Annie Duke is a renown public speaker and decision strategist. For two decades, she was one of the top poker players in the world, including winning a World Series of Poker bracelet and the $2 million winner-take-all WSOP Tournament of Champions. Her study of the science of smart decision-making began with a National Science Foundation Fellowship, which she used study Cognitive Psychology at the University of Pennsylvania.  Among her charity work and television appearances, Annie was a runner-up to Joan Rivers on Celebrity Apprentice, during which she raised $700,000 for Refugees International. She is a natural teacher and storyteller with an active mind that constantly searches for accurate truth.

I highly recommend Annie’s new book, Thinking in Bets, which comes out this week. In her life after poker, she is a featured speaker, writes a newsletter and a blog, and advises companies on improving their decision-making process. Have a look at her website, annieduke.com, for more information.

Our conversation discusses Annie’s path from an Ivy League education to professional poker, the nature of a bet, how we form beliefs, why we make bad decisions, and what we can do to improve our decision-making process. Towards the end, we also talk about bankroll management, poker faces, and advice she would give the President on how to make better decisions.


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Show Notes

2:30 – Annie’s path through the poker world 

6:05 – Her transition into teaching and the lesson of tilt 

11:57 – How do you apply the concepts of betting and gambling broadly to decision making 

13:35 – What is it about the science of the brain that prevents us from making good decisions

            14:17 Stumbling on Happiness

            14:19Dan Gilbert Ted Talk

            15:44 Kluge: The Haphazard Evolution of the Human Mind 

18:50 – Motivated reasoning 

21:10 – Is there anything we can do to fix our decision-making biases (wanna bet) 

28:05 – Other devices to improve our decision-making 

32:29 – Value of a decision group

            33:16 Superforecasting: The Art and Science of Prediction

34:00Mertonian Norms, CUDOS 

40:27 – Mental time travel (Marty McFly from Back to the Future)

            42:55Jerry Seinfeld – Night Guy vs Morning Guy 

44:55 – Applying these tools and the parallels between poker and investing 

48:59 – Reading poker faces

            49:21 Joe Navarro books

            49:34Joe Navarro Psychology Today 

52:50 – What advice would Annie give President Trump in terms of improving his decision-making process 

53:52 – Favorite sports moment 

55:45 – What teaching from Annie’s parents has most stayed with her 

56:08 – What information does Annie read that a lot of people might not know about that is valuable

            56:18 The Greatest Show on Earth: The Evidence for Evolution

            56:19 Why Evolution Is True

56:58 – What life lesson does Annie wish she knew earlier in life

58:28 – Looking ahead, what advice would Annie give herself today from a ripe old age

