Thinking in Bets by Annie Duke is one of those books that completely changed how I think about decision making. We tend to think about decisions as being right or wrong, good or bad. But most of the time, this is a consequence of "resulting" - which is associating the results of a decision with the actual making of the decision. You can easily think about this in terms of investing - if you invested money in a particular stock and made money, it was a good decision.
If you invested money and lost money, it was a bad decision. But that isn't necessarily the case, many other factors outside of your control affected the outcome and results of the decision, which could have been a good one if you made the best choice given the information at the time. To put it crudely, making the choice to cross a busy highway is a bad decision, even if the end result is making it to the other side in one piece.
Expected values - do they move you closer to your goals?
The concept of the expected value is another great idea brought up in the book. When we're making decisions, we often don't have all the information we need right at that point in time. Do we know that taking this job will be a good move? Will your marriage be a long-lasting and happy one? It's impossible to know, but we make the decisions based on expected values - and the rule of thumb is if the expected value of the decision is likely to move you closer to your goal, you should take it. Not everything in an expected value calculation can be quantified. For example, after learning how to trade options, I wanted to learn from other successful people - but of course this comes with a price. I ended up spending $700 a year for 3 years paying for a subscription to a private group, which definitely moved my options knowledge and strategy ahead. What was the expected value of the decision and how would it affect me both in terms of making better options trades and making more money each year? Impossible to know, but I knew it would be moving me closer to my goal of being a better options trader.
Imagining the worst with pre-mortems
Pre-mortems are the opposite of post-mortems - instead of sitting down at the end of a project to discuss what went wrong and what can be improved, we actually visualise ahead of time what are the possible obstacles and solutions. Unknowingly I've been engaging in pre-mortems forever. I honestly have no idea why people jump into decisions without thinking beyond step one or two, especially when it's obvious that there will be roadblocks at maybe step five or six. The benefit of knowing these obstacles (at least for me), is knowing that things will probably be harder than I thought, and I can both tamper down my expectations and mentally prepare myself for the extra push I'm going to need to work through the problems. If I wasn't prepared, I might feel more inclined to give up when it feels so much harder than I thought it would be.
Will this matter in 10 years?
She also discusses thinking about decisions in the context of a 10-10-10 framework - how we might feel about our decisions in 10 minutes, 10 months and 10 years.
I suppose the precise timeframes don't matter as much as the focus on the long term. As you probably know I'm not the biggest fan of the corporate work environment, but I try to keep this in mind and tell myself I won't even remember the stupid event that happened when next week rolls around, so I should focus on what will make a difference next year.
I highly recommend Thinking in Bets if you're looking to make better decisions. Our brains are really good at tricking us, which is why we need to know and understand how they work, and be better aware at many of the cognitive pitfalls we might stumble upon subconsciously.
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