Life is more like poker than chess, so think in bets

Hey There 👋,

In the previous volume,  we delved into the philosophical realm with Daniel Dennett's "weird jailer" thought experiment. Today, we will be covering another classic in the field of decision making - “Thinking in the Bets” by Annie Duke, one of the world class poker player to gain some more practical tips with decision making.

Lesson #1 “Life is more like poker than chess, so try to think in bets”

As an INTJ, I tend to believe in the power of making comprehensive plans. It seems to me that the best results can only be derived when you create the perfect strategic roadmap and execute it step by step. This is especially true for me as a Go(圍棋) player with seven years of experience. However, Duke posted a great reminder here as professional poker player:

“Life is more like poker. You could make the smartest, most careful decision in firing a company president and still have it blow up in your face. You could run a red light and get through the intersection safely – or follow all the traffic rules and signals and end up in an accident. You could teach someone the rules of poker in five minutes, put them at a table with a world champion player, deal a hand (or several), and the novice could beat the champion. That could never happen in chess.”

Life consists of skill, luck, and hidden information. That’s why as the name of the book suggested, we should try to be like be a professional poker player to think in bets, which begins with being able to understand the 2 forces that influence our live the most: the quality of our decisions and luck. When we analyse results, we ask ourselves: “why did something happen the way it did?” To learn from these inquiries, we have to figure out the role of both luck and skill.

<aside> 💡 Luck is everything that we can’t control – the actions of others, the weather, our genes. Skill is related to how clear our understanding of the world is and the quality of the decision we made based on that understanding.

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Lesson #2 Focus on the quality of your decision, Not the Result

The second lesson from Duke was that we should focus on the quality of the decision instead of its result. To determine whether a bad result was due to a bad decision or bad luck, it is important to examine the decision-making process that was followed, given the information available at the time. Here are 2 examples to illustrate to the b

1. Bad Result due to Bad decision: Nokia lost the entire smartphone market to Apple. This was the result of Nokia's bad decision to stick with their existing operating system instead of adopting a new one like Apple's iOS. While there was an element of luck involved (Apple's success was not a foregone conclusion), the decision made by Nokia was a bad one.
2. Bad luck: A company invested in a new product that was highly anticipated by consumers, but then a global pandemic hit and the product launch was delayed. In this case, the bad result was due to bad luck and not a bad decision. The company made the right decision to invest in the product based on the information available at the time, but external factors caused the launch to be delayed.

Ok and you might ask, isn’t it the result that matters the most after all? Why should we be focusing on the decision making quality instead? The key question here is indeed: can we replicate the good result next time, next next time and in the upcoming time in our life to drive positive results? Luck is out of our control while we can compound on good decisions. And by continuous reflections and improvements, this is how people like Buffett and Dalio gained their success along the way.

Lesson # 3 Do scenario planning

But how do we make good decisions when we have limited information? Duke suggests scenario planning, and there are two types: backcasting and premortems.

1. Backcasting – If you backcast, you imagine that you’ve achieve your goal. Then you work backward to think about how you got there. This is a positive frame that helps you imagine the outcome you want.
2. Premortems – When you do a premortem, you imagine a world in which you don’t achieve your goal – aka your plan failed. You then think about all of the reasons the plan might fail, and this helps you create a plan that reduces the probability of these things from happening.

Both backcasting and premortems are useful, but premortems are more effective in helping you get good outcomes. In imagining a world in which you don’t succeed, you reduce the likelihood that your plans are overly optimistic, help tackle roadblocks in advance, and feel better if you don’t succeed on your path.

Conclusion

Thanks for tuning in this week! I hope you found something interesting in our digest. Next week's topic is going to be just as exciting, so keep your eyes peeled for our next newsletter.

Until then, keep thinking in the bets and making informed decisions!

Things that I found interesting this week:

📃  Blog — A Close Call: How a Near Failure Propelled Me to Succeed by Terrance Tao

I found this article pretty inspiring to me as it highlights the struggles that even the person with the highest IQ alive has ever faced. In case you don’t know him, Terrance Tao is known for his exceptional mathematical ability. He has an IQ score of over 230, which is considered to be among the highest in the world. He was also the youngest person to ever receive a gold medal in the International Mathematical Olympiad, at the age of 13. In the article, he shared how he struggled with his graduate exams with bear pass.  It serves as a great reminder that no matter how brilliant we are, we will certainly face our limits, but through hard work and intellectual curiosity, we might eventually break through some of those ceilings that appeared to be impossible for us.

📚 Book — “Thinking Fast and Slow” by Daniel Kahneman

I recommend "Thinking Fast and Slow" by Daniel Kahneman to you since I know you might be interested in reading classic works on decision making. The book effectively points out our cognitive biases and helps us to be mindful of them. Kahneman, a Nobel Prize winner in economics, is one of the most renowned scholars in the field of decision making. Through his research, he explains the two systems of thinking that drive the way we think and make decisions. This book is perfect for readers who want to gain a deeper understanding of their own decision making processes and how to improve them.