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TIP715: Thinking in Bets by Annie Duke

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Apr 18, 2025

Dive into the world of decision-making with insights from a professional poker player. Learn how to distinguish quality decisions from mere outcomes, a concept known as 'resulting.' Embrace probabilistic thinking to improve your choices, and discover practical tools like backcasting and premortems to navigate uncertainty. Explore the dangers of cognitive biases and the importance of building a truth-seeking support system to refine your judgment. This engaging discussion ties together lessons from poker and investing for better decision-making.

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INSIGHT

Separate Decision Quality from Outcomes

Good decisions can result in bad outcomes due to luck playing a crucial role.
Separating decision quality from outcome is key to better judgment and learning.

ANECDOTE

Super Bowl Risk and Resulting

Pete Carroll called a risky play in Super Bowl 49 that ended in an interception.
Despite the logic, public opinion harshly judged him because luck turned against him.

INSIGHT

Beware the Bias of Resulting

People often confuse outcomes with decision quality, a bias called "resulting".
Learning requires evaluating the decision process separate from the results.

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Brave New World

Aldous Huxley

Written in 1931 and published in 1932, 'Brave New World' is a dystopian novel set in a futuristic World State where humans are bred in vitro and predestined into a rigid social hierarchy. The novel explores themes of technological advancement, social conditioning, and the loss of individuality and freedom. The story revolves around characters such as Bernard Marx, an Alpha who questions the society, Mustapha Mond, the World Controller, and John, a 'Savage' from a reservation who introduces elements of emotion and individuality into the highly controlled World State. The novel critiques the optimism of technological progress and its potential to create a society that values stability and happiness over humanity and freedom[2][4][5].

Thinking in bets

Making Smarter Decisions When You Don't Have All the Facts

Annie Duke

In this book, Annie Duke teaches readers how to make better decisions by treating them as 'bets' on uncertain outcomes. She emphasizes the importance of distinguishing between the quality of a decision and its outcome, acknowledging the role of luck, and avoiding biases such as 'resulting' and hindsight bias. Duke draws on her experiences as a professional poker player and combines these with insights from cognitive psychology and other fields to provide tools for making more objective and thoughtful decisions. The book encourages readers to get comfortable with uncertainty, seek truth through diverse opinions, and learn from outcomes to improve future decision-making[1][3][5].

Thinking, Fast and Slow

Daniel Kahneman

In this book, Daniel Kahneman takes readers on a tour of the mind, explaining how the two systems of thought shape our judgments and decisions. System 1 is fast, automatic, and emotional, while System 2 is slower, effortful, and logical. Kahneman discusses the impact of cognitive biases, the difficulties of predicting future happiness, and the effects of overconfidence on corporate strategies. He offers practical insights into how to guard against mental glitches and how to benefit from slow thinking in both personal and business life. The book also explores the distinction between the 'experiencing self' and the 'remembering self' and their roles in our perception of happiness.

On liberty

John Stuart Mill

Published in 1859, 'On Liberty' is a seminal work by John Stuart Mill that argues for the protection of individual freedoms from the tyranny of the majority and government interference. Mill uses utilitarian philosophy to justify the value of liberty, emphasizing the importance of freedom of thought, discussion, and action. He introduces the 'harm principle,' which states that individuals should only be restrained from acting when their conduct may harm others. The essay is structured into five chapters, each addressing different aspects of liberty, including the liberty of thought and discussion, individual liberty, the limits of authority, and practical applications of his theories. Mill argues that protecting individual liberties is essential for societal progress and the avoidance of social stagnation[2][3][5].

Principles

Ray Dalio

In 'Principles: Life and Work', Ray Dalio shares the principles he has developed over his career that have helped him achieve success. The book is divided into three sections: the first section explains how Dalio's principles were formed from his personal and professional experiences; the second section outlines life principles, such as embracing reality, being radically open-minded, and understanding the importance of pain and reflection in personal growth; and the third section focuses on work principles, including the use of radical truth and radical transparency to transform an organization. Dalio advocates for systematizing decision-making into algorithms, learning from failures, and building a culture where it is okay to make mistakes but unacceptable not to learn from them.

