Conversations: Special Episode with Annie Duke and Howard Marks
Dec 6, 2023
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Annie Duke, former professional poker player and best-selling author, joins Howard Marks to discuss decision-making under uncertainty, separating outcomes from decision quality, improving decision-making through diverse perspectives, the significance of intellectual humility and risk management, quantifying subjective judgments, and exploring risk and the diversity of outcomes.
Decision-making involves a combination of luck and incomplete information, requiring an acceptance of uncertainty and the impact of luck on outcomes.
Thinking in Bets encourages reframing decisions as bets, incorporating probabilities and expected value to minimize undesirable outcomes and consider alternative perspectives.
Decision quality should focus on the logic behind the decision, analysis of facts, consideration of different perspectives, and the ability to update beliefs based on new information, taking into account probabilities, outcomes, and decision logic.
Deep dives
The Importance of Decision Quality and Embracing Uncertainty
The podcast episode discusses the main ideas from Annie Duke's book, 'Thinking in Bets,' and Howard Marks' memo titled 'You Bet.' The main concept is that decision-making is challenging because it involves a combination of luck and incomplete information. Decisions made under uncertainty require embracing the fact that we don't know everything and that outcomes are influenced by luck. The quality of a decision should be assessed based on its ability to maximize the probability of achieving our goals and gaining ground. Decision quality should be separated from outcomes, especially in the short run, where luck can heavily influence the results.
The Importance of Thinking in Bets
Annie Duke's book, 'Thinking in Bets,' emphasizes the need to approach decision-making as if placing bets. It encourages thinking about the interplay between incomplete knowledge, luck, and skill. Making good decisions involves considering the probabilities and expected value of different outcomes. By reframing decisions as bets, individuals can focus on minimizing the probability of undesirable outcomes and adjust their thinking to incorporate other perspectives and information.
The Role of Decision Quality and Outcome Separation
Decision quality, as discussed in both Annie Duke's book and Howard Marks' memo, is about selecting options that maximize the probability of achieving our goals. Decision quality should not be solely assessed based on outcomes, especially in the short run, where luck plays a significant role. Instead, decision quality should focus on the logic behind the decision, the analysis of facts, the consideration of different perspectives, and the ability to update beliefs based on new information. Taking into account the interplay of probabilities, outcomes, and decision logic is crucial when evaluating the effectiveness of decisions.
The Importance of Acknowledging the Role of Luck
Both Annie Duke and Howard Marks emphasize the significance of acknowledging the role of luck in decision-making. People tend to downplay the influence of luck when they experience positive outcomes and overestimate their decision-making abilities. It is crucial to recognize that luck plays a substantial role in outcomes, particularly in the short run. By understanding the impact of luck and avoiding overconfidence, individuals can make better decisions, consider alternative perspectives, and assess decision quality more accurately.
Improving Decision-Making and Embracing Uncertainty
To enhance decision-making, two key approaches are suggested. First, individuals should seek diverse perspectives and form a team to gain a 360-degree view of the decision. Engaging in independent discussions and assessments of options can help identify gaps in knowledge and provide a more comprehensive understanding. Second, individuals should embrace uncertainty and explicitly state their subjective judgments by quantifying them in terms of probabilities. This allows for better evaluation of decision quality both proactively and retrospectively and helps avoid overconfidence or underestimating the potential impact of luck.
Special guest Annie Duke (former professional poker player, best-selling author) joins Howard Marks to discuss ideas from her book Thinking in Bets and Howard’s memo You Bet! They explore luck, decision quality, uncertainty, and more in this special episode of The Insight: Conversations.
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