United States


00:00:06I'm ted societies and this is capital allocators This show is an open exploration of the people and process behind capital allocation Through conversations with leaders in the money game we learn how these holders of the keys to the kingdom allocate their time and their capital you can keep
00:00:25up to date by visiting capitol allocators podcasts dot com my guest on today's show is any duke and he is a renowned public speaker and decision strategist who for two decades was one of the top poker players in the world Among her highlights were winning the world series
00:00:46of poker bracelet and winning the two million dollar winner take all world series of poker tournament of champions Her study of the science of smart decision making began when she received the national science foundation fellowship which he then used to study cognitive psychology at the university of pennsylvania
00:01:05from her charity work and television appearances And he was a runner up to joan rivers on the celebrity apprentice during which he raised seven hundred thousand dollars for refugees international there's a natural t turn storyteller with an active mind that constantly searches for accurate truths I highly recommend
00:01:24annie's new book thinking in bets which comes out later this week in her life after poker she's become a featured speaker writes a newsletter in a block and advises companies on improving their decision making process have a listen Our website annie duke dot com for more information our
00:01:42conversation discusses annie's path from an ivy league education to professional poker the nature of events how we formed beliefs why we make bad decisions and what we can do to improve our decision making process towards the end We also talk about bankroll management poker faces and advice She
00:02:01would give the president on how to make better decisions with the podcast growing an audience each week I want to thank you for turning in and ask you to spread the word to just one friend this week If you'd like You can also join the one percenters that's
00:02:15one percent of listeners who were kind to take a minute to write a review on itunes Let's keep the mo mentum going Please enjoy my conversation with annie duke any thanks so much for coming and joining me I'm so happy to be here You have this background I
00:02:38like the way you say that Like e big educated poker playing background one Well we just start with you take a little bit of time to talk about your path to poker and then where we are today sure so i started off doing my undergrad at columbia and
00:02:57they're in my freshman year i met professor there named barbra landau and she's Amazing she's now at johns hopkins And she was studying first language acquisition and children And i ended up being her research assistant for four years while i was at columbia And at the time i
00:03:13thought you know going to stay in new york Several really really loved new york but she really pushed me to go and study with her advisor for graduate school A woman named lila lightman and her husband henry lightman who were a pen So i applied to pen I
00:03:31got independent went visit I loved it I loved lilah I loved henry I loved the program there So i ended up going to philadelphia Teo you know get my phd in cognitive psychology And you almost got it Yes So So things take a little bit of a turn
00:03:46I finished my course work got my masters did my qualifying exam I did my research and i had all of my job talks lined up So i was going to go out for my job tax I actually got sick right before that and ended up in the hospital
00:04:01for two weeks So in the academic world it's a seasonal market So if you kind of miss that one sees in you have to wait a full year You know i just got married my husband is not my ex husband had a place in montana and we said
00:04:15okay we'll just go there and you know i can recuperate and then i'll finish the whole thing and i'll go back out the next season but i discovered that when you leave school for that time off that your fellowship doesn't follow you and i said oh no i
00:04:30need money and it was then that i started playing poker in a little tiny card room in montana called the crystal lounge which is everything that you could imagine from a little tiny borrowing downtown billings montana with that name it's kind of wild too come from i guess
00:04:45you could call a card playing family it wasn't this rare thing that one day you said hey i'll just go try poker yeah it wasn't so out of the blue i mean we played a lot of cards when i was growing up not poker per se but my
00:04:57brother he had gone off to go to college and he was really into chest he was actually an amazing chess player and so sort of threw this chess world he kind of fell into playing poker so he had already been playing for quite a while before i ever
00:05:13started playing i think actually he really been playing for about ten years so by the time i got around to this thing that i did he had already made the final table of the world series of poker He was really already a great player so it wasn't like
00:05:27completely out of the blue I had watched him play quite a bit when i was in graduate school on my fellowship which doesn't leave you a lot of room for like vacation money He actually would fly me out to vegas once a year for a vacation He had
00:05:40given me a little money to play in some low stakes games so you know i had some experience and he said i was just kind of talking like i don't know what to do like i don't know what i'm supposed to do to make money now Well i'm
00:05:51waiting you know to go backto academics and he's the one who actually suggested said you know i think that you can play poker in montana why don't you do that And so that that sounds like a good thing to do for the meantime The meantime turned into twenty
00:06:04years so there you go Did you recognize at the time that your training in psychology would be so relevant for the game itself At the time i would have to say definitely know there's language acquisition over here and then there's poker over here and i didn't necessarily obviously
00:06:18see how those two things might relate to each other now in retrospect i can say it was certainly really helpful but the first time that i actually thought about it in any kind of really explicit way that there was this really strong relationship between the two things was
00:06:33in two thousand two when i got asked to give my first talk a friend of mine named eric seidel who's an incredible poker player absolutely one of the legends of the game who actually met when i was sixteen long before his playing poker through howard eric got asked
00:06:48by a friend of his to speak teo retreat of options traders for this friend's hedge fund and eric knew him his name's roger low eric knew him because eric used to trade on the floor and so eric had been involved in the world of finance is well so
00:07:04his friend said hey will you come and talk about what poker might teach us And i think eric had a tournament to play or something and i was taking time off because i was super pregnant at the time i think i was about two weeks away from having
00:07:16my fourth child i wasn't traveling anywhere and so he said i can't do it but my friend annie you know you should have her do it I had to think about how my going to explicitly talk about the relationship between these two things and that was the first
00:07:29time that it really opened up to me it's sort of top of mind that there was actually an incredibly strong relationship between the two things and that what i've been doing in graduate school actually had been incredibly helpful for me in poker and could be helpful in general
00:07:43teo understanding how do you make decisions you know particularly under conditions of uncertainty so i started talking in two thousand two but actually around that same time i got an offer to go and become a trader and i was very very very far down the path of saying
00:07:59yes to that when poker eh exploded all over television i really really really love poker but i never could play it quite as much as everybody else because i had four children So you know mom first for sure poker players second so i had gotten offered this job
00:08:18I thought you know that would be really interesting you know tio to be a trader and there seems like there would be a good connection and maybe this would be really good training for that and the reason why i step back from it was that that was the
00:08:28year that the ws opie got televised with the whole card cameras for the first time that w p t started and i took a step back and i said to the a company that was think about her and me you know let me take a second look i
00:08:42may come back to it but it seems to me that there this might be kind of an interesting journey of its own now the poker's on television So i decided to continue down that road and on that journey that poker was offering me and it was incredible but
