Thinking in Bets

by Annie Duke

  “Yeah, but what have you done for me lately?”

  Watching the ticker doesn’t just magnify what has happened in the very recent past. It distorts our view of it as well. To understand the additional element of distortion, the casino is a great place to look.

  Imagine that you go to a casino for an evening of blackjack with your friends. In the first half hour, you go on a winning streak and are ahead $1,000. You keep playing because you and your friends are having such a good time. For the next hour and a half, it seems like you never win a hand. You lose back the $1,000 and break even for the night. How are you feeling about that?

  Now imagine that you lose $1,000 in the first half hour and stick around playing with your friends because they are having a great time. In the next hour and a half you go on a winning streak that erases the early loss, and you end up breaking even for the night. How are you feeling about that?

  I’m guessing you are pretty sad and morose about starting off with the big win, only to break even. In the second example, you’re probably so happy that the drinks are on you. While you took a different path to get there, in both cases you didn’t win or lose a dime at the end of the two hours. But in one case you are really sad about the result and the other really happy.

  As they say in the infomercial world, “But, wait! There’s more!”

  Imagine you go up that same $1,000 in the first half hour but now, over the next hour and a half, you can’t seem to win a hand and lose $900 back, ending the night with a $100 win. How does that feel? Now imagine that you lost that same $1,000 in the first half hour but then went on a winning streak to end the night down only $100. How does that feel? Most likely, you’re pretty glum about the $100 win but still buying drinks for everyone after recovering from that terrible start to only lose $100. So you’re sad that you won $100 and happy that you lost $100.

  The way we field outcomes is path dependent. It doesn’t so much matter where we end up as how we got there. What has happened in the recent past drives our emotional response much more than how we are doing overall. That’s how we can win $100 and be sad, and lose $100 and be happy. The zoom lens doesn’t just magnify, it distorts. This is true whether we are in a casino, making investment decisions, in a relationship, or on the side of the road with a flat tire. If we got a big promotion last week and have a flat tire right now, we are cursing our lives, complaining about how unlucky we are. Our feelings are not a reaction to the average of how things are going. We feel sad if we are breaking even (or winning) on an investment that used to be valued much higher. In relationships, even small disagreements seem big in the midst of the disagreement. The problem in all these situations (and countless others) is that our in-the-moment emotions affect the quality of the decisions we make in those moments, and we are very willing to make decisions when we are not emotionally fit to do so.

  Now imagine if you had gone for that night of blackjack a year ago. When you think about the outcomes as having happened in the distant past, it is likely your preference for the results reverses, landing in a more rational place. You are now happier about the $100 win than about the $100 loss. Once we pull ourselves out of the moment through time-traveling exercises, we can see these things in proportion to their size, free of the distortion caused by whether the ticker just moved up or down.

  This is a constant challenge in poker. While the moving scoreboard has the upside of reminding players that all their decisions have consequences, there is also a downside. The scoreboard, like a stock ticker, reflects the most recent changes, creating a risk that players get caught up in ticker watching, responding emotionally and disproportionately to momentary fluctuations. Poker players think about this problem a lot.

  Tilt

  Surfers have more than twenty terms to describe different kinds of waves. The reason is that the type of wave, the way it breaks, the direction it’s coming from, the bottom depth, etc., create differing challenges for surfers. There are closeouts (waves that break all at once) and double-ups (a type of wave created when two waves meet to form one wave) and reforms (a wave that will break, then die down, then break again). Non-surfers just call all of these “waves.” On rare occasions when we non-surfers need to be more specific, we just add a lot of extra words. Those extra words don’t cost us much because it doesn’t come up very often—maybe never. But for people involved in specialized activities, it’s worth it to be able to communicate a complex concept in a single word that laypeople would need lengthy phrases to convey. Having a nuanced, precise vocabulary is what jargon is all about. It’s why carpenters have at least a dozen names for different kinds of nails, and in the field of neuro-oncology, there are more than 120 types of brain and central nervous system tumors.

  Because poker players are in a constant struggle to keep in-the-moment fluctuations in perspective, their jargon has a variety of terms for the concept that “bad outcomes can have an impact on your emotions that compromise your decision-making going forward so that you make emotionally charged, irrational decisions that are likely to result in more bad outcomes that will then negatively impact your decision-making going forward and so on.” The most common is tilt. Tilt is the poker player’s worst enemy, and the word instantly communicates to other poker players that you were emotionally unhinged in your decision-making because of the way things turned out.* If you blow some recent event out of proportion and react in a drastic way, you’re on tilt.

  The concept of tilt comes from traditional pinball machines. To keep players from damaging the machines by lifting them to alter the course of the ball, the manufacturers placed sensors inside that disabled the machine if it was violently jostled. The flippers stopped working, the lights went off, and the word “tilt” flashed at numerous places on the layout. The origin of tilt in pinball is apt because what’s going on in our brain in moments of tilt is like a shaken pinball machine. When the emotional center of the brain starts pinging, the limbic system (specifically the amygdala) shuts down the prefrontal cortex. We light up . . . then we shut down our cognitive control center.

