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Annie Duke Discusses Decision-Making in Poker and Life · Masters in Business

• 0:02
  Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio.
• 0:09
  Speaker 1: This week on the podcast, I have an extra special guest.
• 0:12
  Speaker 1: Her name is Annie Duke and she is the author
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  Speaker 1: of Thinking in Bets. This conversation is not so much
• 0:19
  Speaker 1: about poker, although clearly as a world champion in poker
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  Speaker 1: and at one point the winningest of female poker player
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  Speaker 1: for that period, poker does come up. But it's all
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  Speaker 1: about thought process. It's all about not looking at outcomes,
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  Speaker 1: but thinking about how you think about what you're doing,
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  Speaker 1: whether this is business or finance or investing or what
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  Speaker 1: have you. Uh, there is a run of cognitive issues
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  Speaker 1: and there is a run of miss focus on what
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  Speaker 1: we do, how we do it, what we don't know.
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  Speaker 1: But should our own blind spots, our own cog the
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  Speaker 1: neveras that really applies to everything. This isn't just a
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  Speaker 1: tele poker book. In fact, I would say poker is
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  Speaker 1: really a minor part of the book. Um it's the
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  Speaker 1: leaping off point for discussing human cognition, decision making theory
• 1:18
  Speaker 1: and how we think about the worlds or should think
• 1:23
  Speaker 1: about the world probabilistically, and we very often don't determined.
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  Speaker 1: Poker is called resulting looking at outcomes as opposed to process.
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  Speaker 1: Anybody who manages other people's money for living, anybody who
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  Speaker 1: engages in behavior where there's a decent amount of risk
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  Speaker 1: and uncertainty, should really uh, not only listen to this conversation,
• 1:46
  Speaker 1: which I found fascinating, but get the book and plow
• 1:49
  Speaker 1: through it. You will learn so much. It's it's absolutely fascinating. So,
• 1:54
  Speaker 1: with no further ado, my conversation with Annie Duke. I'm
• 2:02
  Speaker 1: Barry Rihults. You're listening to Masters in Business on Bloomberg Radio.
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  Speaker 1: My special guest today is Annie Duke. At one point
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  Speaker 1: she was the winningest female poker player in history. She
• 2:13
  Speaker 1: won the World Series of Poker in two thousand and four,
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  Speaker 1: and she is the author of a fascinating new book,
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  Speaker 1: Thinking in Bets, Making Smarter decisions when you don't have
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  Speaker 1: all the facts. Annie Duke, Welcome to Bloomberg. Thanks for
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  Speaker 1: having me so. I was struck by some of your
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  Speaker 1: definitions in the book and how much they reminded me
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  Speaker 1: of of investing. And my definition of investing is deploying
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  Speaker 1: capital on the basis of limited information about an unknowable future.
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  Speaker 1: That sounds a lot like the way you described playing poker,
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  Speaker 1: it's almost exactly the way that I described playing poker. So, Uh,
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  Speaker 1: the kind of loose definition is decision making under conditions
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  Speaker 1: of uncertainty over time. Uh. So that would be a
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  Speaker 1: relatively loose definition of poker where you're just as you said,
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  Speaker 1: you're deploying capital based on limited information. That's one source
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  Speaker 1: of uncertainty, um about some sort of uncertain future. Uh.
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  Speaker 1: That would be luck um intervening, which is the other
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  Speaker 1: source of uncertainty. So when we talk about decision making
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  Speaker 1: under conditions of uncertainty, those are the two sources which
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  Speaker 1: are very nicely put into your definition of investing. And
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  Speaker 1: you also spend a lot of time describing the focus
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  Speaker 1: on results um and and outcomes rather than the process
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  Speaker 1: that led us do those results. Tell us a little
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  Speaker 1: bit about what led you to that analysis and why
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  Speaker 1: so many people look at a bad result and think
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  Speaker 1: immediately it's a bad process when that may not be
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  Speaker 1: the case. Well, I think that it's really hard. So
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  Speaker 1: we have this very uncertain relationship between uh, decision quality
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  Speaker 1: and outcome quality. UM. So for example, in poker, I
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  Speaker 1: can have the very best hand and I can still lose.
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  Speaker 1: I could get dealt asis, and you could have a
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  Speaker 1: seven in a two and the turn of the cards
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  Speaker 1: make it so that you win the hand, or vice versa.
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  Speaker 1: I could have the seven in two and make terrible
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  Speaker 1: decisions in playing that hand and still win. And that's
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  Speaker 1: really really similar to the kind of decisions that we
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  Speaker 1: make in life and investing in business. And the problem
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  Speaker 1: is that getting to be able to see the process
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  Speaker 1: isn't transparent. The thing that we can see is the
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  Speaker 1: outcome of the process. We can see did it work
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  Speaker 1: out or did it not work out? Did I win
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  Speaker 1: the hand, did I not? Did the you know, did
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  Speaker 1: the stock I invested in go up in value or
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  Speaker 1: down in value? And that's what we can see. And
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  Speaker 1: now working backwards from that into what was the decision
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  Speaker 1: process is really hard. It's very opaque and very often, uh,
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  Speaker 1: the quality of the decision doesn't reveal itself except over time.
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  Speaker 1: So we can see the outcome right then, but very
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  Speaker 1: often whether the decision process is good it takes a
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  Speaker 1: lot of time to reveal itself. So what do we
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  Speaker 1: do under those conditions of uncertainty? We have this bias,
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  Speaker 1: we have this heuristic which is outcome was bad? Okay,
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  Speaker 1: that must mean the decision was bad. I'll take that
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  Speaker 1: as a signal outcome was good. Okay, decision was good. Um.
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  Speaker 1: And the problem is that that's a really poor strategy
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  Speaker 1: for learning from your outcomes. It's great if you're playing chess,
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  Speaker 1: but it's terrible. If you're playing poker, it's terrible. If
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  Speaker 1: you're investing, it's terrible. If you're running a business, it's terrible.
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  Speaker 1: If you're choosing a romantic partner, it's terrible if you're driving.
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  Speaker 1: That's that's the thing about it. So that I love
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  Speaker 1: the term for this in the book that poker players use.
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  Speaker 1: They call it resulting. Yes, So resulting is taking the
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  Speaker 1: quality of the result and deciding that that tells you
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  Speaker 1: what the quality of the case. That is not the
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  Speaker 1: case at all. So I opened the book actually talking
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  Speaker 1: about this Pete Carroll um Super Bowl and the what
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  Speaker 1: was it? Four yards to go go first down, second,
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  Speaker 1: second down, and only a few seconds left, but enough
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  Speaker 1: for multiple plays if the clock is managed right, right,
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  Speaker 1: So peak four, that's where the number that's yeah, that's
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  Speaker 1: where the number four came from. So yeah, they're on
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  Speaker 1: they're on the one yard line there against the Patriots.
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  Speaker 1: Of course, um, and it's literally seconds to go. It's
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  Speaker 1: twenty six seconds left and the Seahawks have exactly one
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  Speaker 1: time out. And I think that people remember because it's
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  Speaker 1: quite famous that Pete Carroll called and running play there.
• 6:30
  Speaker 1: Uh sorry, Pete Carroll called a pass play there, right,
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  Speaker 1: so uh while having the best short yardage UM runner
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  Speaker 1: in the game in Marshall Crunch as it is, it
• 6:42
  Speaker 1: was Marshaw Lynch. Marshall Lynch. Yeah, he's a musician. There
• 6:47
  Speaker 1: you go, marsha Unlynch. So so everybody expected him to
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  Speaker 1: hand it off to Marsha Lynch. Instead, he called for
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  Speaker 1: Russell Wilson to pass. Uh. The past was very famously intercepted.
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  Speaker 1: And during the game, actually you can hear Chris Collingsworth
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  Speaker 1: call this is I mean, he's just, you know, gobsmacked.
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  Speaker 1: This is the worst thing I've ever seen. Uh. And
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  Speaker 1: the next day the headlines were equally brutal, and the
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  Speaker 1: argument wasn't so much about whether Pete Carroll had made
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  Speaker 1: the worst call in Super Bowl history. It was more like,
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  Speaker 1: did you make the worst call in Super Bowl history?
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  Speaker 1: Or was it the worst call in football history? Period?
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  Speaker 1: So we can agree that this was a terrible result.
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  Speaker 1: But I make the argument in the opening of the
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  Speaker 1: book that this is a really good example of resulting,
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  Speaker 1: which is just assuming that the quality of the of
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  Speaker 1: the outcome is telling you about the quality of Pete
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  Speaker 1: Carroll's decision making. There were, in facts, some outline voices.
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  Speaker 1: One of the stronger ones was from Benjamin Morris over A,
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  Speaker 1: who argued it was pretty statistically sound. How many remind
• 7:45
  Speaker 1: us how many interceptions were in similar circumstances during the
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  Speaker 1: season during that season, zero and historically between one and two.
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  Speaker 1: So really this was a high probability. Either there's a
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  Speaker 1: touchdown or the passes dropped and you managed the and
• 8:00
  Speaker 1: you still have time for two more running place. Well,
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  Speaker 1: I'm gonna put it investing in investing terms. Remember, he
• 8:05
  Speaker 1: has one time out left, so if he calls the
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  Speaker 1: running play and Lynch fails to get in, of course
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  Speaker 1: the clock is running then, so he has to burn
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  Speaker 1: a time out and he'll only have time to run
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  Speaker 1: the two running place. Um, there are three possible outcomes
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  Speaker 1: from the past play. One is this really really tiny
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  Speaker 1: chance of an interception. The other two is the balls dropped,
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  Speaker 1: which happens in basically no time, So the clock stops
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  Speaker 1: immediately obviously, which then gives them the two running place,
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  Speaker 1: or it's caught for a touchdown and you assume that
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  Speaker 1: the Seahawks are going to win. So let's say that
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  Speaker 1: it's a practically free option at the same two running
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  Speaker 1: place that you would get otherwise. And we all know
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  Speaker 1: from investing that options that are basically free. I mean,
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  Speaker 1: you know, one percent isn't a lot, right, It's a
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  Speaker 1: basically free option at these same two running plays. So
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  Speaker 1: I think if we think about an investment terms, look,
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  Speaker 1: we can quibble right about whether in fact that was
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  Speaker 1: a good decision or not, but calling it the worst
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  Speaker 1: is as in Super Bowl history, when he was essentially
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  Speaker 1: exercising and almost free option, that seems a little much.
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  Speaker 1: And I think that we can see how strongly this
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  Speaker 1: is coming from this resulting problem when we just do
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  Speaker 1: this simple thought experiment. What if he had passed the
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  Speaker 1: ball and it was caught in the end zone for
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  Speaker 1: a touchdown the Patriots and what little time they had
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  Speaker 1: left failed to score and they won the Super Bowl.
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  Speaker 1: What do you think the headlines would have looked at
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  Speaker 1: It certainly wouldn't be time. I think it would have
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  Speaker 1: been something like out Belichick Belichick, Um, you know, wow,
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  Speaker 1: that was so unexpected. That's what got them to the
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  Speaker 1: super Bowl in the first place, that kind of decision making.
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  Speaker 1: And in fact, we kind of know that's true because
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  Speaker 1: we sort of just ran the experiment. We just sort
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  Speaker 1: of saw that. It come to play with the Philly
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  Speaker 1: Special where everybody called Peterson brilliant for not just going
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  Speaker 1: for the extra three points at the end of the
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  Speaker 1: second down, um and actually throwing this weird path to
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  Speaker 1: the quarterback Nick Foles in the end zone and he
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  Speaker 1: caught it, and people said he's brilliant, he thought Belichick,
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  Speaker 1: and I think that what we can agree is whether
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  Speaker 1: you think that that was a good decision or not.
