Lesson 7: Thinking in terms of bets

A ‘real possibility’

What does that mean to you? To some people this means a probability of just 20%, but to others it means 80% likely. Author and investor Michael Maubaussan collated perceptions of probabilistic language in a survey. Some phrases, such as a ‘real possibility’ showed a wide range of answers.

So what you might ask? Why does this matter? Well, the danger with ‘faux’ certainty is that it might lead people to believe something is more likely than it actually is. If when asked by your boss, you describe completing the project on time as a ‘real possibility’ other decisions may be made on the basis that it will be delivered on time. The downside is a delay to the project and you are passed over for promotion.

Instead of relying on woolly language like ‘real possibility’ focus on probabilities. What are the chances that the decision will be correct or that the project will be completed on time?

By thinking about things in terms of probabilities we have to think about things from other people’s perspective. It encourages us to think, “Why am I wrong?” instead of “Why am I right?” It encourages us to ask ourselves, “How sure am I?” instead of “Am I sure?”

“Wanna bet?”

Former poker champion Annie Duke suggests that you take it one step further and think about decisions in terms of a bet. In most of our decisions, we’re not betting against another person, but rather all the future versions of ourselves that we are not choosing. At stake is that the return to us (happiness, money, time, health) will be greater than what we are giving up by betting against alternative futures.

Of article, in order for your decision making under uncertainty to improve you need feedback. Some events in life give us rapid and frequent feedback on the quality of our decisions (e.g. playing poker for example). Most feedback is infrequent and unclear. By incorporating probability based decision making into your daily life and gradually iterating your assessment as new information presents itself, you can quickly build-up useful feedback into your decision making process.

Life is one long game, and there are going to be a lot of losses, even after making the best possible bets. We are going to do better, and be happier, if we start by recognising that we’ll never be sure of the future.

How you can use thinking in terms of bets to make better decisions

  • Practice: Make thinking in terms of bets part of your decision making process. A number of organisations now offer forecasting tournaments in which you can test and work on improving your process.
  • Be aware of the pitfalls: There are two forms of uncertainty — hidden information and luck. Your assessment of the chances of a decision being successful or not will almost certainly rely on unknowable information. As the example of bin Laden illustrated, always be clear about the limitations.

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