“There are exactly two things that determine how our lives turn out: the quality of our decisions and luck.
Learning to recognize the difference between the two is what thinking in bets is all about.” – Annie Duke
Annie Duke was a professional poker player, and in her book “Thinking in Bets” she explains three poker principles we can apply to daily decision-making. When applied, these three principles can significantly increase the quality of our decisions and thereby increase the
quality of our lives.
Suggested book: Clear Thinking: The Art and Science of Making Better Decisions
Principle #1: Every Decision as a Bet
Think of a future prediction you’re certain of.
1. Are you certain the stock market will continue to go up or down?
2. Are you certain you’ll enjoy a book you’ve recently purchased?
3. Are you certain your next project will be successful?
Now, imagine someone with an opposing point of view says, “Wanna bet?”
When you’re asked to wager a significant sum of money on your beliefs, you naturally pause, vet them, and think, “What information am I missing? What does this person know that I don’t?”
When you think of every decision as a bet, you begin to see a range of possible futures (favorable and unfavorable) and adjust your degree of certainty—instead of being 100% sure you’re right, you may be 70% sure. As a result, you become less biased and more open to new information. “The approach of thinking in bets moved me toward objectivity, accuracy, and open‐mindedness. That movement compounds over time to create significant changes in our lives.”
Principle #2: Positive Expected Value
Despite any uncertainty about the future, we can make a confident bet if we know our bet has a positive expected value.
Expected value = Possible reward * Likelihood of reward (probability of success).
If an expected value > personal cost (time, money & attention we need to commit), we have a positive expected value.
When a poker player determines that she has a 50% chance of winning a $200 pot, the expected value is $100 ($200*50%). If she only has to commit $50 to the pot to see if her hand is better than her opponents, she has a positive expected value ($100 > $50). Therefore, she should call the $50 bet. If she loses, she still made the right decision because if she makes the same bet enough times, she will make money.
In life, if a potential reward (happiness, money, opportunity, etc.) is worth the cost (time, money, attention, etc.) after adjusting for the probability of getting the potential reward, we should commit with confidence—if we don’t get the desired result, we still made a good decision.
Also read: Elaboration Likelihood Model: How Persuasion Shapes Your Decisions in Life & Work
Principle #3: Decision Evaluation (regardless of outcome)
Quality of Outcome =/= Quality of Decision.
In poker, I can completely misread my opponents’ hand, make a terrible bet but get a lucky draw and still win the hand. If I don’t take the time to critically assess and adjust my faulty judgment, I am likely to make the same mistake in the future and get a worse outcome.
In life, I can make a terrible decision and get a good result. I could buy a stock based on a hunch or start a business without doing market research and get lucky and make money. But if I use that same haphazard approach when making future decisions, I will undoubtedly lose money in the future.
That’s why it’s essential you and I develop the following habit: When we get a good result in life, we must find at least two mistakes we made and admit them to a friend, a coworker, or a partner. Not only will this keep us level-headed, but it will also help us make the shift from being results-focused to process-focused. Admitting mistakes is hard, but admitting mistakes we’ve made on route to a victory is much easier than talking about mistakes that led to a loss.
Also read: How to Make Better Choices : The Science of Decision Making
“What makes a decision great is not that it has a great outcome. A great decision is the result of a good
process.” – Annie Duke
Frequently Asked Questions (FAQs) — Decision Making & ‘Thinking in Bets’
1. What is ‘Thinking in Bets’?
‘Thinking in Bets’ is a decision-making strategy that treats choices like bets—considering probabilities, potential outcomes, and risks before making decisions, inspired by world-class poker players.
2. How can poker help improve decision-making in business and life?
Poker teaches you to separate decision quality from results, focus on managing uncertainty, and use probabilities instead of relying solely on gut feelings — skills which translate to better business and life decisions.
3. What is the difference between a good decision and a good outcome?
A good decision is based on thoughtful analysis and reasoning given the information at hand; a good outcome is just the result, which can sometimes be due to luck. Good decisions do not always guarantee good outcomes.
4. How can I reduce the role of luck in my decisions?
You can’t eliminate luck, but you can minimize its impact by gathering more information, using critical thinking, and objectively assessing risks, as in poker.
5. Why is it important to revisit and review past decisions?
Reviewing past decisions helps identify thought patterns, cognitive biases, and areas for improvement — crucial for building better habits and decision processes for the future.