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  Speaker 1: The quality of the outcome should have nothing to do
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  Speaker 1: with whether the decision quality was good. In reality, it
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  Speaker 1: was one try. We flipped the coin one time. So
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  Speaker 1: I think that thought experiment is very revealing because you
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  Speaker 1: can see how much you as an individual gets sort
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  Speaker 1: of pulled around by the outcome because it's we can
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  Speaker 1: see it. It's heavy, it's like a gravity. Well, hind
• 10:25
  Speaker 1: signed bias is a powerful thing. We talked a little
• 10:28
  Speaker 1: bit about Pete Carroll's decision. Let's talk about how this
• 10:32
  Speaker 1: applies to poker. You wrote, Poker players who stand the
• 10:36
  Speaker 1: test of time have a variety of talents, but what
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  Speaker 1: they share is the ability to execute in the face
• 10:44
  Speaker 1: of these limitations. Explain that a little bit. Well, I
• 10:48
  Speaker 1: think that the issue that we all have is that
• 10:50
  Speaker 1: we're pretty good at understanding what our goals are, right.
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  Speaker 1: We can set those pretty well, you know, I want
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  Speaker 1: to be I sort of refer in the book to
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  Speaker 1: whatever your e er is, smarter, faster, healthier, richer, happier,
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  Speaker 1: whatever it is, you figure it out. But the problem
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  Speaker 1: isn't so much these kind of like, Okay, I want
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  Speaker 1: I know what my long term goal is, in the
• 11:11
  Speaker 1: sense like we can see this with New Year's resolutions, right.
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  Speaker 1: The problem is that we have all these small, little
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  Speaker 1: executional decisions along the way, and that's where we really
• 11:19
  Speaker 1: get into trouble. If we think about it in terms
• 11:21
  Speaker 1: of say Danny Kanaman's framework from thinking fast and Slow,
• 11:26
  Speaker 1: we could think about the goal setting is happening in
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  Speaker 1: system too, in deliberative mind right, and the the actual
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  Speaker 1: A lot of these executional decisions are happening in system one,
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  Speaker 1: and we know that system one, this more reflective mind
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  Speaker 1: is going to be subject to a lot of biases.
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  Speaker 1: One of the main biases that's going to get in
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  Speaker 1: the way of executing our goals is that we're supposed
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  Speaker 1: to learn from the outcomes we have, but it doesn't
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  Speaker 1: feel good, for example, to be wrong, so we process,
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  Speaker 1: and in fact, people hate being wrong so much that
• 11:56
  Speaker 1: they very often will will take a safe play where
• 12:00
  Speaker 1: they don't end up looking wrong, rather than taking a
• 12:03
  Speaker 1: risk with a binary outcome. How did that affect How
• 12:06
  Speaker 1: did that thinking effect the way you played? Did you
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  Speaker 1: see that behavior amongst other poker players? Oh? Absolutely? So
• 12:13
  Speaker 1: if you know that, here's kind of the problem is
• 12:17
  Speaker 1: that you know that the people around you are going
• 12:20
  Speaker 1: to act like the Seahawks fans or the pundits after
• 12:25
  Speaker 1: the play, and if you have some sort of spectacularly
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  Speaker 1: spectacularly bad outcome, particularly if it's associated with taking a risk,
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  Speaker 1: which Pete Carroll certainly, did you know that they're going
• 12:36
  Speaker 1: to come down on you, right, I mean this the
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  Speaker 1: way that the world is going to come down critiquing you.
• 12:41
  Speaker 1: So what ends up happening a lot of times at
• 12:43
  Speaker 1: the table is that when you have these decisions, and
• 12:46
  Speaker 1: remember your cards are faced down, so people can't see right,
• 12:49
  Speaker 1: they can't really see where they're making a good or
• 12:51
  Speaker 1: bad decision. There, they'll very often come down on the
• 12:55
  Speaker 1: side of well, I'm not going to really do the
• 12:57
  Speaker 1: risky thing, which is say maybe try to bluff here. Instead,
• 13:00
  Speaker 1: I'm just going to quietly fold this hand away and
• 13:02
  Speaker 1: nobody's ever going to know um. And that's just one
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  Speaker 1: of the many problems that can come where you're sort
• 13:08
  Speaker 1: of defending yourself against outcomes. The other way that you
• 13:11
  Speaker 1: can defend yourself against outcomes is that when things happen
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  Speaker 1: to you where you lose, what's one of the best defenses. Well,
• 13:20
  Speaker 1: we know that one of the sources of uncertainty that
• 13:22
  Speaker 1: we have is luck. Right, that's one of the things
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  Speaker 1: that we can't we I can choose. I can make
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  Speaker 1: a decision that's going to have some set of possible
• 13:30
  Speaker 1: futures that's going to occur, say an interception, a drop
• 13:33
  Speaker 1: past catch, whatever it might be. But I can't control
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  Speaker 1: which one right. And that's what I can't control. So
• 13:40
  Speaker 1: we know that luck is going to be a really
• 13:41
  Speaker 1: good defense as well. And so what we'll do is
• 13:44
  Speaker 1: we'll have an outcome it's bad, and we'll say well,
• 13:47
  Speaker 1: I just got unlucky. And the problem with that is
• 13:51
  Speaker 1: that if you got unlucky, there's nothing to be learned
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  Speaker 1: from it. And so how are you going to improve
• 13:55
  Speaker 1: your execution of decisions in the future, because you're just
• 13:58
  Speaker 1: offloading that because it just doesn't feel good. It doesn't
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  Speaker 1: feel good to say, well, maybe that bad outcome came
• 14:03
  Speaker 1: from the fact that maybe I didn't actually play the
• 14:05
  Speaker 1: hand that well, maybe I made poor decisions in in
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  Speaker 1: my investment strategy or in driving in my car down
• 14:13
  Speaker 1: the street when I got in that accident. You describe
• 14:16
  Speaker 1: that process of self evaluation of was this a good
• 14:22
  Speaker 1: decision or was this luck as one of the more
• 14:24
  Speaker 1: difficult things that you have to learn when you're playing poker.
• 14:29
  Speaker 1: Why is it so different to untangle skill and luck,
• 14:32
  Speaker 1: be it in gambling or or business or professional sports
• 14:37
  Speaker 1: for that matter. Well, again, because we we generally just
• 14:40
  Speaker 1: don't have enough data to do it, and we tend
• 14:43
  Speaker 1: to uh field outcomes one at a time. We don't
• 14:47
  Speaker 1: wait wait around an aggregate, even aggregate even if we
• 14:50
  Speaker 1: did so. For example, I mean, if we think about
• 14:53
  Speaker 1: choosing a romantic partner, say you know, a spouse, how
• 14:57
  Speaker 1: many tries at that do we have. It's not like
• 15:00
  Speaker 1: were doing a whole lot of data collection there, right,
• 15:01
  Speaker 1: We only date a few people in our lives. The
• 15:04
  Speaker 1: end is quite small. The sample size is small. Um,
• 15:08
  Speaker 1: It's sort of like most of the decisions we're doing
• 15:10
  Speaker 1: is saying we're going to flip a coin four times
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  Speaker 1: and then try to say something about whether the coin
• 15:14
  Speaker 1: is fair or not, and it's just hard and and
• 15:17
  Speaker 1: we can't see. Nobody sort of pulls back the curtain
• 15:19
  Speaker 1: and says to us, you know, this portion of the
• 15:21
  Speaker 1: outcome was due to luck, and this person portion of
• 15:24
  Speaker 1: the outcome was due to skill. We just know that
• 15:26
  Speaker 1: we sort of live in this noisy system where sometimes
• 15:28
  Speaker 1: we drive through red lights and we get through just fine,
• 15:31
  Speaker 1: and sometimes we go through green lights and we get
• 15:33
  Speaker 1: in an accident. And it's just not perfectly linked together.
• 15:36
  Speaker 1: Like like it is saying a game like chas, if
• 15:38
  Speaker 1: I play poorly, I probably lose if I play. Not
• 15:41
  Speaker 1: a lot of random luck involved in the of poker exactly,
• 15:46
  Speaker 1: but poker and investing there is a lot of random
• 15:48
  Speaker 1: luck and we can't see it. We need like a
• 15:51
  Speaker 1: big sample size in order to be able to get
• 15:53
  Speaker 1: down to say something about those statistics, and even then
• 15:56
  Speaker 1: we're probably making some assumptions as we're doing our analysis.
• 16:00
  Speaker 1: And that's why it's so hard, because again, all we
• 16:03
  Speaker 1: can see is the outcome. Right, we can make a
• 16:05
  Speaker 1: bad decision and it can converge on a win. We
• 16:08
  Speaker 1: can make a good decision and it can converge on
• 16:10
  Speaker 1: the same win. So how then do you just take
• 16:13
  Speaker 1: this thing and now try to work backwards and untangle
• 16:17
  Speaker 1: luck from skill when it's very hard to see down
• 16:20
  Speaker 1: into it and we generally don't have a big sample size.
• 16:22
  Speaker 1: So let's talk about that untangling. Undergraduate, you go to
• 16:26
  Speaker 1: Columbia University graduate school, you go to University of Pennsylvania,
• 16:30
  Speaker 1: you almost get a PhD psychology. How far away from
• 16:35
  Speaker 1: were you from from a degree? I needed to defend it, okay,
• 16:40
  Speaker 1: and that was done. But you you so you know
• 16:43
  Speaker 1: you're practically you go to the ninth inning with the
• 16:46
  Speaker 1: one yard line. Yes, I was on the one and
• 16:49
  Speaker 1: then you moved to Billings, Montana. So two questions, A,
• 16:53
  Speaker 1: what motivated the move? And be how important is psychology
• 16:57
  Speaker 1: to your successful track record in poker? Well, let me say,
• 17:01
  Speaker 1: you know, there's been a lot of moments of luck
• 17:05
  Speaker 1: intervening in my life, which I think have been pretty interesting.
• 17:07
  Speaker 1: So one of them is the moment that I moved
• 17:09
  Speaker 1: to Montana, which came from what might look like an
• 17:13
  Speaker 1: unlucky event, but I guess that it turned out pretty
• 17:16
  Speaker 1: well for me. Um, which was that right at the end,
• 17:19
  Speaker 1: as I was going out for my UH interviews to
• 17:21
  Speaker 1: become a professor, I had been struggling with some stomach
• 17:24
  Speaker 1: issues the last year in graduate school, and they really
• 17:26
  Speaker 1: came to a head, um right at that time, and
• 17:29
  Speaker 1: I landed in the hospital for two weeks with this
• 17:31
  Speaker 1: very bad stomach problem. So I needed to take some
• 17:34
  Speaker 1: time off. And during that time off, I discovered that
• 17:37
  Speaker 1: you you, oh, okay, Now I don't have a fellowship.
• 17:40
  Speaker 1: I need money. Um. The man I was married to
• 17:43
  Speaker 1: at the time had a house in Montana and said,
• 17:46
  Speaker 1: let's go. We'll just go to Montana for the summer
• 17:48
  Speaker 1: and you can recuperate there. Um. And during that summer
• 17:50
  Speaker 1: I started playing poker. And that's kind of how that happened. Now,
• 17:54
  Speaker 1: when you say during that summer you started playing poker,
• 17:56
  Speaker 1: I'm going to correct you slightly, because you grew up
• 17:59
  Speaker 1: in a house old. Your brother is a multiple uh
• 18:02
  Speaker 1: poker champion, and you grew up in a very competitive
• 18:05
  Speaker 1: household where there were card games and other things going on. Uh,
• 18:09
  Speaker 1: that you played competitively within the family. Am I wrong
• 18:13
  Speaker 1: in assuming you were playing poker at home against your
• 18:15
  Speaker 1: future champion brother. Well, not exactly wrong, but also not
• 18:20
  Speaker 1: exactly right. I would say that the poker chips came
• 18:23
  Speaker 1: out in the house maybe once or twice a year,
• 18:25
  Speaker 1: and it was some games like I don't know if
• 18:27
  Speaker 1: you've ever played past the trash. I think the more
• 18:30
  Speaker 1: common name for my dad called it past the trash.
• 18:32
  Speaker 1: I think the more common name is anaconda that you've
• 18:36
  Speaker 1: played so you're passing like three cards to the right
• 18:38
  Speaker 1: three card. You would never play this in the casino,
• 18:40
  Speaker 1: of course, UM, so we'd play things like that. So
• 18:44
  Speaker 1: mostly actually we're playing um games like hearts, um oh Hell,
• 18:50
  Speaker 1: which is a sort of simplified version of bridge. Uh.
