Trade The Journey

Trade The Journey

Thinking in Bets

“A decision is a bet.”  Thinking in Bets by Annie Duke. You can find it here.

This book is from a former successful poker player who has won many tournaments, bracelets, and championships before retiring. This book covers her journey from student to poker player and what happens as she begins to learn the game of poker. She details the unwritten rules the poker player adheres to and the mindset needed to be successful.

But this book is mainly about decisions. The book advocates a shifting in the mental processes we use to make a decision and in the processes we use to evaluate a decision. In making a decision, what do we include? I would assume that we include any information we may have gathered from the previous situations that are similar. We may include what we have heard from others. What about the uncertainty? Do we factor in the uncertainty in the decision and the potential of being “wrong”?

How do we evaluate being wrong? One of the situations shared in the book was the decision that Pete Carroll made during the Superbowl to go for a one-yard pass at the goal line instead of handing the ball to Marshawn Lynch for the one yard run in. Pete Carroll made a decision, a strategic gamble that the odds were, Bill Belichick and the Patriots would not be expecting a pass that close to the end zone. In fact, statistically, the chances of it going wrong were slim to none. What happened?

A black swan event. It was intercepted and the Seahawks forfeited any chances of scoring again. Game Over.  Now did Pete Carroll make a smart decision and was just unlucky or was he an idiot like the media portrayed. Contrary to popular belief he made a good decision that had a bad outcome. He was unlucky and how can luck be anticipated?

What I gathered from this book is that objectivity and how close we can get to it can dictate our success in decision making. Removing limiting bias and destructive thinking can improve our chances of making a great decision.

If we can remove the idea, that if we end up with a bad outcome it was a bad decision perhaps we will make better decisions. Decisions clear of comparison to others, the threat of a bad outcome and the ultimate shame, looking like a moron. Great decision making is relying on what we know and also relying on the uncertainty of an outcome.

“Treat each decision as a bet.” What kind of process would you go through to ensure a bet would not be a losing one if money was on the line. How many fact checks would you complete? What would your risk management look like? I would assume it would be pretty detailed, money is on the line. Well, your decisions are just as important, and the quality of your life is on the line.

This book opened a new narrative of uncertainty and outcome learning that I never considered. I highly recommend this book as an addition to your trading psychology library. If you think about it, in Poker, the only hand you can see is your own and the cards placed on the table by the dealer until everyone reveals their hand.  There are a lot of unknown circumstances to consider besides your own. The same in trading and investing.

Of course, there are many other aspects to “Thinking in Bets”, that you should check out by reading Annie Duke’s book. The biggest takeaway from this book so far is that you truly do not need all the facts in making a great decision and most importantly a great decision is not based entirely on an outcome.

Thoughts? Revelations?

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