TKP Insights: Making (Even) Better Decisions The Knowledge Project with Shane Parrish (#150)

Key Takeaways

  • The 3 types of decision-makers according to Venkatesh Rao:
    • Conceptual reasoning framework (individualistic)
    • Ethical reasoners (good vs evil)
    • Affiliational thinkers (tribal reasoning, collective consciousness)
  • What are mental models?
    • “It’s your sort of implicit understanding of what the world is. And it’s very easy to see in the case of like fictional universes with a few rules that are different from our own.”Venkatesh Rao
  • Erik Seidel-Maria Konnikova relationship
    • He concentrated on the motivation behind her every decision
    • “What am I going to tell Erik?”
      • The question forced her to start thinking better and to start reflecting on elements of her thought process that she didn’t even realize were there 
    • She became a more thoughtful and a better player, not necessarily a player who was winning right away
  • Sherlock-Watson relationship
    • He asks questions and Holmes needs to respond to him and bring him through his thought process and how he arrived at a certain conclusion
    • Doing that helps Holmes see flaws in his logic that he didn’t see before and that makes him become a much better detective 
  • Having someone to talk to and being able to verbalize your thought process is crucial in becoming a good thinker no matter what you are doing
  • “We have intuitions all the time and we are horrible at being able to tell the correct intuitions from the wrong (about 50-50).” – Maria Konnikova
  • 4 big differences in Patrick Collison’s decision-making practices from 5 years ago up until now:
    • More value on decision speed; if you can make twice as many decisions at half the precision that’s often better
    • Not treating all decisions uniformly
    • He deliberately makes fewer decisions
    • When someone makes a different decision, discuss the difference in your way of thinking, not the decision itself
  • Annie Duke’s advice for decision-making in business
    • You have to get people to feel like they shouldn’t be afraid of the outcome 
    • It’s okay if the one try doesn’t work out  
    • As a leader, that is something you have to be good at communicating; you have to live it, act it
    • Work the decision process with the group
  • “I think the most important thing that people have to understand is how undoable is a decision I give. If an idea is fully undoable, I want people to almost, you know, make it as quickly as I can.”Tobi Lütke
    • Skill and decision-making are directly proportional to your quality of information acquisition 
    • How good are you at making decisions = how good are you at acquiring information? 

Intro

  • Struggling to make better decisions? In the second Insights episode, the TKP team compiles many valuable insights from their previous episodes centered around decision-making
    • Expect to learn about mental models through Harry Potter and Lord of the Rings, how online poker can help you become more confident in your decisions, how to learn from your mistakes when you get them wrong, and much more
    • The guests on this episode are author Ventakesh Rao (@vgr), psychologist, author, and professional poker player Maria Konnikova (@mkonnikova), Stripe co-founder Patrick Collison (@patrickc), cognitive-behavioral decision science author and professional poker player Annie Duke (@AnnieDuke), and Shopify co-founder Tobi Lütke (@tobi)
  • Host: Shane Parrish (@ShaneAParrish)