• 18:53
  Speaker 1: I played bridge starting when I was a teenager. Uh,
• 18:56
  Speaker 1: A lot of like gin um. And the thing about
• 19:00
  Speaker 1: that is, while you don't necessarily have this kind of
• 19:02
  Speaker 1: ongoing betting element that you do in poker, you have
• 19:05
  Speaker 1: a lot of the same elements of uncertainty and luck.
• 19:07
  Speaker 1: So being able to reason around. Those kinds of games
• 19:11
  Speaker 1: certainly helped me, uh with poker, So that was, you know,
• 19:14
  Speaker 1: that was the first, definitely the first moment of luck. UM.
• 19:18
  Speaker 1: The The interesting thing with how do psychology help? Is
• 19:22
  Speaker 1: that when I first started UM playing, I think that
• 19:25
  Speaker 1: people thought that I studied clinical psychology, which would be
• 19:28
  Speaker 1: like understanding like why are you depressed or why are
• 19:32
  Speaker 1: you anxious? Or those kinds of things, And they thought
• 19:34
  Speaker 1: that would be really helpful because I would have some
• 19:36
  Speaker 1: sort of analysis of your personality. I suppose that might
• 19:39
  Speaker 1: have been helpful, but I've never taken a class in
• 19:41
  Speaker 1: clinical psychology in my life, so I know no more
• 19:43
  Speaker 1: than from my own going to a therapist. UM We're
• 19:47
  Speaker 1: Actually was really helpful was incognitive psychology. What you're studying
• 19:51
  Speaker 1: is these issues of how do you learn and uncertain systems?
• 19:53
  Speaker 1: How do we process information? What are the biases and
• 19:57
  Speaker 1: heuristics that get in our way? Now? That was incredibly
• 20:00
  Speaker 1: ful for understanding not only the learning problem that I
• 20:03
  Speaker 1: was about to face, in terms of you know, I'm
• 20:05
  Speaker 1: getting this feedback at the table and these outcomes are
• 20:07
  Speaker 1: coming my way, and how do I actually become better?
• 20:10
  Speaker 1: How do I figure out how to be a better
• 20:12
  Speaker 1: decision maker in this game, but also how might other
• 20:15
  Speaker 1: people bias be expressed at the table in a way
• 20:19
  Speaker 1: that I could strategically use to my advantage. Um, and
• 20:23
  Speaker 1: that was incredibly helpful. Let's talk a little bit about
• 20:26
  Speaker 1: your actual poker career, couch, because you've obviously want a
• 20:31
  Speaker 1: lot of money, and the World Series of Poker is
• 20:33
  Speaker 1: a big event each year. At what point in your
• 20:38
  Speaker 1: casual poker playing did you reach the understanding, hey, I
• 20:42
  Speaker 1: could I could earn a living this way. So when
• 20:45
  Speaker 1: I was in graduate school, I my and I you know,
• 20:49
  Speaker 1: I was living on my little fellowship. My brother was
• 20:51
  Speaker 1: already a professional poker player, so he would bring me
• 20:54
  Speaker 1: out to Las Vegas maybe once or twice a year,
• 20:56
  Speaker 1: and I, I mean, I enjoyed watching him play, but
• 20:58
  Speaker 1: when he was in tournaments, you can't actually sit behind somebody,
• 21:01
  Speaker 1: and so you were just sort of standing on the rail,
• 21:02
  Speaker 1: and that's pretty boring. So I told him I was
• 21:04
  Speaker 1: kind of bored. Uh, And he actually gave me a
• 21:07
  Speaker 1: tiny bit of money. I mean it was like three
• 21:08
  Speaker 1: dollars or something and sent me off to play with
• 21:11
  Speaker 1: a little napkin of hand rankings. Basically, Um, like literally written, Yeah,
• 21:15
  Speaker 1: it was well, I knew that part. It was here
• 21:19
  Speaker 1: the hands are allowed to play right, And it was
• 21:22
  Speaker 1: written in a on a with a keynote crayon, like
• 21:25
  Speaker 1: literally on on a napkin. This is what I had.
• 21:27
  Speaker 1: And I walked over to the Freemont Casino. Um, you
• 21:30
  Speaker 1: know the poke room I think was next to the
• 21:32
  Speaker 1: Carls Jr. And that that's where I played, so that certainly,
• 21:35
  Speaker 1: you know, that was when I was in academic, so
• 21:36
  Speaker 1: it never occurred to me. I would say that pretty
• 21:38
  Speaker 1: early on. Um, in sitting down at these tables in Montana,
• 21:42
  Speaker 1: I figured out that I could make a living. But
• 21:44
  Speaker 1: you know, my reference was to what the starting salary
• 21:47
  Speaker 1: of a professor was, which I think at the time
• 21:49
  Speaker 1: I was applying for jobs that were about twenty three
• 21:51
  Speaker 1: dollars a year. So uh, that's you know, it's a
• 21:54
  Speaker 1: low bar for for what you felt the living was
• 21:56
  Speaker 1: going to be. I had this really big advantage, of course,
• 21:59
  Speaker 1: which is that I had these great mentors. I mean,
• 22:01
  Speaker 1: my brother among them, Eric sidell Um was one who
• 22:05
  Speaker 1: was really really amazing and very generous with his thoughts.
• 22:09
  Speaker 1: And uh that cut a few years off the beginning
• 22:11
  Speaker 1: of my learning curve. I would say I had a
• 22:13
  Speaker 1: big leg up, and I was playing against people who
• 22:15
  Speaker 1: weren't you know, who weren't world class players. They were
• 22:18
  Speaker 1: playing in a in a game where you had about
• 22:21
  Speaker 1: three hundred dollars maybe six hundred, maybe six d playing
• 22:24
  Speaker 1: with ranchers and farmers and truckers. And yeah, and I
• 22:28
  Speaker 1: have world champions coaching me, so you know, the ringer
• 22:32
  Speaker 1: at the table. I mean, as it turned out, yeah, So,
• 22:34
  Speaker 1: I mean, I think the first month that I played,
• 22:37
  Speaker 1: I remember, I had a little notebook, and I've made
• 22:41
  Speaker 1: that month. Obviously, that doesn't mean that that was my
• 22:43
  Speaker 1: expected value, but it looked pretty good to somebody who
• 22:45
  Speaker 1: was applying for dollar year jobs. That's right. So we're ready.
• 22:49
  Speaker 1: You're up to thirty plus, right, So I was like, whoa,
• 22:52
  Speaker 1: I'm I'm gonna make it. You know. So from from
• 22:55
  Speaker 1: that point when you realized, hey, I can make some
• 22:57
  Speaker 1: money doing this, how long was it for you realized
• 23:00
  Speaker 1: I'm a world class player, I am a poker expert.
• 23:04
  Speaker 1: What was that timeline? Like? That was never? I retired
• 23:07
  Speaker 1: in two thousand twelve, and I never I don't I
• 23:10
  Speaker 1: would think that even even after you won, you never thought, oh,
• 23:13
  Speaker 1: I'm a world class player, or were you thinking, well,
• 23:16
  Speaker 1: there was a decent amount of random locking this, it
• 23:17
  Speaker 1: could have not been my skill. So I think that
• 23:20
  Speaker 1: this is actually really important for anything that you do
• 23:22
  Speaker 1: in life in terms of what my mindset about it was,
• 23:25
  Speaker 1: which was that I think that there's a difference between
• 23:29
  Speaker 1: sort of being humble in the face of the game
• 23:31
  Speaker 1: that you're playing and humble in the face of the
• 23:33
  Speaker 1: opponents that you're facing. Yeah, so the interesting thing with
• 23:38
  Speaker 1: poker is that you know it's certainly for a human being.
• 23:42
  Speaker 1: The more that you play, the more you kind of
• 23:45
  Speaker 1: realize that you have no idea what you're doing at
• 23:47
  Speaker 1: this table. That it's such a complex decision problem, right,
• 23:52
  Speaker 1: I mean, all the cards are faced down, and there
• 23:54
  Speaker 1: is a lot of luck, and it's an incredibly hard
• 23:56
  Speaker 1: learning problem, and you're really just trying to get a
• 23:58
  Speaker 1: little bit better. You're trying to get closer to understanding
• 24:01
  Speaker 1: what the primary line of play is. And it's very
• 24:03
  Speaker 1: different than in chess. And chess you can really go
• 24:05
  Speaker 1: back and you can deconstruct with great certainty. You know
• 24:09
  Speaker 1: what the possible lines of play were, what your responses
• 24:11
  Speaker 1: might be, and you can really kind of work that
• 24:13
  Speaker 1: game to the end. In that sense, it's more of
• 24:15
  Speaker 1: a mathematical calculation. But isn't recognizing the degree of luck
• 24:19
  Speaker 1: in randomness in outcomes and a certain humble uncertainty of
• 24:23
  Speaker 1: your own skill set that meta cognition. Isn't that a
• 24:26
  Speaker 1: channel Dunning Krueger effect. Isn't that a wrecking uh an
• 24:31
  Speaker 1: acknowledgment of your own skill that you reach a point
• 24:34
  Speaker 1: of saying, oh, there's this much randomness in it, and
• 24:37
  Speaker 1: I'm aware of it absolutely, and there's this much that
• 24:39
  Speaker 1: I don't know and can't know. And I mean even
• 24:43
  Speaker 1: towards the end of my career. So I retired in
• 24:46
  Speaker 1: two thousand twelve. I think it was two thousand ten.
• 24:48
  Speaker 1: I won the NBC National Heads Up Championship and I
• 24:54
  Speaker 1: think that was five thousand dollars. I think was first place.
• 24:57
  Speaker 1: I don't really remember. Who can remember each half million dollars.
• 25:00
  Speaker 1: It's drink about poker. It's it's not really about the money.
• 25:03
  Speaker 1: It's about like, how do I make the best decisions
• 25:05
  Speaker 1: to get to where I'm going? So you actually sort
• 25:07
  Speaker 1: of it's actually a necessary factor to separate yourself from
• 25:10
  Speaker 1: the money, because otherwise the money can cause you to
• 25:13
  Speaker 1: why surgeons don't operate on their own family either, exactly
• 25:16
  Speaker 1: like you need a separation, so you actually kind of
• 25:18
  Speaker 1: don't think about things like money. So I mean, I
• 25:20
  Speaker 1: could look it up for you what I want, But
• 25:23
  Speaker 1: I think that even then, like right before that tournament,
• 25:25
  Speaker 1: my game had made a big change, like I discovered
• 25:27
  Speaker 1: new things about the game. So it's I think that's
• 25:30
  Speaker 1: it's this paradox, which is that in order to get better,
• 25:34
  Speaker 1: you sort of have to recognize your actual lack of
• 25:36
  Speaker 1: expertise again in relation to the game. Now that's different
• 25:39
  Speaker 1: than me feeling like if I sat down at a
• 25:41
  Speaker 1: poker table that I would be better at this problem
• 25:44
  Speaker 1: than you, which I do. And then also I think
• 25:46
  Speaker 1: that allows you to recognize when you're sitting at a
• 25:48
  Speaker 1: table with someone who's probably better than you at this problem.
• 25:52
  Speaker 1: And in fact, the NBC National Heads Up Championship gives
• 25:55
  Speaker 1: a good example of that. I ended up facing Eric
• 25:57
  Speaker 1: Sidewn my mentor um in the fine and I kind
• 26:01
  Speaker 1: of and I knew he's going to outthink me. I mean,
• 26:04
  Speaker 1: he's just a much better player than I am. So
• 26:06
  Speaker 1: I injected a lot of luck into that match because
• 26:09
  Speaker 1: I understood that if I have to execute a lot
• 26:12
  Speaker 1: of decisions against him where he has an edge on
• 26:14
  Speaker 1: every single decision, right, I'm going to be in big trouble.
