowering atmosphere.

5. Dissent to win

Decision groups reach their full potential when they embrace the norms of science, fostering an environment of open inquiry and rigorous analysis. If you sense that your group isn’t firing on all cylinders, it’s likely faltering in one of these four crucial dimensions.

First, transparency is paramount. Share all relevant data within the group and lay bare your reasoning, even if it’s less than flattering. Second, apply uniform standards to all ideas, regardless of their origin. Separate the information itself from the perceived credibility of the messenger. Third, conflicts of interest must be avoided at all costs. Focus solely on the inputs that inform the decision, shielding others from your personal opinions to prevent bias from creeping in. Lastly, embrace uncertainty and express it openly. Lead with assent, building upon existing information rather than tearing it down. Seek temporary agreement for the sake of truth-seeking, and keep discussions focused on future actions and improvements. By adhering to these principles, your decision group can transform into a powerful engine of collective intelligence.

6. Master mental time travel

To make wiser choices, we should consider not just who we are today, but also who we were yesterday and who we aspire to be tomorrow. This integrated perspective helps us balance our natural optimism, ensuring our goals are grounded in reality, and prompts us to create thoughtful contingency plans for when the unexpected occurs. It’s about learning from the past, both its triumphs and its setbacks, to navigate the present and shape a better future. In essence, by embracing our past, present, and future selves, we become better equipped to make decisions that serve us not only in the moment, but also across the vast landscape of our lives.

7. Let’s play in the sandbox

Annie Duke advocates for the creation of a ‘sandbox’ – a safe haven where we can experiment with decisions without the fear of significant repercussions. This space allows us to tinker, learn, and ultimately refine our decision-making skills. In essence, it’s about practicing in a controlled environment, much like a child safely exploring the world within the confines of a sandbox. By embracing this approach, we acknowledge that life is not always about making the ‘right’ move, but rather about continually learning and evolving through trial and error.

8. The power of saying “I Don’t Know”

Our minds often crave the illusion of control, resisting the notion that knowledge has its limits. We yearn for a world where every question has a definitive answer, but the reality is far more nuanced. Embracing the power of “I don’t know” is an act of intellectual humility that unlocks a world of possibilities. By acknowledging our own uncertainties, we open ourselves up to the transformative power of learning, collaboration, and ultimately, making more informed choices. It’s a shield against the perils of overconfidence, paving the way for a richer understanding of the world around us. In the intricate dance of life, admitting ignorance is not a sign of weakness but rather a testament to our willingness to grow and evolve.

9. Reshaping habitual thought patterns

The human mind, while capable of remarkable feats, often clings to familiar patterns of thought, even when they lead us astray. Breaking free from these ingrained habits and biases that cloud our judgment can be a Herculean task. Duke reminds us that change is possible, offering a roadmap for rewiring our thinking. She urges us to cultivate new habits centered on embracing the inherent uncertainties of life, approaching every situation with an open mind, and maintaining a lifelong commitment to learning. By challenging our assumptions and welcoming new perspectives, we can navigate the complexities of decision-making with greater clarity and wisdom.

10. The probabilistic mindset

Few things in life are certain. The final chapter invites us to embrace this inherent uncertainty by adopting a probabilistic mindset. Duke encourages us to make a habit of contemplating the myriad possibilities that may arise from our choices. This approach transforms uncertainty from a source of anxiety into an opportunity for growth. By acknowledging the spectrum of potential outcomes, we become more adaptable and resilient in navigating the unpredictable currents of life. It’s about recognizing that the world rarely unfolds in a straight line, and that true strength lies in our ability to embrace the unknown with grace and flexibility.

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