The Joys of Compounding

Gautam Baid

In 'The Joys of Compounding', Gautam Baid offers a comprehensive approach to value investing, drawing from the wisdom of investing legends like Warren Buffett and Ben Graham. The book emphasizes the importance of self-improvement and intellectual development as key components of successful investing and living. It combines practical investment advice with philosophical reflections, making it a unique resource for investors and anyone interested in personal growth.

Sources of power

Gary Klein

Gary Klein's "Sources of Power" explores how people make decisions in complex, real-world situations. It challenges traditional models of decision-making, emphasizing the importance of experience, intuition, and mental simulation. The book highlights the Recognition-Primed Decision (RPD) model, which describes how experts quickly recognize patterns and make effective decisions under pressure. Klein's research draws on observations of firefighters, military commanders, and other professionals, demonstrating how expertise is developed and applied in high-stakes environments. The book offers valuable insights for anyone seeking to improve their decision-making skills.

The myths of happiness

Sonja Lyubomirsky

In 'The Myths of Happiness', Sonja Lyubomirsky challenges common assumptions about what brings happiness and misery. She argues that our misconceptions about the impact of major life events, such as marriage, children, wealth, and failures like divorce or illness, can significantly affect our long-term well-being. The book emphasizes the concept of hedonic adaptation, which shows that people tend to return to their initial happiness level after significant life changes. Lyubomirsky provides scientific evidence and practical lessons to help readers make wiser choices and find happiness by looking beyond their initial emotional responses and focusing on their mindset rather than circumstances.

Surely You're Joking, Mr. Feynman!

Adventures of a Curious Character

Edward Hutchings

Richard Feynman

Ralph Leighton

This book is an edited collection of reminiscences by Richard Feynman, based on recorded audio conversations he had with his friend and drumming partner Ralph Leighton. It covers a variety of instances in Feynman's life, including his work on the Manhattan Project, his critique of the science education system in Brazil, and his various hobbies such as safe-cracking, painting, and playing the bongo drums. The book also includes his famous 'Cargo Cult Science' lecture, where he cautions against the superficial appearance of scientific investigation without a self-critical attitude. Feynman's stories are lighthearted yet insightful, reflecting his high intelligence, curiosity, and humor.

Quit

The Power of Knowing When to Walk Away

Annie Duke

In this episode, Clay explores the book Thinking in Bets by Annie Duke, a guide to making better decisions under uncertainty.

Drawing from her career as a professional poker player, Annie shares how to separate decision quality from outcomes and avoid the trap of “resulting.” Clay also discusses how our brains are wired for certainty, why embracing probabilistic thinking leads to better outcomes, and the value of building a truth-seeking support system. Additionally, he uncovers tools like backcasting, premortems, and kill criteria to improve long-term decision-making as investors.

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro

01:36 - What it means to “think in bets” and how poker can sharpen decision-making.

05:57 - The concept of “resulting” and how it distorts our ability to evaluate decisions.

08:17 - Why good decisions can still lead to bad outcomes—and vice versa.

09:41 - The role of System 1 vs. System 2 thinking in making better choices.

10:44 - How investing parallels poker with incomplete information and uncertainty.

26:29 - How to build a feedback loop that separates luck from skill.

34:03 - The importance of building a truth-seeking group or “buddy system.”

35:02 - The dangers of confirmation bias and how beliefs are often formed by default.

52:54 - How backcasting and premortems can help map out future decisions.

57:16 - The power of setting kill criteria to avoid emotional decision-making.

And so much more!

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join Clay and a select group of passionate value investors for a retreat in Big Sky, Montana. Learn more here.
Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members.
Annie Duke’s book: Thinking in Bets.
Mentioned book: Big Mistakes.
Related Episode: TIP623: The Art of Decision Making w/ Annie Duke.
Related Episode: RWH015: Betting Better in Markets and Life w/ Annie Duke.
Follow Clay on LinkedIn & X.
Check out all the books mentioned and discussed in our podcast episodes here.
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