• 26:18
  Speaker 1: But if I could get my money in one time
• 26:20
  Speaker 1: hoping to sort of get close to a fifty fifty,
• 26:22
  Speaker 1: that I would be better off because I could just
• 26:24
  Speaker 1: win that. So he couldn't just sort of chip away
• 26:26
  Speaker 1: at me with his edge. Your play was, let's go
• 26:28
  Speaker 1: for the random outcome, and I have a much better shot. Yeah,
• 26:31
  Speaker 1: because you're a better decision maker than I am. And
• 26:33
  Speaker 1: so if I let you make a hundred decisions against me,
• 26:36
  Speaker 1: that's a sure loss for me. But if I if
• 26:38
  Speaker 1: we just go for one big decision, you know you
• 26:41
  Speaker 1: can get lucky on the one coin toss. In investing,
• 26:43
  Speaker 1: we call it relative and absolute returns, and you're you're
• 26:47
  Speaker 1: making it that way. Let's talk a little bit about
• 26:49
  Speaker 1: blind spot bias and you you actually write in the book,
• 26:53
  Speaker 1: as have other people, blind spot bias is greater the
• 26:57
  Speaker 1: smarter you are. Why is that? Well, let me ask
• 27:01
  Speaker 1: you a question. If you had to bring somebody in
• 27:05
  Speaker 1: to argue your case for you, do you want like
• 27:08
  Speaker 1: the smart guy or the not so smart guy to
• 27:10
  Speaker 1: do that. You want the most accomplished, successful Harvard Law
• 27:16
  Speaker 1: school professor who can argue that case as opposed to
• 27:19
  Speaker 1: a person who's not very good. Okay, so this gives
• 27:22
  Speaker 1: us the reason why being smart makes it worse. Let's
• 27:25
  Speaker 1: think about us as we're all arguing our case. That's
• 27:32
  Speaker 1: the thing. We all have beliefs that we think are
• 27:37
  Speaker 1: true or false. Right, we all make predictions about the future,
• 27:41
  Speaker 1: and we are really good at making a case for
• 27:45
  Speaker 1: our stuff. And in fact, we kind of know that
• 27:48
  Speaker 1: because we can see when other people are like clearly
• 27:50
  Speaker 1: just like arguing their side and leaving data out and
• 27:53
  Speaker 1: spinning the facts and putting a particular frame on it.
• 27:56
  Speaker 1: So here's kind of the problem when you're really statistically
• 28:00
  Speaker 1: adapt or you're very mentally agile, is that we all
• 28:03
  Speaker 1: want our beliefs to be true. We all want our
• 28:06
  Speaker 1: predictions to be right, and so we will argue in
• 28:12
  Speaker 1: order to make our case. We're kind of our own
• 28:14
  Speaker 1: best pr agents. And the smarter you are, the better
• 28:17
  Speaker 1: you are at the spin. So if I have to
• 28:20
  Speaker 1: go and say make a statistical case for say gun
• 28:24
  Speaker 1: control lowers crime or gun control increases crime, give me
• 28:27
  Speaker 1: those two cases to make. Depending on what my beliefs are,
• 28:30
  Speaker 1: I can go and find lots and lots of support
• 28:33
  Speaker 1: for either side. And if I if I believe the
• 28:36
  Speaker 1: first thing that it lowers crime, I'll go find lots
• 28:38
  Speaker 1: and lots of reasons why that might be true, and
• 28:40
  Speaker 1: I'll give you very good arguments, and I'll show you
• 28:42
  Speaker 1: studies that show it, and it will be a compelling case,
• 28:44
  Speaker 1: and I'm going to be pretty good at it, the
• 28:46
  Speaker 1: smarter than I am. Likewise, if I think that gun
• 28:48
  Speaker 1: control increases crime, I'll go just find lots of stuff
• 28:51
  Speaker 1: for that. And the interesting thing about it is I
• 28:53
  Speaker 1: won't know I'm doing it necessarily, so that confirmation bias
• 28:56
  Speaker 1: is completely on subconscious and you're unaware of Well, there
• 29:00
  Speaker 1: are definitely people who are spinning. I mean, it's not
• 29:03
  Speaker 1: like people aren't sometimes purposely doing that. But I think
• 29:06
  Speaker 1: that the really insidious part of this is that we
• 29:08
  Speaker 1: generally don't know that we're doing it. And that's where
• 29:12
  Speaker 1: I think that you know, I think that we have
• 29:14
  Speaker 1: this idea that if I tell you about confirmation bias
• 29:18
  Speaker 1: or the larger problem of motivated reasoning, which is reasoning
• 29:20
  Speaker 1: toward a conclusion, that you already believe is true, which
• 29:24
  Speaker 1: would mean both finding confirming evidence but also discrediting evidence
• 29:28
  Speaker 1: that disagrees with you. Um, if I tell you about
• 29:31
  Speaker 1: this problem and you're a pretty smart person, that you're
• 29:34
  Speaker 1: going to walk away thinking, oh, well, now I know
• 29:36
  Speaker 1: about this problem and I'm really smart, so now I
• 29:37
  Speaker 1: won't do it. But the thing is that that's just
• 29:40
  Speaker 1: not the way the brain works. These processes are very
• 29:42
  Speaker 1: deeply embedded in again system one a reflective mind. Um,
• 29:45
  Speaker 1: and we can't do that. And that that really, I
• 29:47
  Speaker 1: think gives us this really good clue, which is if
• 29:51
  Speaker 1: you're doing it, I spot it right away, right, I'm like, uh, Barry, like,
• 29:54
  Speaker 1: come on, you're missing this study, or you're clearly spinning this,
• 29:58
  Speaker 1: or you're distorting this fact. If we know that, what
• 30:01
  Speaker 1: we can do is use that to our advantage and
• 30:03
  Speaker 1: bring other people in essentially to watch our bias back. Right.
• 30:08
  Speaker 1: And if I can get if we can make an agreement,
• 30:10
  Speaker 1: and I can say, look, I want to have this
• 30:13
  Speaker 1: kind of charter with you as my friend that when
• 30:17
  Speaker 1: you spot me in this place where calling call me
• 30:20
  Speaker 1: out for spinning, if you have information that disagrees with me,
• 30:23
  Speaker 1: please offer it to me. I will try my hardest
• 30:26
  Speaker 1: to not be defensive. If you think that I'm being defensive,
• 30:29
  Speaker 1: you'll call me out on that too, And we're going
• 30:31
  Speaker 1: to really help each other. And then I'll do the
• 30:32
  Speaker 1: same for you and get some people to go do
• 30:35
  Speaker 1: that for yourselves, because we're good at seeing it in
• 30:37
  Speaker 1: other people. We invest so much time and effort and
• 30:40
  Speaker 1: energy creating a model of the universe around us that
• 30:44
  Speaker 1: it's always a challenge when something undercuts that belief system.
• 30:48
  Speaker 1: In fact, here's a quote from the book, instead of
• 30:52
  Speaker 1: altering our beliefs to fit new information, we do the opposite,
• 30:56
  Speaker 1: alter our interpretation of that information to fit our beliefs.
• 30:59
  Speaker 1: Will well known as cognitive dissonance. Why are we so
• 31:03
  Speaker 1: hell bent on not changing our minds even when confronted
• 31:08
  Speaker 1: facts to the contrary? Well so, I think again, I
• 31:12
  Speaker 1: think Conoman really has a lot of great stuff to
• 31:13
  Speaker 1: say about this. Generally, we want to have a positive
• 31:16
  Speaker 1: narrative of our lives. Now, surely this kind of goes
• 31:20
  Speaker 1: back to that long term goal versus you know, what
• 31:22
  Speaker 1: are we doing on execution? We can recognize it in
• 31:25
  Speaker 1: the long term, the more accurate representation we have with
• 31:28
  Speaker 1: the objective truth. In other words, the more that we're
• 31:30
  Speaker 1: willing to change our beliefs as we get new information,
• 31:32
  Speaker 1: probably the better our long term return is going to be.
• 31:35
  Speaker 1: And that means that our decision making more more accurate. Model. Yeah,
• 31:39
  Speaker 1: and then we'll have a better narrative of our lives.
• 31:41
  Speaker 1: But again, remember I said, we're not very good at aggregating, right.
• 31:44
  Speaker 1: We like to do things as it comes in. And
• 31:46
  Speaker 1: when we get outcomes that come in, either information that
• 31:49
  Speaker 1: disagrees with us or a bad outcome or whatever it
• 31:51
  Speaker 1: might be, it's this momentary. It's like, in the moment,
• 31:54
  Speaker 1: it's a hit to ourself narrative because being wrong feel bad.
• 32:01
  Speaker 1: Finding out that our belief might have need to be
• 32:04
  Speaker 1: altered feels like being wrong. Finding out that a prediction
• 32:07
  Speaker 1: that we thought would come true doesn't come true feels
• 32:09
  Speaker 1: like being wrong. And all of those are hits to
• 32:12
  Speaker 1: our positive self narrative. So what do we do in
• 32:14
  Speaker 1: the moment? We swatted away in whatever way we can.
• 32:18
  Speaker 1: Either we say that something was because of luck, that
• 32:21
  Speaker 1: it wasn't our fault, that we couldn't have known, how
• 32:23
  Speaker 1: could we have seen that coming? That was out of
• 32:24
  Speaker 1: our control, Or we discredit the information that disagrees with us,
• 32:28
  Speaker 1: you know, we'll say that person is incredible, or that
• 32:31
  Speaker 1: study doesn't have a big enough sample size, or the
• 32:34
  Speaker 1: statistics that they ran on it were bad. When we
• 32:36
  Speaker 1: see things that do agree with us, we hold no
• 32:39
  Speaker 1: critical eye to it whatsoever. It's just like, yeah, that's right.
• 32:42
  Speaker 1: So you can think about like I think about this, like,
• 32:44
  Speaker 1: if let's say that you're, you know, your big opponent
• 32:47
  Speaker 1: of trend following, and you really think that trend following
• 32:50
  Speaker 1: is a ridiculous investment strategy, what are you gonna do
• 32:53
  Speaker 1: When you see something that's very critical of trend following,
• 32:55
  Speaker 1: you're going to go, yeah, great, absolutely. And when you
• 32:58
  Speaker 1: see something that suggests it maybe incorporating some trend following
• 33:02
  Speaker 1: ideas into your own investment strategy might be a good idea,
• 33:06
  Speaker 1: and it has all sorts of reasons for that, you're
• 33:07
  Speaker 1: going to literally pick it apart and talk about why
• 33:09
  Speaker 1: the author is incredible and everything that's wrong with it,
• 33:12
  Speaker 1: because otherwise you have to update your own belief and
• 33:15
  Speaker 1: when you update your own belief in in sort of
• 33:18
  Speaker 1: you downgrade it, right, it doesn't feel good. And I
• 33:21
  Speaker 1: think that what what you need in order to kind
• 33:24
  Speaker 1: of get around this, and this is where like having
• 33:26
  Speaker 1: people to help you really is good, is to have
• 33:29
  Speaker 1: your identity not be driven so much by this idea
• 33:32
  Speaker 1: of right, meaning I have these prior beliefs and I
• 33:35
  Speaker 1: want to I want those things to be right. I
• 33:37
  Speaker 1: just want to reaffirm the things that I already believe
• 33:40
  Speaker 1: and switch to this idea of I want to be accurate.
• 33:42
  Speaker 1: That accuracy is what feels good. In other words, building
• 33:45
  Speaker 1: the most accurate model of the world, which requires that
• 33:48
  Speaker 1: you view your beliefs as in progress. And once you
• 33:51
  Speaker 1: view your beliefs as in progress, you can't really be
• 33:54
  Speaker 1: right or wrong anymore. They're just provisional until the next upade.
• 33:58
  Speaker 1: You're just provisional until the next upgrade. And you're gonna
• 34:00
  Speaker 1: help me do that, because when when you see me
• 34:02
  Speaker 1: start to get defensive and start to discredit something that
• 34:05
  Speaker 1: you know disagrees with a belief that I might have had,
• 34:07
  Speaker 1: you're gonna say, hey, don't do you think maybe you're
• 34:10
  Speaker 1: doing this thing and don't remember the belief is in
• 34:12
  Speaker 1: progress and how much would you change your belief now?
