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Notes on Thinking in Bets – by Annie Duke

I picked up this book recommendation after listening to Duke on the podcast of the Norwegian Sovereign wealth fund (episode here). I notice as well now that Annie Duke has a substack/newsletter (here).

Lessons I took from the book

  1. Using stop losses in investing

If you buy something at $100, the tactic is to sell (and realise a loss) if the price falls below some threshold, say $50.

The logic is that – when an investment you make falls in value – it becomes psychologically difficult to accurately assess whether that was a) because you were unlucky or b) you erred in assessing that stock originally. Forcing yourself to sell at a certain point means you stop further losses by avoiding the trap of thinking it was bad luck.

2. Visualising yourself travelling to future positive and negative scenarios

This is something I’ve heard of before. Reading it here was a useful reminder.

As a specific example, when I got laser surgery I didn’t properly think through some of the future negative scenarios (e.g. dry eyes) and what the impact would be on reading.

Duke’s example of staying up too late often and regretting it the next day rings true! I just don’t think forward properly, or at least internalise that.

3. Swapping sides on debates

Debates with friends or co-workers where people take the opposite side and compete to make the best arguments are under-rated. I appreciated that suggestion.

4. Setting up (even play money) bets

While not always possible to formulate every debate as some kind of bet, it can sharpen the definitions being used and make the discussion more concrete.

Other things I liked.

A reference to John Stuart Mill. There was a reference to and quote from John Mill, the 1800s economist. The quote was with respect to how Mill felt the core of seeking the truth was to consider multiple perspectives. Mill is one of the economists that appears in Tyler Cowen’s book on the greatest economists of all time. Something that sticks with me from that book is how Mill was ahead of his time in foreseeing the women’s rights movement. That’s an aside, but I liked that Mill appeared out of the blue in “Thinking in Bets” because I think those older references (as long as they are not misunderstood) are more powerful. Relative to more modern research, they have stood the test of time.

A specific American Football Superbowl Analogy. The backbone of Duke’s book is a Superbowl story where – in the final moments of the match – the quarter back decides to throw the ball rather than have a teammate grab the ball and try to run across the line. The throw is intercepted by the other team – and the game ends. So, the pass was a bad outcome, but it was a smart statistical decision! This is because interceptions are rare and throwing rather than running maximised the chances of there being time to have three attempts to score rather than just two.

A small critique

While I enjoyed the analogies that were personal (e.g. various poker players Duke encountered and their strengths and flaws), I found the inclusion of some recent behavioural science studies more forced (and at risk of not withstanding the test of time). In a small number of cases, it felt as though theories were retrospectively being sought to justify Duke’s own intuitions. That’s not to discount her intuitions and experience playing poker! Rather, I decided to read the book to hear Duke’s intuitions and experiences, and didn’t feel the need for there to be academic justification. Then again, that is perhaps a reflection of my bias against the robustness of behavioural science over the last decade.

All in all, the book is a reasonably quick read and recommended.

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