The 3 Types of Decision Makers by Venkatesh Rao

  • Conceptual reasoning as a framework for decision-making
    • Thinking in terms of mental models; what frames are you looking through, and what metaphors are you using? 
    • What is the significance of my decisive actions versus my random actions?
    • Processing everything on your own and staying away from tribal reasoning
    • Americans tend to believe in the myth of individualism, even though they are not super individualistic
  • Ethical reasoners start with a very deep and intuitive sense of right and wrong (in the sense of good and evil)
    • There is something hardwired deep in human nature that seems to work very well with good vs evil reasoning frames
    • 90% of our consequential survival behaviors as a human social species depend on things having to do with other people
    • Good vs evil is a good way of simplifying that whole area of decision making
    • If you decide that a certain group is good and other groups are evil, everything else gets simplified
  • Affiliational thinkers – people for whom every decision boils down to which group they want to belong to
    • The most ancient of our decision-making frameworks
    • People whose entire decision-making process and framing is based on the collective consciousness of the group they belong to
    • E.g. abortion; they don’t process via examination of the issue itself but which group can they belong to that their views on the topic are comfortable for them to be socially
    • It’s a process of emotional resonance, you are predictable on all issues
    • For individualistic and discriminating thinkers this seems kind of stupid
    • E.g. strongly traditional Asian cultures everything is framed concerning the context of the social environment, which might be a better survival strategy for succeeding in that specific environment
  • Rao’s definition of a mental model:
    • A set of beliefs, desires, and intentions
    • “I would say the best definition of a mental model is a world in the sense of science fiction or fantasy.”Venkatesh Rao
    • Implicit understanding of what the world is
    • Mental models allow you to make sense of the stories you’re being told very efficiently
  • The power of mental models through Harry Potter and Lord of the Rings
    • Via learning the story, we learn about the world 
    • Stories differ in the ability to do that elegantly
    • Lord of the Rings has a poetic elegance to it. You don’t feel like you’re learning about the world
    • Harry Potter is a little bit more heavy-handed; much of it is very clearly world building
    • “It’s your sort of implicit understanding of what the world is. And it’s very easy to see in the case of like fictional universes with a few rules that are different from our own.”Venkatesh Rao
  • Reading fiction that’s very alien to you in terms of mental models
    • The author may assume you understand the mental model but you do not
    • E.g. For Venkatesh Rao, that’s manga; a couple of times he tried to read Japanese comics, but they just seemed so bizarre to him
    • The conventions for indicating emotions and actions were unintuitive
    • The world that should be in the background and implicit and he should be able to reference it like an operating system becomes too visible for him to read the fiction seamlessly

Maria Konnikova – Less Certainty, More Inquiry

  • Online poker allowed her to get more experience quickly because of the sheer volume of hands
    • Eventually, she approached Erik Seidel and asked him to be her mentor
    • Erik focused on her thinking process during games; the motivation behind certain decisions
    • This made her stop and reflect for that extra second instead of just acting for the sake of it: “I started thinking better because I just started thinking in advance about what am I going to tell Eric.” Maria Konnikova
  • Doing something just for the sake of it; that’s not a decision process
    • It’s a mistake even if you did the right thing
    • One of the things that Erik taught her is that you have to distinguish the action and the outcome from the thought process 
    • “As long as your thought process is solid and as long as you’re thinking through things correctly then you did well even if you ended up coming to the wrong conclusion.” Maria Konnikova
    • Because that means that eventually with better inputs you’ll come to the right conclusion 
    • Even if you came to the right conclusion but then the cards went against you as long as your thought process is solid then you’ve won
  • “What am I going to tell Erik?”
    • What was the thought process behind the decision?
    • The question forced her to start thinking better and to start reflecting on elements of her thought process that she didn’t even realize were there 
    • She became a more thoughtful and a better player, not necessarily a player who was winning right away
    • The mindset transferred out of Poker very quickly and she found herself doing this in all sorts of situations
  • Do you need a mentor or a coach?
    • Maria got personalized, direct feedback from Erik
    • She thinks it was crucial in enabling her to improve as rapidly as she did and to appreciate what was going on
    • You can get some of those tools elsewhere but she thinks it’s very important to have someone else to guide you
    • “I think this is true of everything, not just poker I mean the way that I became a better psychologist is because I had great mentors who were able to talk me through my thought process along the way.”Maria Konnikova
    • Mentors were incredibly important for everything in her life (poker, psychology, writing)
    • Her first book was about Sherlock Holmes
  • Sherlock-Watson relationship
    • Watson also plays an incredibly important role in forcing Holmes to be a better detective
    • He asks questions and Holmes needs to respond to him and bring him through his thought process and how he arrived at a certain conclusion
    • Doing that helps Holmes see flaws in his logic that he didn’t see before and that makes him become a much better detective 
    • Having someone to talk to and being able to verbalize your thought process is crucial in becoming a good thinker no matter what you are doing
  • Poker provides the added component of something at stake
    • According to the German philosopher Immanuel Kant, betting constitutes an integral part of improving our decision process and level of certainty in something 
    • People can say all sorts of stuff and make all sorts of pronouncements if they’re not held accountable for it
    • However, if you’re forced to put a monetary value on your opinion, on how certain you are of something, it forces you to take a step back and re-evaluate
    • Kant uses this as an experiment for how to make people better thinkers and stop to consider what they’re saying rather than just rushing and pretending to be experts
  • How Maria’s changed outside of Poker
    • Maria started critiquing herself a lot more and she started being her own fact checker
    • Nowadays, she is much less confident in any of her opinions because she learned to tone them down and to question herself every single time
    • Why are you so confident? Is the data reliable?
    • We have intuitions all the time and we are horrible at being able to tell the correct intuitions from the wrong (about 50-50)
      • Sometimes our intuitions are spot on and sometimes they’re completely wrong but we can’t tell the difference
    • Poker forced her to go deeper into that and to figure out why can’t we tell the difference and how can you become more confident in your intuitions
  • Your intuition should only be trusted if you are an expert in the field
    • Correct intuition – accumulated experience in something that we don’t necessarily have conscious access to
    • Learning to spot false confidence is a crucial skill just in absolutely anything
  • Rational and emotional continuum
    • Sherlock Holmes was someone who experienced emotions even though people think of him as this cold almost computer-like person 
    • What he did is he acknowledged his emotions, recognize them and dismiss them if they were irrelevant to the decision
  • Tilt (poker term) – you’ve let irrelevant emotion into your thought process
    • Being “on tilt” affects how you’re playing 
  • How do you learn to cool down your emotions so that you can make the correct decision?
    • You can’t ever be purely rational because you’re always going to experience emotion
    • What you need to learn is to identify the emotion, and figure out that you’re experiencing it (because a lot of times you don’t even realize you’re angry)
    • Then you try to identify the root cause (is this something that’s incidental or is it integral) more often than
    • Figure out how this normally affects your decision process and how you take it out of the decision process 
  • “The funny thing is just the very process of identifying and kind of going through that thought process tends to cool you down because all of a sudden you’ve kind of distanced yourself from the immediacy of the event all of a sudden you’re thinking about it in a different way.” Maria Konnikova
    • By the time you even get there you’re already calmer and more rational so it helps in more ways than one

