Thinking in Bets

by Annie Duke

  This tendency we all have to favor our present-self at the expense of our future-self is called temporal discounting.* We are willing to take an irrationally large discount to get a reward now instead of waiting for a bigger reward later. An example of temporal discounting among adults includes a study from the military drawdown in the 1990s that led tens of thousands of military employees to choose lump-sum retirement payments at drastically discounted rates instead of guaranteed annuity payments. The men and women of the U.S. military took lump-sum payments worth $2.5 billion, a 40% discount compared to the present value of the annuity payments they would have received. (For additional sources on temporal discounting, see the Selected Bibliography and Recommendations for Further Reading.)

  When Night Jerry stays up late, it’s because it benefits him now; he discounts the benefits that come later from going to bed. Saving for retirement is a temporal discounting problem: the gratification of spending discretionary income is immediate. Putting it away for retirement means we have to wait decades to get enjoyment from that money. We are built for temporal discounting, for using the resources that are available to us now as opposed to saving them for a future version of us that we aren’t particularly in touch with in the moment of the decision. Time traveling can get us in touch with that future version of us. It can get future-us to remind present-us, “Hey, don’t discount!” Or at least, “Don’t discount so much!”

  When we think about the past and the future, we engage deliberative mind, improving our ability to make a more rational decision. When we imagine the future, we don’t just make it up out of whole cloth, inventing a future based on nothing that we have ever seen or experienced. Our vision of the future, rather, is rooted in our memories of the past. The future we imagine is a novel reassembling of our past experiences. Given that, it shouldn’t be surprising that the same neural network is engaged when we imagine the future as when we remember the past. Thinking about the future is remembering the future, putting memories together in a creative way to imagine a possible way things might turn out. Those brain pathways include the hippocampus (a key structure for memory) and the prefrontal cortex, which controls System 2, deliberative decision-making. It is our cognitive control center.* By engaging those pathways, Night Jerry can access memories like oversleeping and missing appointments or dozing off during morning meetings that he can use to imagine how tired Morning Jerry will be or what’s going to happen to Morning Jerry’s schedule when he doesn’t want to get up or how his day will go when he can’t pay attention.

  Wouldn’t it be great if Morning Jerry could travel back in time and tap Night Jerry on the shoulder to tell him to go to bed? As it turns out, there’s an app for that.

  From advancements in photo techniques and virtual reality, there is software that can show you a prediction of what you will look like decades into the future. If you feel, like most adults, bad about seeing your parents age, these images of future-you can be unsettling, like looking into a sadist-designed funhouse mirror. Fortunately, they’ve found ways to put this age-progression technology to more productive uses than just making us stare into the void of our own mortality.

  Saving for retirement is a Night Jerry–versus–Morning Jerry problem. If Night Jerry isn’t even thinking ahead to tomorrow morning, he’s certainly not thinking ahead several decades to retirement. Retirement planning involves a series of decisions in which our present-self can act to the detriment or benefit of our future-self. When we set retirement goals, we are necessarily thinking about our future-self’s goals—how much we need to save for that older version of us to live comfortably. Our spending decisions, however, don’t seem to be particularly focused on what’s best for our seventy-year-old-self. In fact, a quick Google search on the topic quickly reveals that our retirement savings are dangerously low. According to one study by the Center for Retirement Research at Boston College, “roughly half of today’s working households will not be able to maintain their standard of living in retirement.” Depending on which estimate you read, the shortfall could be $6.8 to $14 trillion.

  Several organizations and companies with an interest in encouraging retirement planning have resources that allow clients to “meet” their future-selves as they make retirement decisions. In the simplest versions of these tools, clients plug in their age, income, savings practices, and retirement goals. The apps then show the client the financial situation and lifestyle their future-self can expect, compared with the present.

  Prudential Retirement, AARP, and others have versions of these apps that emphasize the consequences of retirement planning by visually introducing us to our future-self. Bank of America Merrill Lynch in 2012 (for web-access computing) and 2014 (for mobile devices) introduced Merrill Edge, which includes a tool called “Face Retirement.” Customers upload a picture of themselves and get to see, according to the press release, “a life-like 3D animation of their future self, enabling them to envision every wrinkle they could encounter at retirement age—and beyond.” Night Jerry gets a glimpse of what Morning Jerry looks like without enough sleep to function.

  This idea that seeing our aged future-self could help us make better allocation decisions is based, in part, on research by Jeremy Bailenson and Laura Carstensen of Stanford University’s Freeman Spogli Institute for International Studies. They used immersive virtual-reality technology in a lab setting to demonstrate how a visit from Morning Jerry will help Night Jerry make better decisions. Subjects entered a virtual-reality environment, after which they were asked to allocate $1,000 among accounts for various purposes, one of which was a hypothetical retirement account. Subjects seeing a digital representation of their present-self in the mirror allocated on average $73.90 to the retirement account. Other subjects looking in that mirror saw an age-progressed version of themselves. This latter group of subjects, on average, allocated $178.10 to the retirement account. This is a startling example of how future-us can act as an effective decision buddy for present-us.