• 34:15
  Speaker 1: And you know this is going to help you have
• 34:17
  Speaker 1: a more accurate view. And this is where the title
• 34:20
  Speaker 1: thinking of bets really comes from because the person who
• 34:23
  Speaker 1: wins in a bet is not the one who affirms
• 34:26
  Speaker 1: their priors. It's the person who has the most accurate
• 34:29
  Speaker 1: model of the world. And so thinking about uh, you know,
• 34:33
  Speaker 1: decisions as bets, as as you said, you have some
• 34:36
  Speaker 1: limited resource that you're investing based unlimited information on an
• 34:39
  Speaker 1: uncertain future, allows us to view our beliefs more in
• 34:43
  Speaker 1: progress because that just wraps the uncertainty into the whole
• 34:46
  Speaker 1: process and allows us to be more accurate in the
• 34:48
  Speaker 1: long run. Some of the my favorite writings on probability
• 34:53
  Speaker 1: theory and cognition and our own internal models mentioned something
• 34:58
  Speaker 1: that you mentioned early on in the book, which is,
• 35:01
  Speaker 1: if you want to be better at any probabilistic exercise,
• 35:05
  Speaker 1: be gambling or investing or what have you, you have
• 35:10
  Speaker 1: to be willing to say I don't know or I
• 35:13
  Speaker 1: am uncertain. Explain why that's so important and why so
• 35:18
  Speaker 1: few people are willing to do that? Sure, So on
• 35:22
  Speaker 1: the why it's so important is I think that top
• 35:26
  Speaker 1: of the list is that it's a more accurate representation
• 35:29
  Speaker 1: of your beliefs and predictions. Predictions by definition, even if
• 35:33
  Speaker 1: you have all of the information, even if everything is known.
• 35:37
  Speaker 1: Predictions have to be uncertain just because, uh, we don't
• 35:41
  Speaker 1: know how the future is going to turn out. So, uh,
• 35:43
  Speaker 1: the best example I can give of that is if
• 35:45
  Speaker 1: I have a fair coin, I can tell you for
• 35:47
  Speaker 1: sure that it will land heads fifty of the time,
• 35:50
  Speaker 1: that doesn't mean that I know it's going to land
• 35:53
  Speaker 1: heads on the next try. So that prediction must be uncertain,
• 35:56
  Speaker 1: and beliefs are uncertain as well. There's all sorts of
• 35:58
  Speaker 1: things that what did believe when you were twenty that
• 36:01
  Speaker 1: you were sure of that? Now you look back and
• 36:04
  Speaker 1: you say, wow, twenty year old Barry really had that.
• 36:07
  Speaker 1: You don't have to go back, go back to four
• 36:09
  Speaker 1: or fifty. Yet it seems every five years you look back,
• 36:13
  Speaker 1: at least if you're trying to evolve, and you look
• 36:15
  Speaker 1: back and say, man, I believed a bunch of junk,
• 36:18
  Speaker 1: or I could downgrade some of those beliefs and maybe
• 36:22
  Speaker 1: they weren't nearly as important as I previously thought they were.
• 36:25
  Speaker 1: That's exactly right. So so so that's the thing is
• 36:29
  Speaker 1: that saying I'm not sure, it's just it's just a
• 36:32
  Speaker 1: better representation in the world. It's just more accurate to
• 36:34
  Speaker 1: what the state of our beliefs is so that that's
• 36:36
  Speaker 1: number one. Uh, and then number two acknowledging on certain
• 36:41
  Speaker 1: Here's the big problem making decisions when you don't have
• 36:44
  Speaker 1: all the facts. We can't control luck, right, luck is okay?
• 36:49
  Speaker 1: You know it's gonna land heads fifty of the time.
• 36:51
  Speaker 1: I really can't control the coin on the next flip.
• 36:53
  Speaker 1: What I can do, though, is get more information. So
• 36:57
  Speaker 1: how do I do that? I have to make sure
• 36:58
  Speaker 1: that I'm open minded to the information and also let
• 37:01
  Speaker 1: them information hungry. So once you start not acknowledging uncertainty,
• 37:05
  Speaker 1: what does that do? It creates this information hunger in you.
• 37:08
  Speaker 1: Because if I'm certain about a belief, why am I
• 37:11
  Speaker 1: doing research on it? Why am I going and seeking
• 37:13
  Speaker 1: out information that might help that belief? I'm already sure.
• 37:16
  Speaker 1: But if I acknowledge my uncertainty, this is why it's
• 37:19
  Speaker 1: so important. It makes me information hungry. It makes me
• 37:21
  Speaker 1: want to go find it makes me open up Google.
• 37:24
  Speaker 1: Not only that, but here's the great thing is that
• 37:27
  Speaker 1: when I acknowledge my own uncertainty in the way that
• 37:29
  Speaker 1: I speak, it gets you to start telling me what
• 37:32
  Speaker 1: you know. Because when I say for sure, like let's
• 37:35
  Speaker 1: say that we'll go back to the trend following. Um,
• 37:38
  Speaker 1: let's say that you're somebody who's a real trend following
• 37:41
  Speaker 1: person and I and I just say, I don't know
• 37:43
  Speaker 1: that about you. And I just say with certainty, well,
• 37:45
  Speaker 1: people who are trend followers, they're just idiots. I can't
• 37:48
  Speaker 1: believe they think that that's a good thing to do.
• 37:50
  Speaker 1: Do you think you're going to share with me any
• 37:51
  Speaker 1: information that you have about why you think trend following
• 37:53
  Speaker 1: is a smart strategy. I like to argue, so perhaps perhaps,
• 37:57
  Speaker 1: But I'm probably shutting you down right because why either
• 38:01
  Speaker 1: you don't want me to think that you're an idiot,
• 38:03
  Speaker 1: or you maybe you just don't want to embarrass me,
• 38:05
  Speaker 1: and so you don't speak up. Either way, you're probably
• 38:07
  Speaker 1: kind of mad that I said it. But if I say,
• 38:10
  Speaker 1: you know, I've always been a little bit of a
• 38:12
  Speaker 1: trend following skeptic, you know, but I'm not like, I'm
• 38:15
  Speaker 1: just I'm not sure not etched in stone. Now you
• 38:20
  Speaker 1: trend that following enthusiasts, You're now going to start telling
• 38:23
  Speaker 1: me all the things about why you think that it's
• 38:25
  Speaker 1: it's a great thing. And we're actually going to get
• 38:27
  Speaker 1: into a discussion where both of us are going to
• 38:29
  Speaker 1: benefit from it because you're going to learn from my skepticism.
• 38:32
  Speaker 1: I'm going to learn from your enthusiasm, and we're gonna
• 38:34
  Speaker 1: find we're gonna get closer to what the actual truth
• 38:37
  Speaker 1: of the matter is because I've opened the door wide
• 38:40
  Speaker 1: to say, tell me what you know. And that's the thing,
• 38:43
  Speaker 1: that's what we have control over. We can't control luck.
• 38:46
  Speaker 1: We can control the quality of our decisions, which means
• 38:49
  Speaker 1: getting more information and refining and calibrating our beliefs, which
• 38:52
  Speaker 1: I can only do through information coming my way. We
• 38:57
  Speaker 1: have been speaking with Annie Duke. She is the author
• 39:00
  Speaker 1: of Thinking in Bets, How to make smarter decisions when
• 39:03
  Speaker 1: you don't have all the information. If you enjoy this conversation,
• 39:07
  Speaker 1: be sure and check out our podcast extras, where we
• 39:10
  Speaker 1: keep the tape rolling and continue discussing all things probabilistic.
• 39:14
  Speaker 1: You can find that wherever finer podcasts are sold Bloomberg
• 39:18
  Speaker 1: dot com, iTunes, overcast in SoundCloud. We love your comments,
• 39:23
  Speaker 1: feedback and suggestions right to us at m IB podcast
• 39:27
  Speaker 1: at Bloomberg dot net. You can check out my daily
• 39:30
  Speaker 1: column on Bloomberg you dot com or follow me on
• 39:32
  Speaker 1: Twitter at Rid Halts I'm Barry rid Halts. You're listening
• 39:36
  Speaker 1: to Masters in Business on Bloomberg Radio. Welcome to the podcast,
• 39:53
  Speaker 1: and he thank you so much for doing this. I
• 39:55
  Speaker 1: was taking notes, which I never do or rarely do,
• 39:58
  Speaker 1: because I have some things to share with you, which
• 40:01
  Speaker 1: you're hilarious. You mentioned trend following as a sample. Um,
• 40:07
  Speaker 1: are you familiar with Michael Kobol's book trend Following? Well,
• 40:11
  Speaker 1: I am. I've actually been on his podcast three times,
• 40:13
  Speaker 1: you have. I really enjoyed the conversations with him. He's
• 40:16
  Speaker 1: a fascinating guy in his background. Everything with Vietnam is amazing.
• 40:19
  Speaker 1: Have you seen the most recent addition? And who wrote
• 40:22
  Speaker 1: the forward to it? No? Isn't you? I love it?
• 40:26
  Speaker 1: How hilarious? That is so hilarious. So I actually picked
• 40:29
  Speaker 1: trend following as an example because I I kind of
• 40:31
  Speaker 1: follow uh financial you know, somewhat, and I see that
• 40:35
  Speaker 1: there seems to be a lot of emotion around it.
• 40:37
  Speaker 1: So I like to pick topics that are emotional because
• 40:40
  Speaker 1: if if I ask your opinion about skin cream, it's
• 40:43
  Speaker 1: like you're probably okay. But but the whole thing around
• 40:48
  Speaker 1: trend following, it's like people seem to really it's like there,
• 40:51
  Speaker 1: it's like the Jets and the sharks and they're gonna
• 40:53
  Speaker 1: meet have a riot there. There is something to the
• 40:58
  Speaker 1: concept that if you have a systematic approach to investing
• 41:02
  Speaker 1: and it's mechanical and you follow it with tremendous diligence
• 41:07
  Speaker 1: that you know, if you go back to the original
• 41:10
  Speaker 1: UM book, Oh god, I'm doing a blank on it.
• 41:15
  Speaker 1: Uh that that the UM One of the turtles that
• 41:19
  Speaker 1: were mentioned in Market Wizards is the original book by
• 41:21
  Speaker 1: Jack Schweger, the turtles that Mike Covil talks about all
• 41:26
  Speaker 1: the time. If we could raise traders the way they
• 41:29
  Speaker 1: grow turtles for export out of out of Asia, you know,
• 41:32
  Speaker 1: can we teach them mechanically? And it turns out you
• 41:35
  Speaker 1: more or less can assuming people are willing to do that. Yeah, well,
• 41:40
  Speaker 1: you know, I think it's interesting. I think that when markets,
• 41:42
  Speaker 1: when there's some width in the market in particular UM,
• 41:45
  Speaker 1: that becomes very easy to to kind of do these
• 41:48
  Speaker 1: kind of mechanical strategies. So the way that I was
• 41:51
  Speaker 1: related to poker, which I always thought was very interesting,
• 41:54
  Speaker 1: was so I used to teach a lot of poker seminars,
• 41:56
  Speaker 1: and in fact, I'm a big proponent of if you
• 41:58
  Speaker 1: want to get better at anything, try to teach. So, Mike,
• 42:02
  Speaker 1: when I started teaching seminars, there were a whole bunch
• 42:04
  Speaker 1: of things that I was doing at poker that I
• 42:05
  Speaker 1: actually ended up throwing out because I realized that I
• 42:07
  Speaker 1: couldn't actually explain it coherently to another human being such
• 42:10
  Speaker 1: that they could execute the strategy themselves. Um. But one
• 42:14
  Speaker 1: of the things that that the and these were generally
• 42:15
  Speaker 1: intermediate players would would come up in One of the
• 42:18
  Speaker 1: most common questions they would say to me is don't
• 42:22
  Speaker 1: you hate playing against beginners? Is it don't you hate
• 42:25
  Speaker 1: that because of the potential random outcome? Or I think
• 42:28
  Speaker 1: because there was more it was more unpredictable. Um. And
• 42:31
  Speaker 1: I would say to them, what, No, I love playing
• 42:33
  Speaker 1: against beginners. And my question to them was always this,
• 42:36
  Speaker 1: if you had to play like a tennis match for
• 42:38
  Speaker 1: your life, like someone's literally going to shoot you in
• 42:40
  Speaker 1: the head and kill you if you don't win, do
• 42:42
  Speaker 1: you want to play against the beginner or an intermediate?