00:08:56from that one talk in two thousand two i was getting referred out and what i was discovering even from that first top it was really re igniting this fire that i had for teaching When i was in graduate school one of my favorite parts of it was actually
00:09:10teaching and by the time you finish your masters who actually get your own classes you're not you know just the tia and i loved it that idea of like communicating to an audience and having them not an agreement and feeling this sort of think about what poker is
00:09:25the total not zero sum nous of it all was something that was really fulfilling something in me that i wasn't necessary getting from other things and so once i started getting referred out i started really actually focusing on developing that business also in parallel which i did and
00:09:42what were those first set of lessons that you were imparting on traders what i got asked to speak about by roger was risk and i didn't actually talk about it i ended up talking about something else which was tilt so tilt for people who don't know the work
00:09:58because it's a very poker re term sounds like a pinball term well it is a pinball term exactly if you think about a pinball machine what happens when you shake it It shuts down and says tilt and the mechanics kind of don't work so borrowing from that analogy
00:10:13you can think about when you're emotionally lit up it's like you're brain is shaking and it shuts down the prefrontal cortex is shuts down your ability to reason in the same way that a pinball machine just won't work anymore so that's where the term comes from actually it
00:10:29is a pinball an analogy it's it's been brought into poker so here's the thing and poker you have a really good thing happening that also khun cause a really bad thing happens you have a chip exchange that's occurring so you're essentially marking every single transaction and you're following
00:10:46them p and l right like you're seeing in real time it's like you're really watching that ticker now there's something good that comes out of that which is that it forces you to recognize that every single decision even the little tiny execution all ones on your way to
00:11:01sort of a larger goal have upside and downside associated with them that there's risk in every decision that we make even the little tiny ones and in poker you don't need to wait so much to see those play out over time because there's this compressed time frame so
00:11:15that's the good thing because you really really focus on the execution and poker because of that But the bad thing is as anybody who's done in a ticker watching in their life knows is that that can really light your emotions up I mean when you have those down
00:11:28swings you could get really emotional about it by the way Also when you have a big upswing you can overreact to that as well and when we get into the emotional part of our brain we don't think well so what i talked to them about was how do
00:11:41you manage this So i was imparting some thought on howto sort of make sure that you're limiting how much tilt is affecting your decision making Yeah i want to come back to a lot of the demonic tools that you've created when i think about a bat night was
00:11:57looking your book thinking and bets i think about poker i think about sports gambling betting how do you take that concept of a bet and then make it broadly applicable to decision making So first only say it's really easy because all decisions are actually bad it's just a
00:12:12matter of making that explicit So if we think about what a bet is we're trying to make some decision about howto investor resource is that's informed by the beliefs that we have about what the possible future might look like Obviously when you're playing a game like poker the
00:12:32thing that you're investing his money but there's other things that we can invest like time we can invest our happiness we can invest our health we have these limited resource is that we can invest So once you start thinking about that that's what about really is well gosh
00:12:47that sounds like any decision that you make if you are in a restaurant and you're trying to choose between ordering the chicken or the fish If you order the chicken you're forgoing the fish so that's the limited resource you have to choose between one or the other and
00:12:59you forgo all other options when you choose the chicken and you're betting that the future that results from having chosen the chicken is going to be better And have a higher rate of return for whatever it is in this case it might be health or happiness or enjoyment
00:13:13or whatever then the future that would result from ordering the fish that's not any different than if i bet on a hand of poker it's the exact same thing the difference is that in poker that is made explicit and that's a really good thing because we're always betting
00:13:29on an uncertain future whatever the decision we made so embedded in that you talked about a better decision being based on beliefs and we met through michael motion and talked a lot about dan economies work so there's a lot of hard wiring about belief system one system to
00:13:46thinking that caused us to get things wrong yeah i loved your description in the book of the science of the brain that prevents us from getting these things right and then what are those problems issues that we have of making good decisions I think that a lot of
00:14:01people are really from earlier with dan gilbert's work stumbling on happiness they might know him from the prudential commercials as well you know where the people like put up how much have you saved for retirement isn't enough I don't know i'm a harvard professor so dan gilbert is
00:14:14very very famous for stumbling on happiness is given a ted talk on it but people actually are less familiar with cem really interesting work that he did on belief formation in the nineties so here is the issue if you think about the evolutionary history of the human species
00:14:33so now we're talking about what is this the machinery that were sort of come with in terms of our brains For most of the evolutionary history of our species the way that we form beliefs was through our perceptual system I couldn't tell you something that happened in a
00:14:48remote part of the world that you had never experienced right There was no way to communicate that so you're forming beliefs based on what you see you see a tree now you have a belief about that tree you touch something so this is all happening to our senses
00:15:02It's perceptual if you think about perceptual belief formation there's really no reason to vet the beliefs because we don't come across things like mirages or hallucinations very often so if i see a tree i can mark that is true I believe that this tree is there I've marked
00:15:23a true belief possibly like something could happen like if you happen to end up is a mirage You saw something on the horizon that you thought was something and then you came up close to it You might then change the belief but mostly it's like you you see
00:15:34it you believe it and then that's it that's the end of the process now as evolution does and this is very beautifully described in a book called cluj by a guy named gary marcus really highly recommended what evolution often does is create a cluj it's like let's macgyver
00:15:50it we're going to take some toothpaste in a paper clip and of wire and we're going to make a bomb so we have this way that we foreign beliefs and now we've got this new thing which is that we conform abstract please i can communicate things to you
00:16:04about things that you've never experienced for yourself now you conform and as jack billy course storytelling really exactly so evolution as it will does not say oh we're going to just build brand new machinery that processes information in a totally new way to handle this new stuff which
00:16:22is abstract instead it says let's just glom onto what's already there we have this perceptual belief formation system it's worked really well for us it's stopped us from getting eaten by all the lions on the savannah so yea us we'll just use that and that's exactly what happened
00:16:37so intuitively if i were to say to you how do you form your beliefs I'm betting you would say well i hear something or i read it and then i think about it and i think about what i know about it and if it's true or not and
00:16:51then after i've done like a bunch of thinking about it then i decide whether i'm going to lodge it is true or not so you think it goes here it vet it a step too and then lodger believed true or false step three so what dan gilbert showed
00:17:08in the nineties was no no no no no it's just like perceptual believe you hear it you lodge it is true and then maybe later on you vet it so now we believe what we hear and what i point out in the book is that's not so much