  Bringing our future-self into the decision gets us started thinking about the future consequences of those in-the-moment decisions. Fundamentally, Morning Jerry and Night Jerry are living the same life, and getting Morning Jerry into Night Jerry’s face will remind him of that. Seeing our aged-self in the mirror, along with a spreadsheet showing us how future-us has to struggle to get by, is a persuasive reminder to put aside some discretionary spending money for retirement. It’s that tap on the shoulder from our future-self. “Hey, don’t forget about me. I’m going to exist and I’d like you to please take that into account.”

  We’re not perfectly rational when we ponder the past or the future and engage deliberative mind, but we are more likely to make choices consistent with our long-term goals when we can get out of the moment and engage our past- and future-selves. We want Night Jerry and Morning Jerry colliding on the decision of when to get some sleep. We want all those Marty McFlys to get the additional perspective of all the other Marty McFlys. And we want our aged, wrinkly self colliding with us when we decide between spending more money now on something like a nicer car versus saving more money for retirement.

  Moving regret in front of our decisions

  Philosophers agree that regret is one of the most intense emotions we feel, but they have argued about whether it is productive or useful. Nietzsche said that remorse was “adding to the first act of stupidity a second.” Thoreau, on the other hand, praised the power of regret: “Make the most of your regrets; never smother your sorrow, but tend and cherish it till it comes to have a separate and integral interest. To regret deeply is to live afresh.”

  The problem isn’t so much whether regret is an unproductive emotion. It’s that regret occurs after the fact, instead of before. As Nietzsche points out, regret can do nothing to change what has already happened. We just wallow in remorse about something over which we no longer have any control. But if regret occurred before a decision instead of after, the experience of regret
might get us to change a choice likely to result in a bad outcome. Then we could embrace Thoreau’s view and harness the power of regret because it would serve a valuable purpose. It would be helpful, then, if we could get regret to do some time traveling of its own, moving before our decisions instead of after them. That way, regret might be able to keep us from making a bad bet. In addition, it wouldn’t, as Nietzsche implied, rear its head later by causing us to make a remorse-fueled second mistake.

  Morning Jerry regretted Night Jerry’s decision to stay up late, but it was too late for him to do anything about it. When we see the retirement-savings shortfall in this country, there is no doubt that many of the future, retired versions of us are going to regret the financial allocation decisions that younger-us made, after it is too late to fix it. The age-progression imaging works to address this issue of regret occurring when it’s already too late. By giving us a look at the retirement-aged version of ourselves, it gives us a chance to experience some regret that we didn’t plan adequately for retirement before we’ve made inadequate plans. That was one of the purposes of my loss limit in poker. Because of the loss-limit agreement I had made with myself and my group, I ran the conversation in my head that I’d be forced to have when I explained why I kept playing beyond my limit. It gave me a chance to regret the decision before I bought more chips.

  One of our time-travel goals is to create moments like that, where we can interrupt an in-the-moment decision and take some time to consider the decision from the perspective of our past and future. We can then create a habit routine around these decision interrupts to encourage this perspective taking, asking ourselves a set of simple questions at the moment of the decision designed to get future-us and past-us involved. We can do this by imagining how future-us is likely to feel about the decision or by imagining how we might feel about the decision today if past-us had made it. The approaches are complementary; whether you choose to travel to the past or travel to the future depends solely on what approach you find most effective.

  Business journalist and author Suzy Welch developed a popular tool known as 10-10-10 that has the effect of bringing future-us into more of our in-the-moment decisions. “Every 10-10-10 process starts with a question. . . . [W]hat are the consequences of each of my options in ten minutes? In ten months? In ten years?” This set of questions triggers mental time travel that cues that accountability conversation (also encouraged by a truthseeking decision group). We can build on Welch’s tool by asking the questions through the frame of the past: “How would I feel today if I had made this decision ten minutes ago? Ten months ago? Ten years ago?” Whichever frame we choose, we draw on our past experiences (including similar decisions we may have regretted) in answering the questions, recruiting into the decision those less-reactive brain pathways that control executive functioning.

  In poker, because the decisions are all made in the moment and the consequences are big and immediate, routines like 10-10-10 are a survival skill. I recognized in poker that in the same way that I was not the best judge of how I was playing after losing a certain amount of money, I was also not the best judge of the quality of my poker after about six to eight hours of play. Just as we can convince ourselves we are sober enough to drive, it is easy for poker players to convince themselves that they are alert enough to keep playing after many hours of intense, intellectually taxing work. In my more rational moments, away from the tables, I knew I would be better off if I played just six to eight hours per session. When I reached that point in a session and considered continuing past that time limit, I could use a 10-10-10-like strategy to recruit my past- and future-self: How have I felt when I kept playing in the past? How has it generally worked out? When I look back, do I feel I was playing my best? This routine of asking myself these questions helped mitigate the in-the-moment risk that, as I was losing my mental edge, I might try to convince myself that the game was so great that I had to keep playing.

