Review of Chapter 3 of “Thinking in Bets” by Annie Duke
As we saw in my previous post, Chapter 2 of “Thinking in Bets” is devoted to the problem of motivated reasoning. Next, Chapter 3 explores another form of mental mischief: the sin of “self-serving bias.” To simplify, whenever we place a bet or make any type of decision at time T1, two outcomes are generally possible at time T2: a good outcome or a bad one, depending on whether we win or lose the bet at time T2, i.e. depending on whether the decision goes our way. What “self-serving bias” does is to distort our ability to evaluate whether these possible outcomes were the result of our hard work and skill or the result of factors beyond our control, of just pure luck. Simply put, in the words of Annie Duke (p. 92), “we take credit when good things happen and deflect blame for bad things.” (For a visualization of self-serving bias, see image below.)
In reality, however, the outcomes of our decisions are rarely 100% luck or 100% skill. Instead, most outcomes are the result of both skill and luck, or to be more precise, the result of various degrees of skill and luck. Alas, given how entrenched self-serving bias is, what is to be done? How can we avoid or at least ameliorate this dangerous temptation, the sin of self-serving bias? The solution, once again, is to think in terms of bets, to reframe your decisions prospectively and retrospectively in probabilistic terms. How do bets neutralize self-serving bias? The same way they counteract motivated reasoning: by inviting us to engage in probabilistic and Bayesian reasoning, i.e. to update our beliefs based on the available evidence.
But this Bayesian or betting response to self-serving bias (and to motivated reasoning, for that matter) poses a new question of a practical or logistical nature–namely, how do we actually go about redefining or reframing our decisions into bets and wagers? We will review Chapter 4 of “Thinking in Bets” and address this key question in our next post on Monday, April 20.