00:17:25of a problem if you actually get to step three so step three would be the vet it check it you know check it against reality see what the objective truth is make sure that you're calibrating your beliefs updating them all the time so on so forth so if
00:17:38we knew that we were doing step three the fact that you sort of defaulted to believe it's true first yeah not such a big deal The problem is that there's all sorts of work that shows that you just don't do step three and that's where we really get
00:17:52into trouble is that we hear it we believe it and then like maybe if we have the time or information later we might do some vetting of it but we vet it in a way to sort of confirm the belief i already got lodged for this reason that
00:18:04it wasn't even vetted in the first place and we'll work really really really hard if we're confronted with information that disagrees with the belief that we've lodged in this really haphazard way to make sure that we discredit the information that disagrees with this haphazard belief so you can
00:18:20see how this may cost a few problems a little bit just a few you can't think your way out of it right This is just hard wiring Yes So there's really amazing work by a guy named dan kahan he's at yale and what he's shown is people know
00:18:35a lot about confirmation bias so confirmation bias is specifically you're you're kind of noticing information that confirms you and you kind of don't pay attention to you don't notice information that is discomfort ming so dan kahan has done a lot of work in this sort of larger process
00:18:50called motivated reasoning that not only do you have confirmation bias but if i hand you information and force you to read it so now you can't ignore it of something that disagrees with you you will work incredibly hard to discredit it So if i give you a scientific
00:19:03article that agrees with the belief you have you'll go yeah sounds good And if i give you a scientific article that disagrees he'll be like well here's all the problems with the methodology and their end was too small you know i think they might have been p hacking
00:19:14and you know i mean you will literally just come up with every reason why this isn't true okay So that's really part of motivated reasoning is that our beliefs drive the way that we process the information which then reinforces the belief so it becomes this circular pattern So
00:19:28what dan kahan showed is that being smart doesn't help because i think intuitively we think well i'm a smart person and now you've told me about what you think and i kind of know about these biases so now i'm not going to anymore dann konnen also qi standard
00:19:44which actually has done some of this with blind spot bias that the smarter you are the sort of the bigger your blind spot biases So con showed did this work which showed that if i test you for how good you are with statistics we're just analyzing some sort
00:19:58of neutral statistic like does this skin cream work I assume you don't have any very strong emotional that's not yet e can find you some people who dio i'm guessing So if i hand do that the results of some sort of study about skin cream and now i
00:20:13just test how good are you it analyzing the data I assume you'd be very good at it and i take you compared to somebody who's maybe not so good at analyzing the data So now i've got you divided into two groups the statistically adept people and the statistically
00:20:26not so adept people Now i give you literally the identical data but it's about gun control and what happens is that how biased you're reading of those statistics is they were perfectly fine with when it was king cream is actually correlated with how smart you are and it's
00:20:43correlated in the bad way so the smarter you are the better you are at kind of slicing and dicing this data to support whatever your prior is So if your prior is gun control is a good thing you'll slice and dice the data to support that If your
00:20:59prior is gun controls terrible and it's horrible then you'll slice and dice to support that the people who are not so good with statistics while bias don't show as big a bias so let's see wait we're pretty hard wired to make some bad decisions and the smarter way
00:21:17are the worse it gets the worse it gets and we don't even better believe it's a lot of doom and gloom so far it iss and so you know we've talked about right i'm in the world investing and it's easy to see how applicable it is is there
00:21:30anything we can dio tow fix the problem or at least to not screw it up as much I see you're looking for good news no we're done i'm on the fight and we'll start next week so not a lot of good news excellent yea that's the good news
00:21:48so so let me just start with the title of the book thinking of bets so the first stab is tio understand and think about the information in this new way where remember this advantage that poker player guys have that i talked about at the beginning is that it's
00:22:05very explicit that these kinds of decisions are bad and that you're better informed by your beliefs now here's the thing about a bat is that who wins a bat the person who proves there right in the confirmation bias kind of way or the person who is developing the
00:22:21most accurate representation of the objective truth it's clear that the second person is goingto be the one winning bats so if we start to think about things as bats which makes the risk explicit it forces step three if we go back tio dan gilbert's work if forces that
00:22:38vetting step it's very intuitive let's say that you say some thing that you think is one hundred percent true For example you say citizen kane won best picture you just announced that was certainty Let's say that you now say to me the one about what happens to you
00:22:56Hmm Wait a minute Let me think about that So i want to bet on citizen kane is best picture So this thing that you literally said a second ago as if you were just one hundred percent sure that it was true you now start to go through that
00:23:09third process Well what do i know What does he know That i don't know Let me think about that because he may have information that i don't have it Let me think about that What other things could have won that year You ask yourself how sure i am
00:23:21of that on my one hundred percent sure it's probably right So it forces you to start thinking probabilistic lee it forces you to start going through that step three process of seeking out information in a much more unbiased way because you're trying to figure out what the objective
00:23:37truth is now because now you're being forced to put something on the line it's sort of a skin in the game question so that frame through which we look at things is the first step to understanding how do we calibrate our beliefs and really really really wonderful things
00:23:52happen from that what starts to happen is that you start to express yourself in a more probabilistic fashion because you don't want to get challenged if i announce things and then attach some sort of level of certain auntie to it So i say now if i speak to
00:24:06you and i say well citizen kane won best picture i'm going to say i'm sixty percent on that i've done two really wonderful things first of all i've accurately represented what my state acknowledges which is always better better decision makers but i've also invited you to be my
00:24:19collaborator to help me vet this and that is going to get us to much better decision making is going to get us to be less biased I've invited you to check my bias for me and there's two reasons why opening that door wide open with this expression of
00:24:35uncertainty is really helpful in getting you to help me The first is that when i express things with total certainty one thing you might do is not tell me what you know about it because you're embarrassed because i've said it with such assurance that maybe now you think
00:24:51you're wrong about this whole citizen kane thing so that's reason number one but reason number two is even if you're pretty sure that citizen kane didn't win you might not tell me she didn't want to embarrass me so we have all these social reasons why you might not
00:25:03do this once i say sixty percent it's like there's none of that i mean i imagine is true in the trading world and the allocation world people just state their case and so that lesson is say if you state your case with probabilities you end up with a
00:25:19richard conversation so not only do you end up with a richard conversation but you're more believable is a communicator so i think it's a little counterintuitive but our intuition isn't always good so i mean our intuition is that when i hear something i vet it before i said
00:25:32whether you believe it we know that that's not true intuitively i think we think that as leaders we need to express things with confidence and we confuse confidence uncertainty so we think if i say i know it's going to be this way i'm one hundred percent sure this