  There are emotional and physiological signs of tilt. In poker, you can hear a poker player on tilt from several tables away. Every several hands, you hear a raised voice in an incredulous tone: “Seriously? Again?” or “I don’t know why I bother playing. I should just hand over all my money.” (Imagine the inflection of exasperation and a lot of swearing.) Along with these verbal cues, there are physiological signs of tilt. We can feel our cheeks flush and our heart race. Our respiration speeds up.

  Tilt, of course, is not just limited to poker. Any kind of outcome has the potential for causing an emotional reaction. We can be tempted to make a reactive, emotional decision in a disagreement with a relationship partner, or because of bad service in a restaurant, or a comment in the workplace, or making a sale only to have it canceled, or having an idea dismissed. We’ve all had this experience in our personal and professional lives: blowing out of proportion a momentary event because of an in-the-moment emotional reaction.

  By recognizing in advance these verbal and physiological signs that ticker watching is making us tilt, we can commit to develop certain habit routines at those moments. We can precommit to walk away from the situation when we feel the signs of tilt, whether it’s a fight with a spouse or child, aggravation in a work situation, or losing at a poker table. We can take some space till we calm down and get some perspective, recognizing that when we are on tilt we aren’t decision fit. Aphorisms like “take ten deep breaths” and “why don’t you sleep on it?” capture this desire to avoid decisions while on tilt. We can commit to asking ourselves the 10-10-10 questions or things like, “What’s happened to me in the past when I’ve felt this way?” or “Do I think it’s going to help me to be in this state while I’m making decisions?” Or we can gain perspective by asking how or whether this will have a real effect on our long-term happiness.

  If you are part of a truthseeking p
od, that pod can incorporate questions designed to sniff out tilt and reduce the number of decisions we execute while on tilt. We can incorporate vigilance around ticker watching when evaluating each other’s decisions, including the most obvious question: “Do you think maybe you are/were on tilt?” We can follow that with time-traveling questions like, “Do you think this will really matter in the long run?” If we make the concept of tilt and its negative impact on decision quality part of the discussion, it creates accountability around tilt to the group. Ignoring the signals of emotional decision-making raises the prospect of having to answer for it. That, in turn, will get us positive reinforcement from the group for recognizing the signs of tilt and avoiding decision-making in that state. It also trains good habits of mind so we can run these processes on our own, acting as our own decision buddy.

  At the very beginning of my poker career, I heard an aphorism from some of the legends of the profession: “It’s all just one long poker game.” That aphorism is a reminder to take the long view, especially when something big happened in the last half hour, or the previous hand—or when we get a flat tire. Once we learn specific ways to recruit past and future versions of us to remind ourselves of this, we can keep the most recent upticks and downticks in their proper perspective. When we take the long view, we’re going to think in a more rational way.

  Ulysses contracts: time traveling to precommit

  The most famous traveler of antiquity, the Homeric hero Odysseus, was also a mental time traveler. One of the legendary trials on his journey home involved the island of the Sirens. Sailors passing the island became so entranced by the Sirens’ song that they would steer toward the shore, crashing to their deaths on the rocky shoal around the island. Aware of the fate that befell any sailor who heard the song, Odysseus told his crew to tie his hands to the mast and fill their ears with beeswax as they approached the island. They could then steer safely, unaffected by the song they could not hear, while he would get to hear the Sirens’ song without imperiling the ship.

  The plan worked perfectly. This action—past-us preventing present-us from doing something stupid—has become known as a Ulysses contract. (Most translations of Homer use the hero’s ancient Greek name, Odysseus. The time-travel strategy uses the hero’s ancient Roman name, Ulysses.)

  It’s the perfect interaction between past-you, present-you, and future-you. Ulysses recognized that his future-self (along with his crew) would become entranced by the Sirens and steer toward the rocks. So he had his crew fill their ears with wax and tie his hands to the mast, literally binding his future-self to better behavior. One of the simplest examples of this kind of contract is using a ride-sharing service when you go to a bar. A past version of you, who anticipated that you might decide irrationally about whether you are okay to drive, has bound your hands by taking the car keys out of them.

  Most illustrations of Ulysses contracts, like the original, involve raising a barrier against irrationality. But these kinds of precommitment contracts can also be designed to lower barriers that interfere with rational action. For example, if we are trying to eat healthier, we might identify that an irrational decision point occurs when we go to the mall with someone, agree to meet them in a couple hours, and spend idle time in the food court. A barrier-inducing Ulysses contract could involve us not going to the mall at all or budgeting our time tightly so we have just enough time to accomplish our intended purpose. A barrier-reducing contract would be to precommit to carry healthy snacks in our bag, so we can increase the probability, if we’re doing any idle eating, that we can make a better choice since we have drastically reduced the effort it takes to grab a healthier snack.

  Ulysses contracts can come in varying levels of how much your hands are bound, ranging from physically preventing acting on a decision to just committing in advance to certain actions without any barriers save the commitment itself. Regardless of the level of binding, precommitment contracts trigger a decision-interrupt. At the moment when we consider breaking the contract, when we want to cut the binding, we are much more likely to stop and think.