Patrick Collison’s 4 Big Decision-Making Practices

  • 4 big differences in his decision-making practices from 5 years ago up until now:
    • More value on decision speed; if you can make twice as many decisions at half the precision that’s often better
      • Make more decisions with less confidence but in significantly less time
      • You can course correct and treat fast decisions as a sort of asset and capability in their own right
    • Patrick doesn’t treat all decisions uniformly
      • Break them down on the degree of reversibility and magnitude 
    • He deliberately just makes fewer decisions
      • Doing more to push others to make decisions, people who ought to be the domain experts
    • When someone makes a different decision, discuss the difference in your way of thinking, not the decision itself

Annie Duke – Best Practices for Decision-Making in Business and Your Everyday Life

  • You have to get people to feel like they shouldn’t be afraid of the outcome
    • It’s okay if the one try doesn’t work out  
    • As a leader, that is something you have to be good at communicating; you have to live it, act it
  • Work the decision process with the group
    • Figure out as best as you can what are the scenarios that you think are going to result from decision A versus decision B versus decision C
    • Assign probabilities to those scenarios and don’t be afraid of it 
    • Most people are afraid to sign probabilities because they think that there’s a right answer 
  • The desire to make the guess makes you very information hungry so it makes you more open-minded because now your goal is not to have the right answer, it’s to get as close as you can to what the objectiveprobability is 
    • You can only do that by getting lots of information or listening to people who have different points of view 

Tobi Lütke’s Decision-Making Process and His Philosophy on Making Quick vs Analytic Decisions

  • “I think the most important thing that people have to understand is how undoable is a decision I give. If an idea is fully undoable, I want people to almost, you know, make it as quickly as I can.”Tobi Lütke
  • When a decision is something that you can’t take back then it’s worth prior understanding
  • Get all the context and then make the decision 
  • According to Tobi, if you just do that you’re already doing a better job than the vast majority of people in business
    • Because almost everyone makes a decision first and then gets data to support that decision
  • Skill and decision-making are directly proportional to your quality of information acquisition 
    • How good are you at making decisions = how good are you at acquiring information? 
    • How far can you go and how many resources do you have?
    • Do you have the ability to co-direct it to a database and ask a question? Can you call the right people up to ask them about their experience? 
    • Did you read the books which allow you to identify a situation?
    • Those things are the things that you would need to cultivate as a skill according to Tobi
  • One thing he started early which has been exceptionally useful is to have a small log file every time he tends to take a major decision
    • He would put one paragraph about the decision he made and what pushed him in that direction
    • It’s about the process by which you reach a decision and helps with avoiding hindsight bias
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