• 42:44
  Speaker 1: And they would say, well, the beginner, of course, and
• 42:46
  Speaker 1: I said, well, it should be the same for poker.
• 42:48
  Speaker 1: And what I figured out was that the reason why
• 42:52
  Speaker 1: they felt that way is because there's this thing you
• 42:54
  Speaker 1: can do in poker called bluffing, and bluffing is really exciting, right,
• 42:59
  Speaker 1: It's like high out smart, did you I had the
• 43:01
  Speaker 1: worst hand and I made you fold the best hand,
• 43:04
  Speaker 1: and pa, right, I'm great. Well, bluffing can be very
• 43:08
  Speaker 1: hard to do against beginners, and the reason is that
• 43:10
  Speaker 1: beginners kind of don't know enough about the game yet
• 43:13
  Speaker 1: that they understand that your actions should cause them to fold.
• 43:17
  Speaker 1: So so the takeaways don't bluff against beginners, right, except
• 43:22
  Speaker 1: that that means that you're playing an incredible, incredibly mechanical game.
• 43:26
  Speaker 1: So essentially what you're doing is you're just kind of
• 43:28
  Speaker 1: waiting for certain kinds of hands. You're waiting until your
• 43:30
  Speaker 1: hand is pretty good, and then I'm just getting you
• 43:32
  Speaker 1: to bet way more money than you should and you
• 43:35
  Speaker 1: know and that that's the way I'm winning. It's it's mechanical.
• 43:38
  Speaker 1: And what I discovered was people don't like winning in
• 43:41
  Speaker 1: a mechanical way. It's it's almost like they feel like
• 43:44
  Speaker 1: they're No. I don't think it's that they feel like
• 43:48
  Speaker 1: they're cheating. There's not. It's not them making the decision.
• 43:51
  Speaker 1: They're just following the rules, right, So what I would
• 43:55
  Speaker 1: try to do. It's like, yes, it's not that they're
• 43:57
  Speaker 1: not the ones out thinking anyone, Like they're not playing spectacularly.
• 44:01
  Speaker 1: So what I would try to do is get them
• 44:03
  Speaker 1: to a more meta place, which I think brings us
• 44:06
  Speaker 1: to this what you said about trend following to this
• 44:08
  Speaker 1: more meta place of if you view your job in
• 44:11
  Speaker 1: the game to make the best decisions that you can
• 44:14
  Speaker 1: against the way that the market is behaving, right, because
• 44:17
  Speaker 1: the poker table is just a market, right, so the
• 44:19
  Speaker 1: market is behaving in a certain way. Let's him at
• 44:21
  Speaker 1: a table full of a lot of beginners, it's going
• 44:23
  Speaker 1: to behave differently than if I'm at a table full
• 44:26
  Speaker 1: of experts. That my job is to come up with
• 44:29
  Speaker 1: the best strategy given the market that I'm playing in.
• 44:32
  Speaker 1: And if I understand that, then it's a form of
• 44:35
  Speaker 1: outsmarting my opponents. To move to this more mechanical version
• 44:39
  Speaker 1: of the game. In the same way that when I
• 44:41
  Speaker 1: played against Derek Sidell, I was willing to say, I'm
• 44:45
  Speaker 1: not going to try to outthink them. I'm just gonna
• 44:47
  Speaker 1: go with luck. And I'm pretty proud of that as
• 44:49
  Speaker 1: a strategy because it's a meta strategy. It's like, what
• 44:52
  Speaker 1: did you say to you after you you beat him
• 44:55
  Speaker 1: with that strategy? What was the subsequent conversation. I think
• 44:58
  Speaker 1: it was really proud of me. Really, that's that's a
• 45:00
  Speaker 1: great mentor. That's a great mentor who says, so, now
• 45:04
  Speaker 1: the student has become the teacher. And well sort of
• 45:07
  Speaker 1: because I was admitting that I still couldn't think it, yes,
• 45:10
  Speaker 1: but he was. He was very proud of the I
• 45:12
  Speaker 1: think of the fact that that was the strategy, that
• 45:14
  Speaker 1: I looked at the lay of the land, and you
• 45:15
  Speaker 1: chose the smartest route to give yourself the best possibility
• 45:20
  Speaker 1: of winning. It's still gonna could have come up against you,
• 45:23
  Speaker 1: but you think playing the other way, you would. And
• 45:25
  Speaker 1: by the way, I get it when when I play
• 45:27
  Speaker 1: against beginners and they win with some hand that like
• 45:30
  Speaker 1: no reasonable person on earth whatever, I have that feeling
• 45:34
  Speaker 1: of like life is unfair and you know, sure there's
• 45:40
  Speaker 1: that blind spot bias rearing it. Yeah. I mean, one
• 45:42
  Speaker 1: of the things I really try to get across in
• 45:44
  Speaker 1: the book is that I know all of this stuff
• 45:47
  Speaker 1: and I still do it. It's just that I do
• 45:50
  Speaker 1: it a little less and a little less, as you know,
• 45:53
  Speaker 1: just compounds over time into such a higher probability of
• 45:57
  Speaker 1: good results. The other thing, it's because I know him
• 46:00
  Speaker 1: accountable to the people that I have around me, who
• 46:03
  Speaker 1: are going to hold me accountable to bias thinking, who
• 46:06
  Speaker 1: are going to say no, no, no, that's not okay.
• 46:08
  Speaker 1: That I'm much more likely to catch an error, and
• 46:11
  Speaker 1: I'm much more likely to get it faster. Right. So
• 46:13
  Speaker 1: instead of looking back on twenty year old Annie and say, wow,
• 46:18
  Speaker 1: that was a really crazy decision that she made, or
• 46:20
  Speaker 1: that was a crazy belief that she held, I think
• 46:22
  Speaker 1: that I can get to that conclusion a lot more
• 46:24
  Speaker 1: quickly because I have other people helping me get there.
• 46:27
  Speaker 1: I like that you go back to twenty year old
• 46:28
  Speaker 1: Annie and not thirty year old name. No, listen seriously, Like,
• 46:32
  Speaker 1: how about just like forty five year old Annie, Like
• 46:35
  Speaker 1: yesterday Annie? Like yesterday Annie was doing really stupid stuff.
• 46:39
  Speaker 1: You know. It's it's amazing that if you stop and
• 46:41
  Speaker 1: look back at your life honestly every five years. Uh.
• 46:46
  Speaker 1: The one thing I could say about being in my fifties.
• 46:49
  Speaker 1: When I went through that exercise in my thirties and forties,
• 46:52
  Speaker 1: it was just mortifying. And now it's merely like that
• 46:56
  Speaker 1: was a bad decision that was a bad process, but
• 46:58
  Speaker 1: it's not like, oh, my god, would idiot you are,
• 47:01
  Speaker 1: which was what the experience was in the twenties and thirties. Well,
• 47:04
  Speaker 1: I think maybe part of that is because I think
• 47:08
  Speaker 1: that if you managed to survive a long time, whatever
• 47:11
  Speaker 1: it is, in poker or anything else, by the time
• 47:14
  Speaker 1: you're fifty, you have I think you probably have developed
• 47:17
  Speaker 1: some more humility around the rightness and wrongness of your
• 47:19
  Speaker 1: decisions in the first place. And that's one of the
• 47:21
  Speaker 1: things that I try to point out in the book
• 47:23
  Speaker 1: is that when you view your beliefs is under under construction,
• 47:28
  Speaker 1: you know, in progress, then you don't end up with
• 47:31
  Speaker 1: these full on reversals too. I'm an idiot, right, because
• 47:34
  Speaker 1: you kind of didn't view yourself as a genius in
• 47:36
  Speaker 1: the first place. And so I think it's a place
• 47:38
  Speaker 1: where you end up, first of all, being much more
• 47:40
  Speaker 1: compassionate to yourself because you sort of realize it's like, okay,
• 47:43
  Speaker 1: but I was only like on it anyway, so now
• 47:45
  Speaker 1: all right, I'm okay. Right. It's like an adjustment to
• 47:51
  Speaker 1: what your level of confidence in the in the whatever
• 47:54
  Speaker 1: the belief is that you hold. And I think that
• 47:56
  Speaker 1: that's just kind of a nicer way to be to yourself.
• 47:58
  Speaker 1: And then I think that what falls from that, once
• 48:00
  Speaker 1: you sort of view your own beliefs is under construction,
• 48:03
  Speaker 1: is that you are much more compassionate towards other people
• 48:06
  Speaker 1: for their own And still I'm still waiting for that
• 48:09
  Speaker 1: to at least when I'm driving, I'm waiting, well, my
• 48:12
  Speaker 1: wife and so I don't do New Year's resolutions for
• 48:16
  Speaker 1: the exact reason you're implying. The decision isn't. It's all
• 48:20
  Speaker 1: about the process. But there were two processes I wanted
• 48:24
  Speaker 1: to try and spend a little more effort with. One
• 48:27
  Speaker 1: was just being nicer on Twitter, because there are some
• 48:29
  Speaker 1: people on Twitter who were that started this year around
• 48:32
  Speaker 1: the holidays. People are some people are just jerks on Twitter,
• 48:36
  Speaker 1: and it's like, you know what, that's a bad look.
• 48:38
  Speaker 1: Let me see if I could be less of a jerk.
• 48:40
  Speaker 1: And then the other thing was in real life, Hey
• 48:43
  Speaker 1: can I be a little nicer on the highway? Just
• 48:47
  Speaker 1: pick up whatever karma points letting people in or But
• 48:49
  Speaker 1: I still find myself constantly going to say, uh, your
• 48:55
  Speaker 1: left directional has been on for about three miles, Either
• 48:58
  Speaker 1: make a left or shut that off. And my wife
• 49:01
  Speaker 1: is like I thought that was going to stop, and
• 49:03
  Speaker 1: it's so hard to make those little change it is.
• 49:06
  Speaker 1: But do you think you're doing it slightly less? Oh?
• 49:09
  Speaker 1: I am see, And that's what matters. See. That's the
• 49:13
  Speaker 1: thing is that I think that in general, it kind
• 49:15
  Speaker 1: of goes along with that idea of there's only right
• 49:17
  Speaker 1: and wrong, so that if you present me with information
• 49:20
  Speaker 1: that disagrees with me, I can only the only choice
• 49:23
  Speaker 1: I have is right to wrong right. I have to
• 49:25
  Speaker 1: do a full on reversal. If I'm like am six
• 49:28
  Speaker 1: and you present me with information now, I'm like, okay,
• 49:30
  Speaker 1: I'm for It's just an easier way to be right.
• 49:33
  Speaker 1: So I think that to say I'm gonna I have
• 49:36
  Speaker 1: this idea that I want to be nicer on the
• 49:37
  Speaker 1: role road and to hold yourself to a standard of perfection,
• 49:41
  Speaker 1: you're just setting yourself up to feel bad and and
• 49:44
  Speaker 1: to lack compassion for yourself and for self recrimination. If
• 49:48
  Speaker 1: you say you know what, I'm doing a little better,
• 49:50
  Speaker 1: like that's great. I don't want to make it too
• 49:52
  Speaker 1: easy on myself. The other the other two notes, you're
• 49:55
  Speaker 1: more likely to succeed if you do, though, because it's
• 49:59
  Speaker 1: the baby with the bathwater. It's like the what the
• 50:01
  Speaker 1: hell effect which Danner ariel It talks about. So it's
• 50:04
  Speaker 1: the difference between Okay, I've decided I'm not going to
• 50:07
  Speaker 1: eat any bread, and then one morning, like there's donuts
• 50:10
  Speaker 1: in the break room and the whole day one calorie
• 50:14
  Speaker 1: and it's and that's because you're you're viewing yourself from
• 50:17
  Speaker 1: the point of perfection. So once you make a little mistake,
• 50:19
  Speaker 1: it tends to it tends to sort of break apart.