00:25:47is true that we're going to be more believable communicators well first of all that's not an accurate representation the world because there's too much luck involved so if i say to you like i know the future is going to be this way if we make this decision that's
00:26:00patently silly because there's too many things that can intervene so oh i am just accurately representing the world that way when i speak that way but i'm also more believable is a communicator because when i say to you here the possible ways i think it's going to turn
00:26:15out and i'm going to make a stab at assigning probabilities to this variety of scenarios Now you look at me and you say wow she's put a lot of thought into this she's clearly informed she's telling me what she knows and what she doesn't know she's acknowledging where
00:26:31her knowledge gaps my beer where she needs help or any of those things and that in itself makes me a more believable communicator The other thing is that in particular people who are leaders need to be very careful about the way they express things because anybody on the
00:26:46team who has a leader up at the front saying here's the strategy we're going to do this and you know i'm sure of it the people on the team want to be a team players and being a team player is not disagreeing with the boss but the other
00:27:00thing is that if we go back to that work that we talked about with dan gilbert how easy it is for me to infect you with my belief you know we hear it we believe it so just by expressing how you think things are going to turn out
00:27:11you've now caused the virus like you've infected everybody with your belief and they're going to tend to reason toward your conclusion because now they're going to be sort of late invited into the confirmation process with you as opposed to the exploration process with you what a great device
00:27:25to just improve the way we can think get into problem stick thinking by just asking someone he won a bet and i have to say i used this on my daughter last week oh tell me twelve year old i don't remember exactly what she said but she threw
00:27:38something out there and i just noticed the book and i said they want it bad and she paused and it works and you could see it you could see it in her head she paused whatever she had said to me she completely understood so that was great i
00:27:54love you getting that few back of the application of the book i mean obviously at this point you're one of the first raiders of the button so hearing that application and cities of seeing it in action it worked thank you thank you so let's talk about more yeah
00:28:06what are some of the other devices that we can use to improve the way we make this here's a thing so we have this kind of general framework which is this idea of thinking about things is that but we know let's just be honest that were pretty biased
00:28:21and let's assume we're smart so it's even worse so really what wanna bet does is get you to think about what does it mean toe win so our default is winning would be affirming that our beliefs are already true that bad things that happen on our fault that
00:28:36good things that happen or to our credit and that's sort of what nature has sort of defined winning as for us this week but that's a big one so that concept right they're of good things that happen we take credit for yes it's called self serving bias seems
00:28:50like a good name for a good investment decision whatever is there something doesn't work out not our fault the syriza circumstances you know oh yeah i've all tough but we're low volume byron now right Love all right live off so that's sort of like the programming okay that's
00:29:05what it means to be right but wanna bet does is it shifts your idea of what winning means so winning is now actually having the most accurate representation of the world and that really comes through the accountability that this idea of betting is because when you challenged your
00:29:22daughter too about your holding her accountable to her beliefs in a way that normally we don't do what that does is it makes it so that instead of viewing information that disagrees with us as an attack on our identity it now changes that too helpful because now if
00:29:38you have information that might calibrate my belief well that's goingto cause me to be a better better and i've now changed the rules of what the game is but it's really hard to do on your own that's the thing so we're all just really biased we default to
00:29:49these natural ways of thinking it's kind of the way that are brain works but here's the thing and i'm sure that you've noticed this in your own life Do you think you're better it's sort of noticing your own baggage or other people's when other people's air running around
00:30:03taking credit for all sorts of staff or just being like oh i lost because insert hard hard luck story or thing that was unpredictable or whatever they couldn't control you spot it right away we're like come on and what that tells us is that other people are actually
00:30:19pretty good at spotting our biases so in the same way that you sort of naturally recruit people into the process with you when you express things probabilistic lee why not do that intentionally And itjust purposely recruit people into the process with you so you conform a really good
00:30:36a group of people who have decided together that they have a commitment to accuracy that they're going to hold each other accountable to that commitment and necessarily that they're going to be open minded to diverse viewpoints and they're going to consider counterfactual tze and they're going to look
00:30:54for information that disagrees with them and they're going to be all sorts of things like a really good credit giver a really good mind changer belief calibrate er all of these things and get people into that process with you because honestly they're going to better it sort of
00:31:09seeing your stuff than you are and now you can be really helpful to each other and then the side benefit which is actually in some ways the primary benefit is that they're going to reinforce these new habits of mind So if you're in a group which has this
00:31:27commitment and we all know like let's be honest like when someone else is doing really well and things aren't going so well for us it's hard to give them credit that it doesn't feel that good but if you've gotten some people together who have made this commitment together
00:31:40now when you give credit they're going to go that's amazing that you gave credit to that person because i know things are going so well for you so like good on you that's so incredible and the thing is that that kind of social approval can be like the
00:31:52biggest pellet for the rat you know the biggest reinforce er and now that's what's going to start to get you that good feeling as opposed to just sort of the immediacy of the swatting away of the bad thing Now the idea though i'm really good at giving credit
00:32:06to people and these people have now reinforced that for me that's going to start to get you to this place of being a much better decision maker and it's all about how is the group sort of reinforcing these kind of commitment teo being unbiased and open minded and
00:32:21all of these things through this accountability mechanism that the group is providing which is something you naturally see at a poker table So if there are rules good rules for the group so there is accountability to the truth sounds like some type of positive affirmation of the process
00:32:41are there are other kind of rules that you would say if you want this type of feedback loop together here the three or four things that you should establish as the way we're going to communicate together Absolutely I'm so glad that you asked that question i think it's
00:32:55important to understand what makes a good group Why is this really important this accountability piece so when you form a decision group and here is the wonderful news you might be thinking to yourself well whom i'm going to recruit into this process with me like how am i
00:33:07going to get a good group going And the good news is that you don't need very many people you actually on ly need three to borrow from phil tet lock author of super forecasters you need three because you need to to disagree and want to referee so in
00:33:21the betting world if we disagree we have a sort of phantom third person which is the bed itself which is now going to sort of referee the situation for us but obviously in the real world we're not just throwing money down on the table so you need a
00:33:33third person and they connect us the referee in a disagreement so go find yourself a couple of people and then now really form a contract so you have to agree to a few things so you have to agree this commitment to accuracy you have to agree that you're
00:33:46going to be accountable to each other for the decisions you have to agree to be open minded to diverse viewpoint and then how do you instead and she ate that right So how do you actually stand She ate this commitment to exploratory thinking as opposed to confirmatory thinking