  When you are physically prohibited from deciding, you are interrupted in the sense that you are prevented from acting on an irrational impulse; the option simply isn’t there. That’s the brute-force way to do this kind of time traveling. Past-Ulysses interrupted present-Ulysses’s decision by taking the decision, literally, out of his hands.

  In most situations, you can’t make a precommitment that’s 100% tamper-proof. The hurdles aren’t necessarily high, but they nevertheless create a decision-interrupt that may prompt us to do the bit of time travel necessary to reduce emotion and encourage perspective and rationality in the decision. A lawyer attending a settlement negotiation can make a precommitment, with the client or other lawyers on their team, as to the lowest amount they would accept in a settlement (or the highest amount they would agree to pay to settle). Home buyers, understanding that in the moment they might get emotionally attached to a home, can commit in advance to their budget. Once they decide on a house they want to buy, they can decide in advance what the maximum amount they’d be willing to pay for it is so that they don’t get caught up in the moment of the bidding.

  Throwing out all the junk food in our house makes it impossible for midnight-us to easily, mindlessly, down a pint of ice cream. But as long as we have a car or food delivery services, that kind of food is still available somewhere. It just takes a lot more effort to get it. The same is true if we ask the waiter not to put the bread basket on the table at the restaurant. We can still, obviously, get bread, but now we have to ask the waiter to bring it. In fact, even Ulysses had to rely on his crew to ignore him if, upon hearing the Sirens’ song, he signaled them to free him.

  Ulysses contracts can help us in several ways to be more rational investors. When we set up an automatic allocation from our pay into a retirement account, that’s a Ulysses contract. We could go through the trouble of changing the allocation, but setting it up initially gives our goal-setting, System 2–self a chance to precommit to what we know is best for our long-term future. And if we want to change the allocation, we have to take some specific steps to do so, creating a decision-interrupt.

  Investment advisors do this with clients, determining in advance, as they are discussing the client’s goals, the conditions under which they would buy, sell, hold, or press their positions on particular stocks. If the client later wants to make an emotional decision in the moment (involving, for example, a sudden rise or drop in the value of an investment), the advisor can remind the client of the discussion and the agreement.

  In all these instances, the precommitment or predecision doesn’t completely bind our hands to the mast. An emotional, reactive, irrational decision is still physically possible (though, to various degrees, more difficult). The precommitments, however, provide a stop-and-think moment before acting, triggering the potential for deliberative thought. Will that prevent an emotional, irrational decision every time? No. Will we sometimes still decide in a reflexive or mindless way? Of course. But it will happen less often.

  Decision swear jar

  We all know about the concept of a swear jar: if someone swears, they put a dollar in the jar. The idea behind it is that it will make people mindful about swearing and reduce how much they do it. A “decision swear jar” is a simple kind of precommitment contract that we can apply to many of the key concepts of this book. For the decision swear jar, we identify the language and thinking patterns that signal we are veering from our goal of truthseeking. When we find ourselves using certain words or succumbing to the thinking patterns we are trying to avoid because we know they are signs of irrationality, a stop-and-think moment can be can be created. You can think about this as a way to implement accountability.

  We have discussed several patterns of irrationality in the way we lodge beliefs and field outcomes. From these, we can commit to vigilance around words, phrases, and thoughts that sign
al that we might be not be our most rational selves. Your list of those warning signs will be specific to you (or your family, friends, or enterprise), but here is a sample of the kinds of things that might trigger a decision-interrupt.

  Signs of the illusion of certainty: “I know,” “I’m sure,” “I knew it,” “It always happens this way,” “I’m certain of it,” “you’re 100% wrong,” “You have no idea what you’re talking about,” “There’s no way that’s true,” “0%” or “100%” or their equivalents, and other terms signaling that we’re presuming things are more certain than we know they are. This also includes stating things as absolutes, like “best” or “worst” and “always” or “never.”

  Overconfidence: similar terms to the illusion of certainty.

  Irrational outcome fielding: “I can’t believe how unlucky I got,” or the reverse, if we have some default phrase for credit taking, like “I’m at the absolute top of my game” or “I planned it perfectly.” This includes conclusions of luck, skill, blame, or credit. It includes equivalent terms for irrationally fielding the outcomes of others, like, “They totally had that coming,” “They brought it on themselves,” and “Why do they always get so lucky?”

  Any kind of moaning or complaining about bad luck just to off-load it, with no real point to the story other than to get sympathy. (An exception would be when we’re in a truthseeking group and we make explicit that we’re taking a momentary break to vent.)

  Generalized characterizations of people meant to dismiss their ideas: insulting, pejorative characterizations of others, like “idiot” or, in poker, “donkey.” Or any phrase that starts by characterizing someone as “another typical ________.” (Like David Letterman said to Lauren Conrad, he dismissed everyone around him as an idiot, until he pulled himself into deliberative mind one day and asked, “What are the odds that everyone is an idiot?”)