• 50:22
  Speaker 1: Whereas did you say this is this is a work
• 50:24
  Speaker 1: in progress, and all right, I ate half a donut
• 50:27
  Speaker 1: this morning, that's okay, and you just have salad for
• 50:29
  Speaker 1: lunch because you're not. You haven't broken from the perfection
• 50:33
  Speaker 1: that you expected you of yourself. All you were doing
• 50:36
  Speaker 1: was trying to do it less, and it's actually a
• 50:38
  Speaker 1: better way to get there. I think. I love that
• 50:41
  Speaker 1: Arlie's research facility at Duke is called the Institute for
• 50:45
  Speaker 1: Advanced Hindsight or something like that. It's it's just it's
• 50:49
  Speaker 1: just a hilarious issue. You also mentioned that I'm fascinated
• 50:54
  Speaker 1: by this. If you want to learn something, teach it
• 50:58
  Speaker 1: and over the past, I don't know it's called it
• 51:01
  Speaker 1: a decade, I've been giving presentations around the country, around
• 51:05
  Speaker 1: the world, and each presentation almost always leads to the
• 51:10
  Speaker 1: same sets of questions, and it makes me realize I'm
• 51:13
  Speaker 1: doing a bad job teaching this if I get the
• 51:16
  Speaker 1: same questions over and over again. And so each presentation
• 51:19
  Speaker 1: leads to the next presentation and a different set of questions,
• 51:23
  Speaker 1: and I'm kind of coming to the point where I'm
• 51:26
  Speaker 1: not sure if it's that I'm a bit teacher or
• 51:28
  Speaker 1: that I'm just provoking people's thoughts that they're going to ask.
• 51:32
  Speaker 1: But when you consistently get the same questions, it makes
• 51:35
  Speaker 1: you think there's something about this presentation, which often has
• 51:40
  Speaker 1: elements of cognitive issues and confirmation bias in it, that
• 51:43
  Speaker 1: leads people um to the same sort of spot. It's
• 51:47
  Speaker 1: it's kind of fascinating. So yeah, I think that that
• 51:49
  Speaker 1: is and I think that the analysis is really interesting
• 51:52
  Speaker 1: because it could be that, uh, there are some concepts
• 51:57
  Speaker 1: that are hard to get to within the presentation, and
• 51:59
  Speaker 1: you're kind of anticipating that those questions will come and
• 52:01
  Speaker 1: planning to handle them U in Q and A. I
• 52:04
  Speaker 1: do that some because I don't and and sometimes it's
• 52:10
  Speaker 1: it's that you I mean, this sort of comes to Okay,
• 52:14
  Speaker 1: I could anticipate this question, so let me see if
• 52:18
  Speaker 1: I can fit that in with the key concepts. But
• 52:20
  Speaker 1: if there are these big concepts that I'm trying to
• 52:22
  Speaker 1: get across and trying to go down the tangent that
• 52:25
  Speaker 1: where I know this question is going to be coming
• 52:27
  Speaker 1: my way, is actually going to distract from the larger concept.
• 52:30
  Speaker 1: Maybe it's you're getting those questions because you've given those
• 52:33
  Speaker 1: them the large concepts in such a great way. I'm
• 52:36
  Speaker 1: not saying that that's true. I'm saying, like, we want
• 52:37
  Speaker 1: to sort of think about it from both sides. What
• 52:39
  Speaker 1: I've been finding lately is I've been opening my talks
• 52:42
  Speaker 1: with a video of the Pete Carroll play um, and
• 52:45
  Speaker 1: so my questions tend to be people telling me that
• 52:47
  Speaker 1: I'm an idiot and that Pete Carroll actually made a
• 52:50
  Speaker 1: really horrible decision. And even after You've spent half hour
• 52:54
  Speaker 1: explaining why statistically this was not a terrible decision, and
• 52:58
  Speaker 1: you're just focusing on you. What's interesting is that what
• 53:01
  Speaker 1: I didn't say is that Bill Belichick thinks it was
• 53:03
  Speaker 1: a good call. He no, he said that the formation
• 53:08
  Speaker 1: that that they had had the same defensive formation earlier
• 53:12
  Speaker 1: in the game and it was actually a run protection
• 53:15
  Speaker 1: and so he suspected that Pete Carroll had seen that,
• 53:17
  Speaker 1: and so called the path. Uh. Mike Lombardi, who is
• 53:21
  Speaker 1: a great analyst, actually has worked with Belichick and Bill
• 53:26
  Speaker 1: Walsh and all these guys. Uh, he has it's coming
• 53:31
  Speaker 1: out in September, and it opens with the same play
• 53:34
  Speaker 1: and it discusses it from a formation standpoint as well,
• 53:38
  Speaker 1: where he sort of comes to the same conclusion. And
• 53:40
  Speaker 1: I kind of mentioned that, so I sort of get
• 53:41
  Speaker 1: myself all there. It's usually people who are Seahawks fans,
• 53:44
  Speaker 1: and so the thing is that, I mean, this is
• 53:46
  Speaker 1: why I said, you know, when you asked me, well,
• 53:48
  Speaker 1: why did you choose trend falling, I said, well, I
• 53:49
  Speaker 1: tried to think of something an investment that has a
• 53:51
  Speaker 1: lot of emotion attached to it. Is that when people
• 53:54
  Speaker 1: are really emotionally invested in the beliefs that they have,
• 53:57
  Speaker 1: and particularly in the outcome in this case, right, because
• 53:59
  Speaker 1: the Seahawks lots there's no um it's very very hard
• 54:03
  Speaker 1: when even when you're presented with information that might moderate
• 54:05
  Speaker 1: your belief it's just hard to do it. We're just
• 54:07
  Speaker 1: too emotionally lit up to it. It's that system. One
• 54:10
  Speaker 1: doesn't let it get to system too. Yeah, so there
• 54:13
  Speaker 1: are certain I think that there are many things where
• 54:15
  Speaker 1: someone could get up and give a talk and say
• 54:17
  Speaker 1: all the things that I said, where maybe I would go,
• 54:19
  Speaker 1: you're dumb, that Pete Carroll was was an idiot. It's
• 54:22
  Speaker 1: it's just a matter of like trying to do it less.
• 54:24
  Speaker 1: But I do find that I seem to be getting
• 54:25
  Speaker 1: a lot of that people, people sort of writing into
• 54:27
  Speaker 1: my website and being like, no, that was a horrible call.
• 54:30
  Speaker 1: Are you seeing these all coming from the Pacific Northwest
• 54:33
  Speaker 1: or what a coincidence? All right, So I have a
• 54:36
  Speaker 1: ton of my favorite questions to ask you, and I
• 54:39
  Speaker 1: know I don't have you forever. Let me jump into
• 54:42
  Speaker 1: some of these things because I think, um, your answers
• 54:45
  Speaker 1: to this is gonna be fascinating. Tell us the most
• 54:48
  Speaker 1: important thing that people don't know about your background, the
• 54:53
  Speaker 1: most okay, so well about my background or about me
• 54:56
  Speaker 1: now I'll tell you about me now, is that I
• 54:59
  Speaker 1: think that I spent so much of my life in
• 55:02
  Speaker 1: this really competitive environment. Um So when I was younger, uh,
• 55:08
  Speaker 1: when we were playing cards, my brother was two years
• 55:10
  Speaker 1: older than me, which when year seven is like they
• 55:13
  Speaker 1: might as well. Yeah. Um. And my dad, of course,
• 55:15
  Speaker 1: was a middle aged man, and both of them are
• 55:17
  Speaker 1: very competitive and never let me win. So I would
• 55:19
  Speaker 1: literally like almost every night that we were playing cards,
• 55:22
  Speaker 1: the cards would end up getting thrown against the wall
• 55:24
  Speaker 1: by me at some point. And that was actually my
• 55:27
  Speaker 1: biggest challenge when I was playing poker, was trying to
• 55:29
  Speaker 1: get that emotional component under control, trying to get that
• 55:32
  Speaker 1: competitiveness to a place where I could be smoother and
• 55:35
  Speaker 1: sort of like accept the outcome. Um, because I would
• 55:39
  Speaker 1: just get I mean, when I was young, I would
• 55:40
  Speaker 1: just become completely unhinged by it. You don't want to
• 55:43
  Speaker 1: be rattled at the table, right. I've gone so completely
• 55:46
  Speaker 1: the other way that since I retired, if I were
• 55:48
  Speaker 1: to go out and play tennis with you, I would
• 55:50
  Speaker 1: ask you if we could please not keep score? Yeah,
• 55:53
  Speaker 1: because I just want to play and like have both
• 55:54
  Speaker 1: of us get better the people that I play with
• 55:56
  Speaker 1: I always bring to my tennis lessons because I just
• 55:59
  Speaker 1: want to, like, I'm so much more focused on this
• 56:01
  Speaker 1: kind of win win, which is one of the reasons
• 56:03
  Speaker 1: why I think I love the process of writing the
• 56:05
  Speaker 1: book and giving talks because it feels it's like so
• 56:08
  Speaker 1: not competitive, you know, and I feel like I've sort
• 56:11
  Speaker 1: of like shed a lot of that now. I mean,
• 56:13
  Speaker 1: I don't know if people around me would agree, but
• 56:15
  Speaker 1: I'm certainly it's certainly left. That's very interesting. You mentioned
• 56:19
  Speaker 1: some of your early mentors. Give us a little background
• 56:21
  Speaker 1: on them. Yeah, so I got plugged into through my brother,
• 56:26
  Speaker 1: this amazing group of players in New York. Uh so
• 56:29
  Speaker 1: they all they all started off playing in New York.
• 56:31
  Speaker 1: They had all come from this game's background. Um. Some
• 56:35
  Speaker 1: like Eric Sdel was an amazing uh backgammon player and
• 56:39
  Speaker 1: he was also an options trader. And then you know,
• 56:41
  Speaker 1: my brother came from really gotten there through chas. You
• 56:44
  Speaker 1: had Dan Harrington, who was won the World Series of
• 56:48
  Speaker 1: Poker UM main event, I mean, world champion, amazing player,
• 56:52
  Speaker 1: has written some of the most incredible books on poker
• 56:55
  Speaker 1: that you can get Harrington on hold them if anybody's
• 56:57
  Speaker 1: interested in learning, go get those books. UM guy named
• 57:00
  Speaker 1: Jason Lester who was one of the best back men players,
• 57:03
  Speaker 1: and I got plugged into them as mentors. Now what's
• 57:06
  Speaker 1: amazing is how much money collectively that group of players
• 57:10
  Speaker 1: has made. I have it in a in a end
• 57:13
  Speaker 1: note in the book, but just so that you know,
• 57:15
  Speaker 1: Eric Sidell alone has earned thirty eight million dollars in
• 57:18
  Speaker 1: tournament poker. So these were my mentors and and Eric.
• 57:22
  Speaker 1: I think uh is particularly prominent in the book because
• 57:27
  Speaker 1: when I talked about how do you have people watch
• 57:30
  Speaker 1: your back? He's the one who said this thing to me.
• 57:33
  Speaker 1: I had known him since I was sixteen, when I
• 57:35
  Speaker 1: wasn't a poker player, and we were just like friends
• 57:37
  Speaker 1: because he was friends with my brother. Then all of
• 57:39
  Speaker 1: a sudden, I'm a poker player and I walk up
• 57:41
  Speaker 1: to him like he's still my buddy. One day and
• 57:43
  Speaker 1: I just start moaning to him about this horrible luck
• 57:45
  Speaker 1: that I had had and I can't believe this. I
• 57:47
  Speaker 1: got so unlucky. It's such a bad beat. Blah blah
• 57:49
  Speaker 1: blah blah blah. And he laid it out for me. Boom,
• 57:53
  Speaker 1: He said, why are you even telling me this story?
• 57:55
  Speaker 1: Like do you think I need like your emotional hard
• 57:57
  Speaker 1: luck story? Like voiced it upon me. I've lost with
• 58:00
  Speaker 1: good hands too, Like do you have a question, Because
• 58:03
  Speaker 1: if you have a question, I'll talk to you all day.
• 58:05
  Speaker 1: But I just don't want to hear about your bad
• 58:06
  Speaker 1: luck stories, like literally there's nothing to be learned from it.