00:34:00and it's through the's ways of communicating to each other and these commit it mints to the types of conversation that you're having that you could really actually borrow really nicely from science and from scientific norms of communication within that community So there was a a guy named robert
00:34:17martin's super famous guy in science and he came up with these norms for scientific communication there called the martone ian norms You can google them but it's an acronym that you can remember it's called kudos So the first this communism Definitely not the political kind communism meaning that
00:34:36data are shared So what does that mean It means that in the scientific process if i'm doing a study like within my group obviously my data belongs to me but once i publish to the community they have to be able to see the data in order to evaluate
00:34:52it properly So we can think about that in terms of how we communicating with each other because smart people are really good at spinning the data and sort of presenting a case and like highlighting certain things air leaving other things out in order to drive you toward their
00:35:08conclusion so we don't want that to happen so within your decision group b is transparent with the data is possible now a couple of things one is whenever you feel like you don't want to share a detail those of the details you should share that's a very good
00:35:22rule of thumb because it probably means that it's going to catch you in a bad light in some way you in a bad light or your belief in a bad light or maybe it's going to argue against the conclusion that you're trying to get across and that's where
00:35:32it's getting uncomfortable for you so make sure you share those but one of the ways to actually really make sure that that happens is to essentially create a template for the details that must be shared because then you're always forced to share the exact same things regardless of
00:35:46whether they support your conclusions or not these things must always be shared otherwise i cannot give you any kind of advice that has fidelity if i do not know these details so that's communism universalism is ideas have objective truth regardless So who the person is who's communicating it
00:36:09So the example i think i given the book is that it doesn't matter whether it's mussolini or george washington or your mother telling you that the earth is round the earth is round regardless of whether you like the communicator or not Now obviously if i'm talking to a
00:36:26phd in economics and they're giving me an opinion about trade their opinion is going to have more fidelity than somebody who i just met on the street who does not have a phd in economics so you obviously have to take those into account but all things being equal
00:36:38the truth is the truth so one of the things that will happen is that we will change our opinion depending on who's delivering the message so here's a really good thing you can do in the group is when you are trying to talk about different viewpoints and get
00:36:54people's opinions on viewpoints don't say who has the view and i think that we can see this in our politics now So an idea that had obama said it might come out of trump's mouth all the people who would've been like that's awesome obama you're so great it
00:37:10comes out of trump's mouth and they're like no no no that's ridiculous or vice versa Oh that was ridiculous Obama oh trump you're so smart and it's literally it's the same words So why is that happening and it's Because people are not applying this norm of universalism they're
00:37:27evaluating the message and light of the messenger it's like you know don't shoot the messenger for this is don't shoot the message so as much as you can when you're communicating these things either tried to leave the messenger out and just present the case as stated and vet
00:37:45it in absence of that Or you can also imagine like let's say that you don't like the messenger You could go through the process of saying well let's say that for example you say what if obama had said it if you happen to be a never trumper so
00:37:58just sort of try to think about the hypothetical the counterfactual so i think that that's a really good thing to do so that's the u in kudos and then d is this interested nous which is We all have these conflicts of interest and we tend to think about
00:38:10conflicts of interest in this very specific way in this financial way So you have you know disclosure forms for conflict of interest ok that's interesting cause a whole lot of problems The real conflict of interest comes from this issue of motivated reasoning and confirmation bias We're always trying
00:38:25to make sure our beliefs are true of course there's going to be two things that goingto muck up your decision process within the group one is your beliefs and two if an outcome has already happened and you're going to try to reason to make the outcome makes sense
00:38:38If i tell you oh i think the strategy is one hundred percent true You know it's going to work i'm sure of it i've now infected you with my belief and now the group is going to try to reason toward that when you're trying to vet a decision
00:38:49don't say what your belief about what the correct answer is just leave it out in the financial world really deconstruct the trade before you get the result of it So you've decided to put a position on deconstruct that decision process prior to say an option expiring and the
00:39:07more you could do that the better but if it has expired if you are past the outcome which of course happens in poker all the time then when you're communicating to people who don't already know the outcome do it t don't just don't tell them okay So that
00:39:20that's the deep part and then the os part is objective skepticism approached the world asking why things aren't true as opposed to why they are but we're hardwired to do the opposite completely hardwired to do the opposite We don't like thing about counterfactual sze we don't like thinking
00:39:34about well what if it fails so as i'm sitting there and i'm saying to you well what do you think You know i want to make this particular investment i should be asking you tell me all the reasons you think that this is a really bad idea because
00:39:48that's more valuable to me because i already know why i think it's a great idea so tell me are you against it please So you could do that within your group is well within your company you can do that through really creating red teams so you have red
00:40:01team blue team that's one way to do it and notice what's really wonderful about the red team thing in particular is more ever said we have this team player issue is that the game for the red team is to disagree so you've actually now to be a good
00:40:15team player on the red team it's all about disagreeing so that's actually a really good way to sort of solve the team player problem you could do that you could have a dissent channel which is anonymous that's another good way to do it there's a variety of ways
00:40:25you can sort of in stan she ate that organize skepticism can we talk about mental time travel because when you're writing about jerry seinfeld and marty mcfly i i can't help but bring him well you know i do get to lauren conrad from the hills on mtv earlier
00:40:39in the book but yeah sure absolutely what do you want to know about mental ty trap Why don't you talk about how shifting your mindset I just love those examples okay So here's the thing i like the back to the future movies i commuted to there i think
00:40:56it's an unconscious girl opinion to say you know what Particularly back to the future one like you i say number three we'll have a discussion but i'm not a huge fan of that one but what do you hear from doc brown in that you know don't under any
00:41:08circumstances interact with yourself the past version of yourself what's gonna happen you know Well the worst case scenario is the time space continuum and collapse on itself in the universe will be destroyed so and you see that right You see marty doing all of these kind of circuitous
00:41:25things to try to avoid himself because god forbid they ever collide this going be horrible but what you really learn when you start thinking about how do you become a really good decision maker is that the best thing that could happen is for past marty to run into
00:41:40future marty and have a little discussion have a little you know to chat about how things ruin because are in the moment self is pretty bad because we're temporal discounters here's the issue when we think about this problem of this difference between sort of like reasoning to be
00:41:58right versus reasoning to be accurate where is that reasoning to be right coming from because i assume that you would agree with me i think that if i were to tell you if you're more accurate in your beliefs you will have better results in the long run in
