
October 20, 2020
How to Decide (E.P. 22) | Annie Duke on Infinite Loops Podcast with Jim O’Shaughnessy
Check out Infinite Loops Podcast Page & Episode Notes
Key Takeaways
- We cannot assess decision quality objectively
- What we can assess is the outcome of that decision
- The problem is that we tend to confuse a good outcome with a good decision and vice versa
- Dealing with The Hindsight Bias
- Create a knowledge tracker asking yourself:
- What information did I know, or was knowable, beforehand?
- Could I have know other relevant information at a reasonable cost?
- What decision did I make?
- What things were revealed afterward?
- What was the outcome?
- What other outcomes could have happened and what were their probabilities?
- What information did I know, or was knowable, beforehand?
- It’s way better to start tracking all this information as part of the decision-making process
- Create a knowledge tracker asking yourself:
- Increased uncertainty from COVID-19, requires us to document our decision-making processes even more accurately that we normally would
- When we have a thesis, we should ask ourselves how we could find out if our thesis is wrong
- “If that’s not the way you are thinking you will not be successful, except by accident” – Annie Duke
Books Mentioned
- The latest book written by Annie, How to Decide: Simple Tools for Making Better Choices
- Her previous book, Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts
Intro
- Annie Duke (@AnnieDuke) is a World Series of Poker bracelet winner, an expert in decision making, and a best-selling author
- Check out Annie’s website
- Check out these podcasts notes from Annie’s appearance on the 16z Podcast
- Hosts – Jim O’Shaughnessy (@jposhaughnessy)
- In this chat, Annie discusses the biases in our decision making, how to mitigate them, and much more
What Led Annie to Write her New Book
- In Thinking in Bets, Annie was focused on the issue of uncertainty in decision-making
- We don’t have all the information we need for a decision
- We don’t have control over the outcome
- The book focused more on “why” we have to deal with uncertainty and less on “how”
- How to Decide, was Annie’s exploration of “how” we can make better decisions in the face of uncertainty and imperfect information
Problems in Decision Making
- We cannot assess decision quality objectively
- Instead, we can assess the outcome of that decision
- The problem is that we tend to confuse a good outcome with a good decision and vice versa
- Daniel Kahneman calls this “the substitution”
- A related problem is that we have the Hindsight Bias
- After the outcome happens, we are biased to think that we should have seen it coming, that it was obvious
- A real-life example: Hillary Clinton’s 2016 Presidential campaign
- Today, everyone agrees that she screwed up badly in Michigan, Wisconsin, and Pennsylvania
- It seems so obvious in hindsight
- But why did nobody write about it before the election?
- Today, everyone agrees that she screwed up badly in Michigan, Wisconsin, and Pennsylvania
Mitigating Hindsight Bias
- With regards to a past decision you made:
- Create a knowledge tracker asking yourself:
- What information did I know, or was knowable, beforehand?
- Could I have know other relevant information at a reasonable cost?
- What decision did I make?
- What things were revealed afterward?
- What was the outcome?
- What other outcomes could have happened and what were their probabilities?
- What information did I know, or was knowable, beforehand?
- Create a knowledge tracker asking yourself:
- It’s way better to start tracking all this information as part of the decision-making process
- It won’t remove all the bias, but it will make you more objective
COVID-19’s Impact on Our Decision Making
- The hindsight bias is going to be amplified as information comes at us more rapidly
- More uncertainty requires that we document our decision-making processes even more accurately that we normally would
Problems with Gut Decisions and our Narratives
- A lot of our biases come from the confidence in our own narrative and our “gut”
- Relying on our gut is attractive because nobody can examine and judge our decision-making process
- This is also the big limitation of making decisions based on intuition
- It doesn’t create any accountability or evidentiary record for the decision
- Good decision-makers are aware of the limitations of their gut and compensate for them through analysis
Power of Negative Thinking
- When we have a thesis, we should ask ourselves how we could find out if our thesis is wrong
- We actively try to disprove our thesis
- “If that’s not the way you are thinking you will not be successful, except by accident” – Annie Duke
- This way of thinking is the basis of the Scientific Method, as explained by Karl Popper
- We actively try to disprove our thesis
- Many people are very attached to their ideas and find it difficult to try disproving them
- We like to keep a positive idea of ourselves
- Our identity feels threatened if our beliefs are doubted
- We like to keep a positive idea of ourselves
Problems with Information
- Our decisions are based on very limited information
- “We have this huge problem as decision-makers because, the stuff we know is a speck of dust, and the stuff we don’t know is like the size of the whole freaking Universe” – Annie Duke
- To make things worse, there are inaccuracies in the things that we believe
- Looking for the things we don’t know can help us to deal with both of our information issues
- This process also helps us to mitigate our confirmation bias
Value of Conversations Between People with Opposite Views
- Most of us tend to avoid interacting with people who hold different beliefs
- Each person knows they are not going to change their mind so they assume the conversation would be useless
- Actually, such conversations are a huge opportunity for improving, even if we are sure we are right
- We often don’t know why we hold our beliefs
- The conversation forces us to search for more information to explain our belief
- A great way to start exploring the things we don’t know
- The conversation forces us to search for more information to explain our belief
- We often don’t know why we hold our beliefs
Writing for Better Thinking
- Often you think you know what you want to say, but when you sit to write you realize how much you don’t know
- You are forced to research more deeply, understand what you don’t know
- To explain concepts in a simple way, you have to understand them at an even deeper level
- While writing, every day you think “I’m an idiot”, but at the end, you’re so much better
- People who write often look at their past work and realize how wrong they were
Additional Notes
- If Annie could make any changes in the World she would:
- Ensure that markets are actually free
- “Free market is the best expression of betting on human ingenuity” – Jim O’Shaughnessy
- Make executive, legislative and judicial branches of government actually work independently and check on each other
- Ensure that markets are actually free
- Technology and Decision Making
- Machine learning can tell us what and when to do something, but not why
- Most people rely on narrative for decision making
- Without a “why”, they may miss out on an opportunity to improve their decisions
- Most people rely on narrative for decision making
- Machine learning can tell us what and when to do something, but not why