• 58:09
  Speaker 1: And and while it sounds a little bit harsh, that
• 58:12
  Speaker 1: was the most important moment of mentorship that I've ever
• 58:16
  Speaker 1: received in my life. That's quite quite interesting. So anyone
• 58:20
  Speaker 1: else influence how you approached the art of gambling? Yeah,
• 58:24
  Speaker 1: I mean I just obviously that group, And then within
• 58:28
  Speaker 1: poker there was also a guy named John Hannigan who's
• 58:30
  Speaker 1: actually mentioned in the book, who was someone I watched
• 58:32
  Speaker 1: really carefully. Um some I think that some of the
• 58:36
  Speaker 1: things most important lessons I learned from people who didn't
• 58:39
  Speaker 1: who probably didn't understand that they were mentoring me in
• 58:41
  Speaker 1: some way where I was just learning from them. And
• 58:43
  Speaker 1: in particularly important lessons for me were people who played
• 58:47
  Speaker 1: in ways that my group had not taught me to play.
• 58:50
  Speaker 1: So they were playing strategies that were very different from
• 58:54
  Speaker 1: the kinds of strategies that I I was being sort
• 58:56
  Speaker 1: of taught and that we're being fostered than me. And
• 58:59
  Speaker 1: the initial feeling on my part of they must be
• 59:03
  Speaker 1: really bad, like clearly they're just idiots, and they're winning
• 59:07
  Speaker 1: because they're just getting lucky, because just simply because I
• 59:09
  Speaker 1: didn't understand their strategies, and that shift of learning to
• 59:13
  Speaker 1: sort of dig into their strategies and figure out why
• 59:15
  Speaker 1: it was working for them and what they were doing,
• 59:17
  Speaker 1: even though it wasn't something that I was coming and
• 59:20
  Speaker 1: thinking was sort of the right play, UM was really
• 59:23
  Speaker 1: actually important. It's that openness to things that you don't
• 59:28
  Speaker 1: understand that just because you don't understand them or they're
• 59:31
  Speaker 1: not within your wheelhouse doesn't mean they're bad. Sometimes it does,
• 59:35
  Speaker 1: but it doesn't always. And that was I think some
• 59:37
  Speaker 1: of the most important membership mentorship that I received, And
• 59:40
  Speaker 1: I don't think those people know that they mentored me.
• 59:42
  Speaker 1: Tell us about a time you failed and what you
• 59:45
  Speaker 1: learned from the process. Oh, my gosh, which time? I
• 59:48
  Speaker 1: mean so many? I mean, you know, I feel like
• 59:52
  Speaker 1: for a long time I sort of carried around not
• 59:54
  Speaker 1: finishing my PhD as a failure. For sure. UM, I
• 59:57
  Speaker 1: think that that was a lesson in compassion towards myself. UM,
• 1:00:00
  Speaker 1: you fail all the time at the poker table, I
• 1:00:02
  Speaker 1: think you have to learn how to process that. I
• 1:00:04
  Speaker 1: had a startup UM that I was partnering called Epic
• 1:00:08
  Speaker 1: Poker that we started right at the end of UM.
• 1:00:12
  Speaker 1: The poker boom right. So this was right around I
• 1:00:15
  Speaker 1: think we started the company in two thousand ten and
• 1:00:17
  Speaker 1: we were trying to create sort of the PGA of poker,
• 1:00:20
  Speaker 1: and that company failed and it was it was awful.
• 1:00:22
  Speaker 1: Like I obviously I really wanted it to succeed, and
• 1:00:25
  Speaker 1: whenever a company fails, there's vendors that are angry. Some
• 1:00:28
  Speaker 1: of the players were angry. UM, and that was certainly
• 1:00:31
  Speaker 1: a lot to process. What I try to take from
• 1:00:34
  Speaker 1: every single time that I fail, whether it's the company
• 1:00:37
  Speaker 1: or failing on a particular poker hand, or feeling like
• 1:00:40
  Speaker 1: I failed in a tournament because maybe there were decisions
• 1:00:42
  Speaker 1: that I could made would have been better, I made
• 1:00:44
  Speaker 1: a big mistake that caused me to lose, or whatever
• 1:00:47
  Speaker 1: it might be. Is to say, the only real failure
• 1:00:50
  Speaker 1: is to not to take lessons from it, to figure
• 1:00:53
  Speaker 1: out to start trying to parse out what was luck,
• 1:00:55
  Speaker 1: what was skill? What could I change in the future,
• 1:00:57
  Speaker 1: How do I find compassion for myself? How do I
• 1:00:59
  Speaker 1: find compassion for other people? UM? And that's what I'm
• 1:01:03
  Speaker 1: always trying to work on, is that. UM And hopefully
• 1:01:08
  Speaker 1: I'm I'm doing an okay job at that. That's quite
• 1:01:11
  Speaker 1: quite interesting. What do you do to stay mentally or
• 1:01:14
  Speaker 1: physically fit outside of work. Well, I think that the
• 1:01:18
  Speaker 1: you know, for me, I think that mental and physical
• 1:01:21
  Speaker 1: fitness actually go hand in hand. Um. I think that
• 1:01:24
  Speaker 1: the average view of a poker player is someone who's
• 1:01:26
  Speaker 1: you know, overweight, with advisor and a cigar or something
• 1:01:29
  Speaker 1: like that. I'm not sure, but actually most of the
• 1:01:32
  Speaker 1: really uh top poker players are not that at all
• 1:01:35
  Speaker 1: and are actually in pretty good physical condition. So I
• 1:01:38
  Speaker 1: play a lot of tennis, I do a lot of yoga.
• 1:01:41
  Speaker 1: I do something called solid core, which is like uh,
• 1:01:43
  Speaker 1: sort of pilates on steroids UM, and I spin UM.
• 1:01:48
  Speaker 1: So I am working out actually more than seven times
• 1:01:52
  Speaker 1: a week because I'm often at layering yoga UM on
• 1:01:55
  Speaker 1: top of that. And I think that that's just really
• 1:01:57
  Speaker 1: important for mental fitness. You're sitting down at a poker
• 1:02:01
  Speaker 1: table or doing work like what you do in investing,
• 1:02:04
  Speaker 1: it's like you're doing math problems all day. You go
• 1:02:08
  Speaker 1: open up a textbook and do math problems all day.
• 1:02:10
  Speaker 1: It's really tiring. It could be physically exhaust it's physically exhausting.
• 1:02:13
  Speaker 1: So I think if your physical self isn't in good shape,
• 1:02:15
  Speaker 1: then your mental self you know you can't be sharp.
• 1:02:19
  Speaker 1: If a millennial or recent college grad came to you
• 1:02:23
  Speaker 1: and said they're thinking about a career as a professional
• 1:02:27
  Speaker 1: poker player, what sort of advice would you give them.
• 1:02:30
  Speaker 1: I think that now the advice I would give, because
• 1:02:33
  Speaker 1: it's been on television, so I think it's considered a
• 1:02:35
  Speaker 1: little more glam is to know what you're getting into.
• 1:02:38
  Speaker 1: I mean, it's a grind. You have to put in
• 1:02:41
  Speaker 1: your hours because the amount of money you're gonna make
• 1:02:44
  Speaker 1: is gonna be tired to how many hands you get in.
• 1:02:46
  Speaker 1: So it's long hours. It's tiring. Um. It's it's physically
• 1:02:51
  Speaker 1: exhausting to be in a casino. It's obviously piped in
• 1:02:54
  Speaker 1: stale air. There aren't windows, so you're not getting any sunlight. Um,
• 1:02:59
  Speaker 1: and it's mentally really grueling. So that's number one. Uh,
• 1:03:03
  Speaker 1: And then number two to recognize that it's a very
• 1:03:05
  Speaker 1: small portion of people that can really make their living
• 1:03:09
  Speaker 1: at it. I think that probably the advice I would
• 1:03:11
  Speaker 1: give would be the same as someone who came and said,
• 1:03:14
  Speaker 1: I'm going to go make my living being a day trader.
• 1:03:16
  Speaker 1: It's like, great, there's some people who are amazing at that,
• 1:03:19
  Speaker 1: and they're amazing at high frequency trading, and they do
• 1:03:22
  Speaker 1: an incredible job of it. Just to understand that most
• 1:03:25
  Speaker 1: people don't right and they go broke. And so just
• 1:03:28
  Speaker 1: go in there with open eyes as to what you're getting,
• 1:03:31
  Speaker 1: as to what your chances of success are. It's it's
• 1:03:34
  Speaker 1: not that I don't think that you personally can succeed,
• 1:03:36
  Speaker 1: just know, um, and be prepared for something that's physically
• 1:03:40
  Speaker 1: and mentally really grueling. And my final question, what is
• 1:03:43
  Speaker 1: it that you know about poker, playing, gambling, uh, statistic
• 1:03:48
  Speaker 1: and luck today that you wish you knew twenty years ago.
• 1:03:52
  Speaker 1: I think essentially everything that I wrote in the book.
• 1:03:56
  Speaker 1: When I first started playing, I think that I was
• 1:04:00
  Speaker 1: I think that I thought that I was much better
• 1:04:02
  Speaker 1: than I actually was. Um, I thought I was hot,
• 1:04:06
  Speaker 1: you know yeah, uh, you know I describe this scene
• 1:04:12
  Speaker 1: and which is I remember so well? You know, so
• 1:04:14
  Speaker 1: remember I said, my brother wrote all these hands down
• 1:04:16
  Speaker 1: on a napkin, and my brother was a world champion player,
• 1:04:19
  Speaker 1: and I somehow thought like I was like way better
• 1:04:22
  Speaker 1: than these people in the game that I was playing
• 1:04:24
  Speaker 1: with because I had my napkin from my brother. That's
• 1:04:27
  Speaker 1: like as Dunning Krueger, as you could get right and people.
• 1:04:31
  Speaker 1: When I saw people play hands that weren't on my
• 1:04:33
  Speaker 1: brother's list, I was just like, Wow, that person must
• 1:04:36
  Speaker 1: be an idiot. They're playing a hand that isn't on
• 1:04:38
  Speaker 1: my brother's list, and I just said, I'm so embarrassed
• 1:04:42
  Speaker 1: by that. Oh my gosh. So when I first started playing,
• 1:04:45
  Speaker 1: I wish I had known how little I knew. I
• 1:04:48
  Speaker 1: wish I had known that I was not even close,
• 1:04:52
  Speaker 1: like I was a seventeen universes away from being any
• 1:04:56
  Speaker 1: kind of expert, and that here's a really importan thing
• 1:05:00
  Speaker 1: that I wish that I had known that the worst
• 1:05:02
  Speaker 1: player at the table has something to teach you, and
• 1:05:04
  Speaker 1: that thing that they're going to teach you is really
• 1:05:06
  Speaker 1: really important. And it took me a long time to
• 1:05:08
  Speaker 1: figure that one out. That's quite fascinating. We have been
• 1:05:12
  Speaker 1: speaking with Annie Duke. She is the author of Thinking
• 1:05:15
  Speaker 1: in Bets, Making Smarter decisions when you don't have all
• 1:05:18
  Speaker 1: the facts. If you enjoy this conversation, be sure and
• 1:05:22
  Speaker 1: check Up an Inch or Down an Inch on Apple
• 1:05:24
  Speaker 1: iTunes and you could see any of the other At
• 1:05:27
  Speaker 1: this point almost two hundred podcasts that we've had previously.
• 1:05:31
  Speaker 1: We enjoy your comments. And feedback and suggestions right to
• 1:05:36
  Speaker 1: us at m IB podcast at Bloomberg dot Net. I
• 1:05:39
  Speaker 1: would be remiss if I did not thank our staff
• 1:05:42
  Speaker 1: who helps to put together UH this podcast each week.
• 1:05:45
  Speaker 1: Medina Parwana is our producer and audio engineer. Taylor Riggs
• 1:05:50
  Speaker 1: is our booker. Mike bat Nick is our head of research.
• 1:05:53
  Speaker 1: I'm Barry Retolts. You've been listening to Masters in Business
• 1:05:57
  Speaker 1: on Bloomberg Radio. Tempting, tempted to so