Review of Chapter 2 of “Thinking in Bets” by Annie Duke
Chapter 2 of Annie Duke’s beautiful book contains so many powerful ideas that I cannot do it justice in a short blog post, but I will nevertheless try. Among other things, this chapter explores the ways in which our beliefs can disrupt or mess with our ability to make sound decisions. To summarize, our beliefs, even our most cherished ones, are dangerous in two different ways. One is belief formation: we often acquire our beliefs without testing their accuracy or probing their truth value. Worse yet, the other potential danger is inertia; that is, once we acquire a given belief, it becomes next to impossible to revise or modify. Put another way, beliefs tend to become fossilized or frozen in our minds, and this mental inertia is dangerous because it leads to motivated reasoning, or in the eloquent words of Annie Duke (p. 56): “Instead of altering our beliefs to fit new information, we do the opposite, altering our interpretation of that information to fit our beliefs.”
To sum up, motivated reasoning can impede the search for truth and impair our ability to make sensible decisions, but does this mental mischief have a viable solution? Is it really possible to stop motivated reasoning in its tracks or at least ameliorate this temptation? Here is where “Thinking in Bets” (literally!) comes into play. Simply put, Annie Duke’s brilliant solution to the sin of motivated reasoning is to reframe our decisions in probabilistic terms, i.e. convert our decisions into bets. Why wagers? Because bets or wagers encourage us to engage in Bayesian reasoning, to question or reconsider the accuracy of our beliefs, to calibrate or adjust our beliefs based on the available evidence. Ok, but how does the act of placing a simple bet produce such a skeptical or questioning Bayesian attitude? By forcing one to have “skin in the game,” so to speak. After all, a bet costs money, and no one likes to lose money, or as Annie Duke puts it (p. 43), “when you are betting, you have to back up your belief by putting a price on it.” (Or as my colleague and friend Alex Tabarrok is so fond of saying, “a bet is a tax on bullshit.”)
Alas, motivated reasoning is not the only form of mental mischief that deforms our good judgments and destabilizes our ability to make sound decisions. In addition to the sin of motivated reasoning, we must also beware the temptation of self-serving bias, as we shall see in our next post.