Beginner’s toolkit for smarter decision making: The Almanack of Annie Duke (Part 2)

Decisions we take in our daily lives and business are more like poker and less like chess

One of the biggest mistakes we make in our daily lives and business decision making is that we treat our decisions as chess play. Chess is a very well – defined mathematical model. All pieces are there in front of us and they cannot disappear without prior knowledge. You can always go back to the moves you make and figure out where you made the wrong move. In other words, it is a game of complete information. If you make the right move and recognize the patterns of your opponent, you will win 100% of the times. Hence, chess is a poor template for decision making.

Poker, in contrast, is a game of incomplete information. Large chunk of information is hidden from you. You may make the best possible decision given (based on the information with you) but you may still end up losing the hand. This is like your everyday life, you make the best decision given the constraints at hand, and still end up wondering why shit keeps falling from the sky. Similarly, in investing, you bet an idea, conduct due diligence from every possible angle, and the venture shuts down soon after you invest in it. Element of hidden information (luck) plays an important role. It is difficult to weed out the element on luck from the quality of your decision making without a proper decision-making toolkit.

“I do not know” is a powerful statement

As leaders, you are often expected to provide direction to your team. You need to decide amid incomplete information and convince others that they must act as per our advice. You need to become comfortable with the following words: “I do not know” and embrace them wholeheartedly. This is the first step towards “What you need to know” and “What you cannot know even if you try”. We can expect a great outcome (not guaranteed because of hidden information) if we follow a good decision-making process. A good decision-making process involves you discovering the limits of your own knowledge.

Embracing “I do not know” wholeheartedly requires you to shift the framing of the statement from “negative” to “positive”. You need to realize that there is uncertainty involved with every decision. Positive framing of “I do not know” helps you in avoiding the pitfall of binary thinking. You start to develop a probabilistic thinking model and embrace the grey involved with every decision we make.

Learning to reframe “wrong”

We witnessed a lot of debate on the validity of exit polls when BJP did not cross 300+ on its own in 2024 general elections. Similarly, there was a lot of debate when Donald Trump defeated Hillary Clinton. People often miss the fact that no prediction is binary. Predictions cannot be 0% or 100%. Black swan events (as coined by Nasim Nicholas Taleb) happen all the time. An event expected to happen 30% to 40% of the times will happen a lot.

Annie Duke points out that a good poker player with size advantage over other players on the table, making strategic decisions will still be wrong 40% of the time at the end of 8 hours of play. Similarly, the most celebrated and successful early-stage investors have majority of bad outcomes. Instead of feeling bad after a bad outcome, you should focus on auditing your decision-making process. As per behavioral psychology, being wrong hurts us more than being right makes us feel good. All we need to do is to embrace “wrong outcomes” and realize that we have been betting on daily basis through our lives.

***To be continued***