00:42:14your life That seems fair but if i'm reasoning to be right in the sense of just affirm what i already believed to be true let's agree that that's the enemy of accuracy so why do we do it Because if i say to you what your goal in life
00:42:30it's like oh i want to be happier and healthier and wealthier and more interesting and we've both agreed now that well okay the better calibrated your beliefs are the more likely we're going to get there And yet over and over and over and over and over again you're
00:42:47raising in a way that's the enemy of accuracy So are you doing that mrs And that gets to jerry seinfeld night jerry exactly So jerry seinfeld does a bit you can actually find it on the clip on youtube and he's like oh you know night jerry's like i
00:43:01want a party and i'm gonna have another drink and i don't want to go to bed because i'm having fun I'm night jerry and then morning juries like curse you night jerry because morning jerry gets up he's like tired and hung over and he's got to go to
00:43:14work and it's you know it's horrible for morning jerry but night jerry isn't thinking about morning jerry nigeria's thinking nigeria's having a fun time in the moment and so this is the real problem of temporal discounting like laid out in the most beautiful way by jerry seinfeld is
00:43:30that we have to get night jerry to think about morning jerry or put another way we have to get morning jerry to tap night jerry on the shoulder and say hey night jerry could you go to sleep because i'm going to exist and we're actually the same person
00:43:45so could you please not punish me and that's really the problem of temporal discount e and it's the problem of this reasoning issue is that you know thinking fast and slow it's really beautifully laid out that what we're all kind of trying to do is to generate this
00:44:01positive narrative of our life story and within that positive narrative having bad things happened because you were a bad decision maker saying well that person is doing better than me because they actually deserve it because they're going to give him some credit i always say like oh that
00:44:19belief i had that was really dumb all those things like they don't in the moment contribute to your positive narrative now in the long run they will but there is no you know there's a long run there's no morning jerry so the question is how do we trigger
00:44:35this really good mental time Travel that khun get morning jerry to tap nigeria on the shoulder and say hey good to go to sleep or hate could to change your belief because it's not accurate i really like you to be calibrating a little bit even if it doesn't
00:44:50feel good right now and that's really the question you know around mental time travel i want to see how you might apply some of these tools to kind of the parallel with poker and investing One things i'm always thinking about in that context is kind of the notion
00:45:09of bankroll management on a poker table if someone manages their bankroll Well what does that mean You recognize what Your edges you know what the ball is So you understand what your risk of ruinous and you make sure that however much money you have at risk in any
00:45:25given session is essentially you're applying kelly you know charlie christian right Yeah so i have to have enough money in my total bankroll that given what my edges i can withstand the swings here is the problem is that we're really bad intuitively we're bad we're bad at it
00:45:43for a couple of reasons one is that we generally overestimate our edge Let's be honest way think they're better than we are we also underestimate the ball when we tend teo so we don't really think we need a lot less money than we do and then we're suddenly
00:45:57surprised that we're broke but another thing that happens is that and this is actually a bigger problem because i could kind of step back from the decision making and running copulation when i'm in an emotional state i can say well i need this much money and this is
00:46:11how much i'm gonna risk each time and so i can sort of get that kind of under control through brute force the problem really comes with the inn the moment decision making right so i'm sitting in a game on dh i have to sort of broad decisions to
00:46:24make but the big one is if i've decided i'm going to risk a certain amount of money what do i do if i run out of it and that's where we get into really big problems so necessarily if i've run out of the money it means i've been
00:46:36losing though that means i'm until so it means that i'm just sort of emotionally unhinged right and my limbic system is now lit up and i'm going to be trying to swat that feeling away in the moment and how am i going to swat the feeling away in
00:46:50the moment i'm so unlucky i can't believe how unlucky i am these people are really bad and i'm not losing because i'm not decision fit right now or because i'm not making good decisions I'm losing because the cards are going against me now when you get into that
00:47:04mind set and now you're trying to make a decision about whether you should put more money on the table you're very likely to put their money on the table and that's really bad because you don't know why you're winning or losing and that's really what the problem is
00:47:17so i'm in no way shape or form trying to say that it is purely rational to hava lost limit because it's not if you were a totally rational actor you would invest when you have an edge again depending on what your risk tolerance is and you would not
00:47:36when you don't okay that's if europe early rational actor the problem is that you're assessing whether you have an edge or not I sort of think about it is stacking irrationality is okay so i know it's irrational to hava lost limit but that irrationality is a lot less
00:47:51damaging to me in the long run then allowing myself to make these irrational decisions about whether it's a luck or skill issue that's causing me to lose right now so that i pressed my position in places where i never should so that then i lose so much money
00:48:05that i couldn't even reasonably win it back in the next day so even the next day i can't come in fresh having reset with fresh decision making because i'm still emotionally unhinged from the day before trying get my money back and then that just cycles on until i'm
00:48:17broke so i recognize that the consequences of that in the long one or a lot worse than applying this other irrational strategy which is this is how much i'm allowed to lose period and assuming i have a really good group around me i'm accountable to that so at
00:48:32that moment when i think you know but this is an exception i know how lucky i am right now that i'm going to have to go talk to ted later and ted's going to be like hey i thought you were only going to lose this much why did
00:48:43you lose twice that And i'm going to have to sit there and tell you oh well you should have seen i was so unlucky and i couldn't possibly predict it but i was making really good decisions and i like i've never played better and you're just going to
00:48:55go come on so you know that's where the accountability comes in you know a lot of the work that i do is interviewing people and so well things i'm always envious about is this ability to read poker faces oh so are there tricks Obviously this is a long
00:49:13history of experience to get good at that what works Sure Well first of all let me just give you a recommendation you should go read anything by joe navarro he is a former fbi guy and he is incredible with body language that he wrote a couple things that
00:49:28are specific to poker but he's written a few that are more in the business space he writes for psychology today on a regular basis and he's just got a lot of really really great things to say about body language that's number one so number two is this that
00:49:44i think that what you need to do is realize that you're kind of merging two things one is you've got these body language cues but also you have sort of the story that the person is kind of telling you so the way that would work at the poker
00:50:00tables As i gain more experience with you i start to sort of narrow down the possibilities of what an it will bet from you means because i've seen you bet in the past and that kind of know what you're tendencies are i have some idea of the frequency
00:50:14with which you're willing to enter a pot for example the frequency which you raise vs call versus fold when i've seen you with particular categories of hands i've sort of seen how you play and so if i've never met you i'm going to go from some sort of
00:50:32base rate of the category of the type of person that i think that you are very busy and write and then i'm going to start update immediately as i gather more data that's actually the most informative stuff that you can get is just seeing how do people react
