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Sunday
May132018

RS 208 - Annie Duke on "Thinking in bets"

Release date: May 13th, 2018

Annie Duke

This episode features Annie Duke, former pro poker player and author of the book Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts. Julia and Annie debate why people tend to ignore the role of luck in their decisions, whether expressing uncertainty makes you seem weak, and how people end up engaging in "defensive decision-making," where they're not trying to make the best call so much as simply avoid being blamed for bad outcomes.

Annie's Book: Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts

David French at The National Review

Edited by Brent Silk

Music by Miracles of Modern Science

 

Full Transcripts 

Reader Comments (6)

That people judge outcomes and not strategies may explain why so many investment managers buy exactly the same stocks. If everyone else buys Apple, and Apple fails, it looks much better for the investment manager than if that same manager bought some obscure company that then failed. However, this has an ironic side effect that tends to almost guarantee the under performance of investment mangers. When too many investors copy each other and all buy the same stocks, those stocks start to trade at a significant premium to their inherent value, measured in price / earnings, revenue growth, financial strength, and so forth. Thus, these seemingly risk adverse professional investors who choose to copycat each other actually overpay for stocks given the risk reward ratio of a particular investment. I wonder if this may explain why 85% of mutual fund managers under perform the S&P 500.

Indeed, David French generally writes and thinks really well.
May 14, 2018 | Unregistered CommenterJameson
thanks for your content
Hi Julia and Annie.

Firstly thanks so much for that show. It was really great. It's a really great analysis.

Secondly, I have a couple of thoughts I'd like to contribute.

Regarding the first part of the show, I think perhaps my favourite quote in the whole world is a quote that is attributed to Bertrand Russell, and which is:
"The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts."

I think that quote fits really well with the stuff you were saying in the first, say third or half of the show.

Secondly, you espoused the benefits of thinking in bets, which included, I think (and correct me if I am misinterpreting) that you can realise that the result is a gamble and all sorts of futures can occur, so therefore you can maybe not be so tough on yourself based on the outcome, and maybe assess the decision and learn from that side of it. I think this makes sense, but can I give you another side of that coin?

I tend to think about everything like I'm a probability machine (which is probably why I like that Bertrand Russell quote so much :o). I find the effect of this is that I end up observing all of the bad luck that occurs and I get down on myself for being someone who only ever has bad luck. For example, when I'm late I get every single red light and I think, "what's the probability of that? It's very low, but it happened". I remember waiting on a really important phone call when we were crossing the border into China not long ago. There was a huge amount of waiting and the phone rang just when I was at the desk in front of the security guy and couldn't answer it. I said to all my friends that I bet the next time the phone rings will be exactly at the next time I am at the desk. I knew this was a really low chance of happening, but nonetheless. There was about 2 hours of waiting and finally I was called to the desk, and it happened. As I was standing there, only for about 60 seconds, getting quizzed by the guard the call came in and I had to let it go. The chances of this happening not once by twice is about zero, but it happened!! So, the result of this is I am a person that is convinced I have terrible luck. It doesn't matter how good my decision-making is, I will always lose even if I'm holding aces. It doesn't make sense from a mathematical perspective, but it seems to be my observation. I often think if I was less aware of probabilities of outcomes, I might be less stressed about bad luck happening. Although I'm not sure :o)

Cheers
Riley
June 4, 2018 | Unregistered CommenterRiley Hunter
I like your thinking, this is very nice post!
June 5, 2018 | Unregistered Commenterimpossible game
great, thank you for sharing useful information
July 1, 2018 | Unregistered Commentervex
Julia, you mentioned Trevor Bauer, Cleveland Indians pitcher, in this podcast. I also find him an interesting figure in elite sports and agree his approach as you describe it here is a great example of approaching the uncertainty in performance roles, and recognizing what one does and does not have within personal control. He definitely thinks in bets. Can you help me find the reference about him and his thinking that he will, essentially regress toward his mean, which you mentioned here?

I really love your podcast. It is a great resource to me. I recommend you and several episodes to many people..

Thanks
Curtis Cook
September 8, 2018 | Unregistered CommenterCurtis Cook

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