Wanna bet?

Back in the day, my partner (and Lightspeed System’s founder) Rob McCarthy would routinely challenge some assertion I or another member of our team would make by challenging us to bet on it. He’d then proceed to tape a $20 bill to his white board and write down the bet. He mostly won.

But what also often happened, was that the idea proponent would refuse to bet – essentially acknowledging that they were not so certain that they were right after all. The threat of losing a bet – real money – made people think harder about their claims.

How to make good decisions is at the core of Annie Duke’s book “Thinking in bets.” (Here is a summary.)

The central insight is that decisions that turn out to be good or bad are NOT good or bad because of the outcome! Luck plays such an important role in outcomes – that a bad decision can still result in a good outcome (or visa versa). Further, we are almost always operating with limited information, so we are making educated guesses rather than fully rational choices. Thus, a good decision is one wherein we take into account as much known information as possible, limit our various biases, and make a reasonable choice with a high probability of success.

Finally, we should not think of these educated guesses (decisions) as right or wrong – as we humans have a very hard time admitting when we are wrong. We have an incredible ability to cherry pick facts, rationalize, and generally distort reality to protect our “rightness.” So we should think of our various strategic “decisions” as temporary educated guesses with “x” level of confidence that are subject to change as new information is gained. It is a lot easier for us psychologically to adjust decision confidence levels, or our tentative conclusions, than to admit a “right” decision is now a “wrong” one.

Business strategy is therefore more akin to poker – than chess – as we never have complete information relative to our opponent’s cards. The best poker players accurately assess their odds – and bet accordingly. They don’t let their emotions, or desires, or biases drive their bets. They still lose hands they “should have won”, but overtime, their odds of winning are better than less skilled players.

Betting on you!

Joel