  Moving regret in front of a decision has numerous benefits. First, obviously, it can influence us to make a better decision. Second, it helps us treat ourselves (regardless of the actual decision) more compassionately after the fact. We can anticipate and prepare for negative outcomes. By planning ahead, we can devise a plan to respond to a negative outcome instead of just reacting to it. We can also familiarize ourselves with the likelihood of a negative outcome and how it will feel. Coming to peace with a bad outcome in advance will feel better than refusing to acknowledge it, facing it only after it has happened.

  After-the-fact regret can consume us. Like all emotions, regret initially feels intense but gets better with time. Time-travel strategies can help us remember that the intensity of what we feel now will subside over time. And that helps reduce the emotion we feel in the moment, making it less likely that we will prove Nietzsche right and add a second act of stupidity to the first.

  A flat tire, the ticker, and a zoom lens

  Imagine you are standing on a narrow strip of concrete on the shoulder of the highway. Behind you is your car, hazard lights flashing. The rear tire on the driver’s side is shredded. It is fully dark and the drizzle has turned into a cold, heavy downpour. You’ve called roadside assistance, twice, and both times (after long hold times) spoken with operators who’ve told you someone will arrive “as soon as they get there after responding to your call.” You decide to change the tire yourself, only to discover you have no jack. You’re soaked to the skin and cold.

  How does it feel? It likely feels like the worst moment of your life. You are likely bemoaning how unlucky you are, wondering why these things always happen to you. You are miserable and you can’t imagine feeling any other way.*

  That’s how it feels in the moment. But if the flat tire had happened a year ago, do you think it would have an effect on your happiness today, or your overall happiness over the past year? Not likely. It likely wouldn’t cause your overall happiness to tick up or down. It would probably have faded to a funny story (or a story you try to make sound funny) told at cocktail parties.

  In our decision-making lives, we aren’t that good at taking this kind of perspective—at accessing the past and future to get a better view of how any given moment might fit into the scope of time. It just feels how it feels in the moment and we react to it. We want to create opportunities to take the broader perspective prior to making decisions driven by the magnified feelings we have in the moment. A 10-10-10 strategy does that, getting us to imagine the decision or outcome in the perspective of the past and the future.

  The flat tire isn’t as awful as it seems in the moment. This kind of time-travel strategy calms down the in-the-moment emotions we have about an event, so we can get back to using the more rational part of our brain. Recruiting past-us and future-us in this way activates the neural pathways that engage the prefrontal cortex, inhibiting emotional mind and keeping events in more rational perspective. This discourages us from magnifying the present moment, blowing it out of proportion and overreacting to it.

  This overestimation of the impact of any individual moment on our overall happiness is the emotional equivalent of watching the ticker in the financial world. We make a long-term stock investment because we want it to appreciate over years or decades. Yet there we are, watching a downward tick over a few minutes, consumed by imagining the worst. What’s the volume? Is it heavier than usual? Better check the news stories. Better check the message boards to find out what rumors are circulating.

  A stock like Berkshire Hathaway reveals why ticker watching isn’t a particularly productive endeavor when you are investing for the long run. Look at this chart of Berkshire’s performance since 1964:

  Now zoom in on a random day in late January 2017. The upticks and downticks look large and potentially frightening. You can imagine sitting at the low point around 11:30, feeling like your losses are spiraling.

  If you zoomed in on the performance of Berkshire Hathaway stock during the banking crisis, Sep
tember 2008 to March 2009, you would feel terrible most days:

  Yet we know from the first chart, the big picture, that all those minute-to-minute and even day-to-day changes had little effect on the investment’s general upward trajectory.

  Our problem is that we’re ticker watchers of our own lives. Happiness (however we individually define it) is not best measured by looking at the ticker, zooming in and magnifying moment-by-moment or day-by-day movements. We would be better off thinking about our happiness as a long-term stock holding. We would do well to view our happiness through a wide-angle lens, striving for a long, sustaining upward trend in our happiness stock, so it resembles the first Berkshire Hathaway chart.

  Mental time travel makes that kind of perspective possible. We can use our past- and future-selves to pull us out of the moment and remind us when we’re watching the ticker, looking at our lives through that lens on extreme zoom.

  When we view these upticks and downticks under the magnification of that in-the-moment zoom lens, our emotional responses are, similarly, amplified. Like the flat tire in the rain, we are capable of treating things that will have little effect on our long-term happiness as having significant impact. Our decision-making becomes reactive, focused on off-loading negative emotions or sustaining positive emotions from the latest change in the status quo. We can see how this can result in self-serving bias: fielding outcomes to off-load the negative emotions we feel in the moment from a bad outcome by blaming them on luck and sustaining the positive emotions from good outcomes by taking credit for them. The decisions driven by the emotions of the moment can become a self-fulfilling prophecy, degrading the quality of the bets we make, increasing the chances of bad outcomes, and making things worse.