00:50:47to certain things how did though i think they're going to react to this thing based on what i know from the past and be a really good listener to those stories not talking about their words and talking about their actions the way they talk when did they pull
00:50:57back when did they lean in when did they get excited when do they not get excited and those are some of those body language accuse this is just sort of there betting how are they betting now the body language queues have to do with signs you're generally looking
00:51:09at signs of being uncomfortable and signs of being comfortable and those are the two things were kind of looking for so signs of being uncomfortable that have to do a stress are things like when blocking there's something they don't cross your arms cross or they'll sort of pile
00:51:27things in front of them that kind of thing they're not leaned in but if someone's to lean back if they're taking up too much space jen relation believe within their thing because people general arent like this there so it's sort of like purposely trying to look relaxed but
00:51:41then there's other things that they'll do like you'll get hooding where befo for they deliver something if they sort of close their eyes and then opened them again that's usually not a good sign for what's about to come out of their mouth when they're uncomfortable you'll see lip
00:51:53pursing you'll see people i'm biting the inside of there cheek or sort of taking their tongue and like rubbing the inside of the then there's these sort of self soothing things that you do like you might rub your hand or that would be sort of the looking the
00:52:07inside of your lip things that are sort of supposed to calm me down it's really up versus down right So when their body language is going up that means they're excited they're happy when it's going down not so much so what's good to do it sort of take
00:52:20these kind of physical cues and merge them with the story that they kind of told you in the past as you've gotten a feel for how they behave in different situations and that now you can merge together to make some sort of prediction so you need to understand
00:52:34what your base raters and i only know that by well watching you and coming in with some sort of pryor but then as i see you always updating that so that i've always got a fresh assessment trying to live a little time to ask my normal closing questions
00:52:52but before that i know you're on the celebrity apprentice and i don't really want to talk about the president However i thought it might be interesting to ask if you were hired in your business consulting seat to consult president trump about how he could improve his decisionmaking process
00:53:14What advice would you give him so honestly it would be the same advice i would give to anybody and i think that you can see that here's one is bi curious be curious about what other people's opinions are and be open minded to them i think that that
00:53:27always makes you into a better decision maker that's true for anybody don't express things with such certainty i just don't think that that's good for anybody i don't think it's good for your listeners and i don't think it's good for you specifically seek out dissent and that something
00:53:40really important be open minded to descend don't swat it away listen to it and i think that this is one of the most important things that you khun dio in order to be a good decision maker sounds good okay here we go what was your favorite sports moment
00:53:56either is a participant or a fan and we're going to tell you baby brother poachers that's the problem is i don't know i don't know what we'll let you answer however you like okay if pokers the sport and i'm specifically talking about like something that i was participating
00:54:14in poker is a sport then it would have to be the nbc national heads of championship where i got the chance to play against eric seidel in the final Now understand i said before i'd known eric seidel since i was sixteen he was an incredibly important mentor to
00:54:28me and so to be able to face him in a final that was such a sort of culmination of like you know this big history of my life and that was really really amazing but i guess i have to say if poker's not a sport it's just me
00:54:43i mean to be fair i live in philadelphia so we just have to go with wow the eagles really crushed it against the vikings fun son but i don't know what's gonna happen on february fourth thought this might come out right after unfortunately oh yeah so well i
00:54:58don't know right now what will happen but will know the result by the time this comes out but that was a pretty great moment for them to make the nfc championship and i believe that the last time that they've made the super bowl was also against the patriots
00:55:11if i'm not mistaken so first of all that's cool second of all my brothers a humongous patriots fan and you may wonder why am i philly he's patriots Because we both grew up together in the same household because i did not watch football when i was growing up
00:55:24i started watching it when i was in graduate school a pen used to go the eagles game all the time and i watched it every sunday and so i ended up being an eagles fan he was a patriots fan now for the second time they're going head down
00:55:36they're going head to head that that's really flying No i just like what i watch it i don't have enough things an opinion about football to be good enough better it what teaching from your parents is most stayed with you this is going to be one for my
00:55:50father i was probably like a teenager late teens something at that and he said to me if you have one really really really good friend in your life you're doing a lot better than most people and i think that that's always really stuck with me as a way
00:56:06to sort of move through the world what it information do you read that you get a lot out of that other people might not know about i am a huge evolution junkie the greatest show on earth why evolution is true i mean those books i think are so
00:56:23amazing to really understand like how you think through a problem what evidence means how do you interpret evidence What does it mean to have different disciplines line up to get you the same answer that concil ian ts and convergence and how important those are in like trying to
00:56:39figure out what the objective truth is It creates this framework for a rigger around thinking about the world that i think i'm not sure you get so well from anything else and i will just consume a huge book length thing on evolution What will i ce lesson Have
00:56:59you learned that you wish you knew a lot earlier in your life So i would say that this comes from a parenting that getting mad like any kind of yelling like you know all parents yell it doesn't do anything for you it's kind of useless kind when you're
00:57:19on tilt Yeah exactly My youngest got in trouble for something and i know it's something that she's fifteen and it's something that with my first i would have been nuts over like what are you doing You know just the whole nine yards and instead i just said okay
00:57:37you know so i think you did this thing lying is going to make it worse So just please tell me the truth and she did And i said okay here's your consequence and then we just went on with our day and it was so much more pleasant and
00:57:51i got a better result out of it like she got the consequence You know she wasn't allowed to do it She understands why there was no reason for me to get in a bluster about it which wasn't gonna create any good for anybody not for my emotional state
00:58:01for sure And i say all the time like gosh you know i wish i had really figured that one out earlier I think as a parent and as a communicator you feel like if someone does something wrong you they need to know how important it is and you
00:58:15need to let them know that this is wrong and that it's caused and that's so much more about your own ego and wanting to be right and wanting them to know that you're right It doesn't get you anywhere All right Last one were a few decades from now
00:58:30you are in your rocking chair counting your poker chips You know what advice would you give yourself today Don't let everything so much like don't be so anxious about every little thing Relax lt'll it all works out You don't need to be moving all the time Yeah for
00:58:51sure I don't know how well i'll be a taking that advice but maybe if i do some good mental time travel on i start getting old decrepit rocking chair anne's to talk teo candy today when i get through any thank you so much for taking the time thank
00:59:09you for having such a fun discussion Thanks for listening to this episode I hope you found a nugget or two to take away and applying your investing and your life If you've liked what you've heard please write a review on itunes or google play to help others find
00:59:26out about the show Have a good one and see you next time

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