Making Decisions in Highly Uncertain Situations
Lessons from "Thinking in Bets"
Navigating uncertain situations is a challenge that every leader faces. Whether it’s launching a new product, making a strategic pivot, or even making personal life choices, uncertainty can cloud judgment and paralyze action. Annie Duke’s book, Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts, offers a unique perspective on how to make better decisions when the path ahead is anything but clear.
Embrace the Uncertainty
The first lesson from Thinking in Bets is the importance of embracing uncertainty. Duke, a former professional poker player, argues that most decisions we make are, in essence, bets. We are betting on a particular outcome based on the information we have, but because we can’t know everything, there’s always an element of uncertainty.
Rather than shying away from this uncertainty, Duke suggests we should acknowledge it and use it to our advantage. By accepting that we don’t have all the information and that we can’t predict the future with certainty, we can approach decision-making more rationally. This mindset shift allows us to focus on making the best possible decision with the available information, rather than being overly concerned with controlling the outcome, which is often beyond our control.
Separate Decision Quality from Outcome Quality
One of the key concepts in Duke’s book is the idea of “resulting,” a common mistake where people judge the quality of a decision by its outcome. Duke illustrates this with the infamous decision by Seattle Seahawks coach Pete Carroll to pass the ball in the final moments of Super Bowl XLIX—a decision that led to an interception and cost the Seahawks the game. The decision was widely criticized because of the outcome, but as Duke points out, it was a well-reasoned decision based on the available information. The fact that it didn’t work out doesn’t mean it was a bad decision.
Duke encourages us to separate the quality of our decisions from the quality of the outcomes. A good decision can lead to a bad outcome, and a bad decision can sometimes lead to a good outcome. What matters is the process by which the decision was made. Did we gather all relevant information? Did we consider various scenarios? Did we weigh the risks and rewards appropriately? If the answer is yes, then the decision was sound, regardless of how things turned out.
Use Probabilities, Not Certainties
Another central theme in Thinking in Bets is the importance of thinking in probabilities rather than certainties. Duke explains that in poker, as in life, there’s no such thing as a sure thing. Every decision involves weighing different probabilities and making a bet on what’s most likely to happen.
Instead of asking, “What will happen if I do this?” Duke suggests we ask, “What are the possible outcomes, and how likely is each one?” This probabilistic thinking allows us to evaluate decisions more effectively by considering the range of possible outcomes and their associated probabilities.
For example, when considering a new business venture, rather than trying to predict whether it will be a success or failure, consider the range of possible outcomes and their probabilities. What’s the chance of it being a hit? What’s the likelihood of it failing? What’s the potential upside if it succeeds, and what’s the downside if it doesn’t? By thinking in terms of probabilities, you can make more informed decisions that balance risk and reward.
Learn from Every Outcome
Duke also emphasizes the importance of learning from every outcome, whether it’s a success or a failure. She advises that after each decision, we should take time to reflect on the outcome and the decision-making process. What did we do well? What could we have done differently? How does the outcome inform future decisions?
However, Duke warns against falling into the trap of hindsight bias, where we convince ourselves that the outcome was predictable all along. It’s important to remember that we’re evaluating the decision based on the information that was available at the time, not based on how things ultimately turned out. This allows us to focus on improving our decision-making process, rather than obsessing over outcomes.
Build a Decision-Making Process
To navigate uncertainty, Duke suggests developing a structured decision-making process. Here’s a simple framework inspired by Thinking in Bets:
1. Define the Problem: Clearly articulate what decision you need to make and why it’s important.
2. Gather Information: Collect as much relevant information as possible, while acknowledging that you’ll never have all the facts.
3. Identify Alternatives: Consider different courses of action, even those that may seem less obvious.
4. Weigh the Risks and Rewards: For each alternative, consider the potential outcomes and their probabilities.
5. Make the Decision: Based on the information and analysis, choose the alternative that offers the best balance of risk and reward.
6. Review and Reflect: After the decision is made and the outcome is known, take time to review the process and learn from the experience.
This framework aligns closely with Duke’s approach to decision-making, where the focus is on the process rather than the result. By following this structured approach, you can improve your decision-making skills over time, even in the face of uncertainty.
Engage in Mental Time Travel
One of the techniques Duke discusses in her book is mental time travel. This involves projecting yourself into the future and looking back at the decision you’re about to make. By imagining the best and worst-case scenarios, you can better anticipate potential regrets and make decisions that align with your long-term goals and values.
Mental time travel helps you think about how you’ll feel about your decision in the future, which can be a powerful tool in making choices that you’ll be proud of, regardless of the outcome. It’s a way of pre-committing to a decision that reflects your values and long-term objectives, which is particularly useful in uncertain situations.
Surround Yourself with Diverse Perspectives
Finally, Duke stresses the importance of surrounding yourself with people who can provide different perspectives. Groupthink can be a significant barrier to effective decision-making, especially in uncertain situations. By seeking out and valuing diverse viewpoints, you can challenge your assumptions and consider alternatives you might not have thought of on your own.
Duke suggests creating a “truth-seeking” group of advisors who can help you see different angles of a problem and hold you accountable to making decisions based on the best available information, rather than emotions or biases. This diversity of thought can lead to better decision-making by exposing you to a wider range of possibilities and helping you avoid blind spots.
Conclusion
Thinking in Bets offers valuable insights into how to make better decisions in highly uncertain situations. By embracing uncertainty, focusing on decision quality rather than outcome quality, thinking in probabilities, learning from outcomes, and surrounding yourself with diverse perspectives, you can improve your decision-making abilities. Remember, as Duke teaches us, it’s not about being right all the time; it’s about making the best possible decision with the information you have. Over time, this approach will lead to better outcomes and greater confidence in your ability to navigate the unknown.