Transcript: Annie Duke, WSOP Champion


The transcript from this week’s MiB: Annie Duke, WSOP Champion is below.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Soundcloud. Our earlier podcasts can all be found on iTunesSoundcloudOvercast and Bloomberg.


ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST: This week on the podcast, I have an extra special guest. Her name is Annie Duke and she’s the author of “Thinking in Bets.”

This conversation is not so much about poker although clearly as a world champion in poker and at one point the winningest female poker player for that period, poker does come up but it’s all about thought process, it’s all about not looking at outcomes but thinking about how you think about what you’re doing whether this is business or finance or investing or what have you.

There is a run of cognitive issues and there is a run of misfocus on what we do, how we do it, what we don’t know but should, our own blind spots, our own cognitive errors that really applies to everything. This isn’t just a tell-all poker book.

In fact, I would say poker is really a minor part of the book. It’s the leaping-off point for discussing human cognition, decision-making theory and how we think about the world or should think about the world probabilistically and we very often don’t.
Determine poker is called resulting, looking at outcomes as opposed to process. Anybody who manages other people’s money for living, anybody who engages in behavior whether there’s a decent amount of risk and uncertainty should really not only listen to this conversation, which I found fascinating, but get the book and plow through it. You will learn so much. It’s absolutely fascinating.

So, with no further ado, my conversation with Annie Duke.

RITHOLTZ: I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My special guest today is Annie Duke. At one point, she was the winningest female poker player in history. She won the World Series of Poker in 2004 and she is the author of a fascinating new book, “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts.”

Annie Duke, welcome to Bloomberg.


RITHOLTZ: So, I was struck by some of your definitions in the book and how much they reminded me of investing. My definition of investing is deploying capital on the basis of limited information about an unknowable future. That sounds a lot like the way you described playing poker.

DUKE: It’s almost exactly the way that I describe playing poker. So, the kind of loose definition is decision-making under conditions of uncertainty over time.

So, that will be a relatively loose definition of poker where you’re — just as you said, you’re deploying capital based on limited information. That’s one source of uncertainty about some sort of uncertain future. That would be luck intervening which is the other source of uncertainty.

So, when we talk about decision-making under conditions of uncertainty, those of the two sources which are very nicely put into your definition of investing.

RITHOLTZ: And you also spend a lot of time describing the focus on results and outcomes rather than the process that led us to those results. Tell us a little bit about what led you to that analysis and why so many people look at bad results and think immediately it’s a bad process when that may not be the case.

DUKE: Well, I think that it’s really hard. So, we have this very uncertain relationship between decision quality and outcome quality. So, for example, in poker, I can have the very best hand and I can still lose. I could get dealt aces and you could have a seven and a two and the turn of the cards make it so that you win the hand or vice versa. I could have the seven and two and make terrible decisions in playing that hand and still win.

And that’s really, really similar to the kind of decisions that we make in life and investing in business. And the problem is that getting to be able to see the processes and transparent, the thing that we can see is the outcome of the process.

We can see did it work out or did not work out, did I win the hand, did I not? Did the, you know, did the stock I invested go up in value or down in value? And that’s what we can see and now working backwards from that into what was the decision process is really hard. It’s very opaque. And very often, the quality of the decision doesn’t reveal itself except over time.

So, we can see the outcome right then but very often whether the decision process is good, it takes a lot of time to reveal itself. So, what do we do under those conditions of uncertainty, we have this bias, we have this heuristic which is outcome was bad, OK, that must mean the decision was bad, I’ll take that as a signal. Outcome was good, OK, decision was good

And the problem is that that’s a really poor strategy for learning from your outcomes. It’s great if you’re playing chess, but it’s terrible if you’re playing poker, it’s terrible if you’re investing, it’s terrible if you’re running a business, it’s terrible if you’re choosing a romantic partner, it’s terrible if you’re driving.

That’s the thing about it. So, there’s very good things like that.

RITHOLTZ: I love the term for this in the book that poker players use, they call it resulting.

DUKE: Yes. So, resulting is taking the quality of the result and deciding that that tells you what the quality of the —

RITHOLTZ: And that is not the case at all.

DUKE: That is not the case at all. So, I open the book actually talking about this Pete Carroll —

RITHOLTZ: Super Bowl 2015.


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