by Annie Duke
Although employers aren’t trying to entice employees to quit, their goal is similar in arriving at a compensation package to get the prospect to accept the offer and stay in the job. They must balance offering attractive pay and benefits with going too far and impairing their ability to make a profit. Employers also want employees to be loyal, and work long, productive hours, and maintain morale. An employer might or might not offer on-premises child care. That could encourage someone to work more hours . . . or scare off a prospective employee because it implies they may be expected to sacrifice aspects of their non-work lives. Offering paid vacation leave makes a job more attractive but, unlike offering free dining and exercise facilities, encourages them to spend time away from work.
Hiring an employee, like offering a bet, is not a riskless choice. Betting on hiring the wrong person can have a huge cost (as the CEO who fired his president can attest). Recruitment costs can be substantial, and every job offer has an associated opportunity cost. This is the only person you can offer this opportunity. You might have dodged the cost of hiring Bernie Madoff, but you might have lost the benefit of hiring Bill Gates.
The John Hennigan story seems so unusual because it started with a discussion about what Des Moines was like and ended with one of the people in the discussion moving there the next day. That happened, though, because when you are betting, you have to back up your belief by putting a price on it. You have to put your money where your mouth is. To me, the ironic thing about a story that seems so crazy is how the underlying analysis was actually very logical: a difference of opinion about alternatives, consequences, and probabilities.
By treating decisions as bets, poker players explicitly recognize that they are deciding on alternative futures, each with benefits and risks. They also recognize there are no simple answers. Some things are unknown or unknowable. The promise of this book is that if we follow the example of poker players by making explicit that our decisions are bets, we can make better decisions and anticipate (and take protective measures) when irrationality is likely to keep us from acting in our best interest.
All decisions are bets
Our traditional view of betting is very narrow: casinos, sporting events, lottery tickets, wagering against someone else on the chance of a favorable outcome of some event. The definition of “bet” is much broader. Merriam-Webster’s Online Dictionary defines “bet” as “a choice made by thinking about what will probably happen,” “to risk losing (something) when you try to do or achieve something” and “to make decisions that are based on the belief that something will happen or is true.” I have emphasized the broader, often overlooked, aspects of betting: choice, probability, risk, decision, belief. We can also see from this definition that betting doesn’t have to take place in a casino or against somebody else.
No matter how far we get from the familiarity of betting at a poker table or in a casino, our decisions are always bets. We routinely decide among alternatives, put resources at risk, assess the likelihood of different outcomes, and consider what it is that we value. Every decision commits us to some course of action that, by definition, eliminates acting on other alternatives. Not placing a bet on something is, itself, a bet. Choosing to go to the movies means that we are choosing to not do all the other things with our time that we might do during that two hours. If we accept a job offer, we are also choosing to foreclose all other alternatives: we aren’t sticking with our current job, or negotiating to get a better deal in our current job, or getting or taking other offers, or changing careers, or taking some time away from work. There is always opportunity cost in choosing one path over others.
The betting elements of decisions—choice, probability, risk, etc.—are more obvious in some situations than others. Investments are clearly bets. A decision about a stock (buy, don’t buy, sell, hold, not to mention esoteric investment options) involves a choice about the best use of financial resources. Incomplete information and factors outside of our control make all our investment choices uncertain. We evaluate what we can, figure out what we think will maximize our investment money, and execute. Deciding not to invest or not to sell a stock, likewise, is a bet. These are the same decisions I make during a hand of poker: fold, check, call, bet, or raise.
We don’t think of our parenting choices as bets but they are. We want our children to be happy, productive adults when we send them out into the world. Whenever we make a parenting choice (about discipline, nutrition, school, parenting philosophy, where to live, etc.), we are betting that our choice will achieve the future we want for our children more than any other choice we might make given the constraints of the limited resources we have to allocate—our time, our money, our attention.
Job and relocation decisions are bets. Sales negotiations and contracts are bets. Buying a house is a bet. Ordering the chicken instead of the steak is a bet. Everything is a bet.
Most bets are bets against ourselves
One of the reasons we don’t naturally think of decisions as bets is because we get hung up on the zero-sum nature of the betting that occurs in the gambling world; betting against somebody else (or the casino), where the gains and losses are symmetrical. One person wins, the other loses, and the net between the two adds to zero. Betting includes, but is not limited to, those situations.
In most of our decisions, we are not betting against another person. Rather, we are betting against all the future versions of ourselves that we are not choosing. We are constantly deciding among alternative futures: one where we go to the movies, one where we go bowling, one where we stay home. Or futures where we take a job in Des Moines, stay at our current job, or take some time away from work. Whenever we make a choice, we are betting on a potential future. We are betting that the future version of us that results from the decisions we make will be better off. At stake in a decision is that the return to us (measured in money, time, happiness, health, or whatever we value in that circumstance) will be greater than what we are giving up by betting against the other alternative future versions of us.
