Saturday, May 12, 2018

Making Better Decisions

“Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts”, by Annie Duke, describes how most people incorrectly view the outcome of a decision as being reflective of the quality of their decision process. They think good outcomes from a decision means there was a good decision process and bad outcomes are because of a bad decision process. According to the author, who was a professional gambler, the outcome is more often related to luck than a bad decision process. For example, if you decide to drive through a red light, the fact that you did not get into a crash is more related to luck than being the result of a good decision.

The author claims that people are very uncomfortable with the idea that luck plays such a big part in the outcome of their decisions and are even more uncomfortable with the idea luck plays a big part in their life. Instead of evaluating our choices as having different probabilities of success (like a poker hand), we see our choices as more black and white options with no shades of grey in which choices may be best. Like playing a game of poker, the more information you gain as the game progresses, the less luck controls the result and the better the probability of your chances of making a decision with positive outcomes. Rather than characterizing choices as black or white, her recommendation is to put a probability of success on choices and modify the probability as more information comes available.

Since reading this book, I have been looking more closely at how much information I have about my given set of choices. I noticed that as soon as I started adding a probability (my belief of the percentage chance of success) to each choice, it clarified how much I didn’t know about the future and what the overall risks I was taking with each choice.

I recently had a major decision about my car, since my 3 year lease was coming to an end. Should I buy it? Should I lease another car? Should I buy a new car? Should I use the same dealer? As I collected more and more information and calculated the costs and downside risks of each option, it became clear that a new lease had the best probability of long-term success for me. This process quickly ended my quandary as to what to do. It also made the process of leasing a new car much easier since I went into the negotiation aware of how much of the process was a gamble; would the car be great or a lemon? Time will tell.

It is fascinating to consider how much of the outcomes of my life decisions are just chance, out of my control.

This book is really well written which made understanding the concepts of probability easy to understand and enjoyable to read.
I highly recommended the book!