The game of poker provides a great framework for understanding not only the problems in decision-making, but also how we can solve for them. In poker, you don't know your opponents cards and you don't know what they're thinking. In settings in which only partial information is provided, decision-making becomes difficult, tricky, and often contaminated by bias. Essentially, the decisions we encounter in our every day lives are similar to making bets in poker games in that we don’t necessarily have all the information when making decisions. Every decision is a bet.
Renowned professional poker player turned professional speaker and decision strategist, Annie Duke merges her experience in poker with her cognitive psychology graduate work at UPenn to examine decision-making. In her most recent book “Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts”, Annie explains how to best manage having less than perfect information when making decisions - situations we likely find ourselves encountering on a daily basis.
I came across the above Google Talk recently. Some key take-aways from the discussion include:
What prevents people from making good decisions? “I think it's a collision of a couple of problems. I think that the first piece is uncertainty, and uncertainty comes from two places. It comes from hidden information. So this is where we can see how poker might be a really good way to look at decision making (cards are face down).... But, even if we did have perfect information - say for example, about a coin, and we know that heads or tails it's going to flip 50% of the time, we also have the intervention of luck, which is the other form of uncertainty... The second problem is that nature, the way that our brains are built has given us a lot of rope to sort of hang ourselves with the uncertainty...”
It would be impractical to wait to have all the necessary data to make a decision in many cases.
There are type 1 errors and type 2 errors. Type 1 errors are false positives and type 2 errors are false negatives. As humans, we're built for false positives. We connect occurrences together and believe that there’s causality. Being that we think that things are falsely connected together, a problem arises.
We're inherently built for tribes, which causes problems for decision-making. These “echo chambers” we live in stress the fact that people outside of our tribe are not trusted sources of information, leading to a lack of outside perspectives.
"Motivated reasoning" is a large problem. While confirmation bias is based on a prior belief we might have, motivated reasoning is when we’re motivated to confirm the belief we have and that motivation drives our information processing. When confronted with information that disconfirms us, we’ll work hard to discredit it, and on the opposite side the coin, when confront we’re confronted with information that confirms us, we don't put any effort into discrediting it.
After receiving the results from an unsuccessful bet, your ability to go back and analyze the decision process is distorted - aka “resulting”.
How can we separate outcomes from decision quality? When possible, deconstruct decision before outcomes have occurred.
Ultimately, what I extracted from the Google Talk, is that approaching decisions in a probabilistic way, making sure to include the opinions of people who offer different viewpoints, and learning the right lessons from outcomes are all habits that’ll improve decision quality. If you’re a little bit better at making good decisions, that’s going to compound over time since better overall decision quality will lead to better quality outcomes.