Have you ever had a moment of regret after a decision where you felt, “I knew I should have made the other choice!”? That’s an alternative version of you saying, “See, I told you so!”
When Pete Carroll called for a pass on second down, he didn’t need an inner voice second-guessing him. He had the collective cry of the Seahawks fans yelling, “When you called for Wilson to pass, you bet on the wrong future!”
How can we be sure that we are choosing the alternative that is best for us? What if another alternative would bring us more happiness, satisfaction, or money? The answer, of course, is we can’t be sure. Things outside our control (luck) can influence the result. The futures we imagine are merely possible. They haven’t happened yet. We can only make our best guess, given what we know and don’t know, at what the future will look like. If we’ve never lived in Des Moines, how can we possibly be sure how we will like it? When we decide, we are betting whatever we value (happiness, success, satisfaction, money, time, reputation, etc.) on one of a set of possible and uncertain futures. That is where the risk is.
Poker players live in a world where that risk is made explicit. They can get comfortable with uncertainty because they put it up front in their decisions. Ignoring the risk and uncertainty in every decision might make us feel better in the short run, but the cost to the quality of our decision-making can be immense. If we can find ways to become more comfortable with uncertainty, we can see the world more accurately and be better for it.
Our bets are only as good as our beliefs
In an episode of the classic sitcom WKRP in Cincinnati, called “Turkeys Away,” the radio station’s middle-aged manager, Mr. Carlson, tries to prove he can stage a successful promotion for the rock-and-roll station. He sends his veteran news reporter, Les Nessman, to a local shopping center and tells him to report, live, on a turkey giveaway he is about to unleash.
The station�
��s DJ, Johnny Fever, cuts from his show to a live “man on the scene” report from Nessman. Nessman fills time, describing a helicopter overhead. Then something comes out of the helicopter. “No parachutes yet . . . Those can’t be skydivers. I can’t tell what they are but—oh, my God! They’re turkeys! . . . One just went through the windshield of a parked car! This is terrible! . . . Oh, the humanity! . . . The turkeys are hitting the ground like sacks of wet cement!” Nessman has to flee amid an ensuing riot. He returns to the studio and describes how Mr. Carlson tried to land the helicopter and free the remaining turkeys, but they waged a counterattack.
Carlson enters, ragged and covered with feathers. “As God is my witness, I thought turkeys could fly.”
We bet based on what we believe about the world. Pete Carroll’s Super Bowl decision to pass on the Patriots’ one-yard line was driven by his beliefs—his beliefs about quarterback Russell Wilson’s likelihood of completing the pass, of having the pass intercepted, of getting sacked (or scrambling for a touchdown). He had data on and experience about all these things, and then had to apply that to this unique situation, considering his beliefs about the Patriots’ defense and how their coach, Bill Belichick, would set up the defense for a likely running play on the goal line. He then made a choice about the best play to call based on these beliefs. He bet on a pass play.
The CEO who suffered all that anguish over firing the president did what he did based on his beliefs. He made his decision based on his beliefs about how the company was doing compared with competitors, what he thought the president did that contributed to or detracted from that, the likelihood he could get the president’s performance to improve, the costs and benefits to splitting the job between two people, and the likelihood he could find a replacement. He bet on letting the president go.
John Hennigan had beliefs about how he would adapt to Des Moines. Our beliefs drive the bets we make: which brands of cars better retain their value, whether critics knew what they were talking about when they panned a movie we are thinking about seeing, how our employees will behave if we let them work from home.
This is ultimately very good news: part of the skill in life comes from learning to be a better belief calibrator, using experience and information to more objectively update our beliefs to more accurately represent the world. The more accurate our beliefs, the better the foundation of the bets we make. There is also skill in identifying when our thinking patterns might lead us astray, no matter what our beliefs are, and in developing strategies to work with (and sometimes around) those thinking patterns. There are effective strategies to be more open-minded, more objective, more accurate in our beliefs, more rational in our decisions and actions, and more compassionate toward ourselves in the process.
We have to start, however, with some bad news. As Mr. Carlson learned in WKRP in Cincinnati, our beliefs can be way, way off.
Hearing is believing
When I speak at professional conferences, I will occasionally bring up the subject of belief formation by asking the audience a question: “Who here knows how you can predict if a man will go bald?” People will raise their hands, I’ll call on someone, and they’ll say, “You look at the maternal grandfather.” Everyone nods in agreement. I’ll follow up by asking, “Does anyone know how you calculate a dog’s age in human years?” I can practically see audience members mouthing, “Multiply by seven.”
Both of these widely held beliefs aren’t actually accurate. If you search online for “common misconceptions,” the baldness myth is at the top of most lists. As Medical Daily explained in 2015, “a key gene for baldness is on the X chromosome, which you get from your mother” but “it is not the only genetic factor in play since men with bald fathers have an increased chance of going bald when compared to men whose fathers have a full set of hair. . . . [S]cientists say baldness anywhere in your family may be a sign of your own impending fate.”
As for the dog-to-human age ratio, it’s just a made-up number that’s been circulating with no basis, yet with increasing weight through repetition, since the thirteenth century. Where did we get these beliefs? And why do they persist, despite contrary science and logic?
We form beliefs in a haphazard way, believing all sorts of things based just on what we hear out in the world but haven’t researched for ourselves.
This is how we think we form abstract beliefs:
We hear something;
We think about it and vet it, determining whether it is true or false; only after that
We form our belief.
It turns out, though, that we actually form abstract beliefs this way:
We hear something;
We believe it to be true;
Only sometimes, later, if we have the time or the inclination, we think about it and vet it, determining whether it is, in fact, true or false.
Harvard psychology professor Daniel Gilbert, best known for his book Stumbling on Happiness and his starring role in Prudential Financial commercials, is also responsible for some pioneering work on belief formation. In a 1991 paper in which he summarized centuries of philosophical and scientific study on the subject, he concluded, “Findings from a multitude of research literatures converge on a single point: People are credulous creatures who find it very easy to believe and very difficult to doubt. In fact, believing is so easy, and perhaps so inevitable, that it may be more like involuntary comprehension than it is like rational assessment.”
Two years later, Gilbert and colleagues demonstrated through a series of experiments that our default is to believe that what we hear and read is true. Even when that information is clearly presented as being false, we are still likely to process it as true. In these experiments, subjects read a series of statements about a criminal defendant or a college student. These statements were color coded to make it clear whether they were true or false. Subjects under time pressure or who had their cognitive load increased by a minor distraction made more errors in recalling whether the statements were true or false. But the errors weren’t random. The subjects were not equally likely to ignore some statements labeled “true” as they were to rely on some statements labeled “false.” Rather, their errors went in one direction: under any sort of pressure, they presumed all the statements were true, regardless of their labeling. This suggests our default setting is to believe what we hear is true.
This is why we believe that baldness is passed down from the maternal grandfather. If you, like me until I looked it up for this book, held that belief, had you ever researched it for yourself? When I ask my audiences this question, they generally say it is just something they heard but they have no idea where or from whom. Yet they are very confident that this is true. That should be proof enough that the way we form beliefs is pretty goofy.
As with many of our irrationalities, how we form beliefs was shaped by the evolutionary push toward efficiency rather than accuracy. Abstract belief formation (that is, beliefs outside our direct experience, conveyed through language) is likely among the few things that are uniquely human, making it relatively new in the scope of evolutionary time. Before language, our ancestors could form new beliefs only through what they directly experienced of the physical world around them. For perceptual beliefs from direct sensory experience, it’s reasonable to presume our senses aren’t lying. Seeing is, after all, believing. If you see a tree right in front of you, it would generally be a waste of cognitive energy to question whether the tree exists. In fact, questioning what you see or hear can get you eaten. For survival-essential skills, type I errors (false positives) were less costly than type II errors (false negatives). In other words, better to be safe than sorry, especially when considering whether to believe that the rustling in the grass is a lion. We didn’t develop a high degree of skepticism when our beliefs were about things we directly experienced, especially when our lives were at stake.
As complex language evolved, we gained the ability to form b
eliefs about things we had not actually experienced for ourselves. And, as Gilbert pointed out, “nature does not start from scratch; rather, she is an inveterate jury rigger who rarely invents a new mechanism to do splendidly what an old mechanism can be modified to do tolerably well.” In this case, the system we already had was (1) experience it, (2) believe it to be true, and (3) maybe, and rarely, question it later. We may have more reasons to question this flood of secondhand information, but our older system is still in charge. (This is a very simple summary of a great deal of research and documentation. For some good overviews, I highly recommend Dan Gilbert’s Stumbling on Happiness, Gary Marcus’s Kluge, and Dan Kahneman’s Thinking, Fast and Slow, listed in the Selected Bibliography and Recommendations for Further Reading.)
A quick Google search will show that many of our commonly held beliefs are untrue. We just don’t get around to doing Google searches on these things. (Spoiler alerts: (1) Abner Doubleday had nothing to do with inventing the game of baseball. (2) We use all parts of our brain. The 10% figure was made up to sell self-improvement books; neural imaging and brain-injury studies disprove the fabrication. (3) Immigrants didn’t have their names Americanized, involuntarily or otherwise, at Ellis Island.)
Maybe it’s no big deal that some of these inconsequential common beliefs are clearly false. Presumably, people aren’t using a bogus dog-age calculator to make medical decisions for their pets, and veterinarians know better. But this is our general belief-formation process, and it applies in areas that can have significant consequences.
