Book Review: Thinking in Bets
What I learned from Poker Pro Annie Duke (including an argument FOR pulling Blake Snell in last year's World Series)
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My previous book reviews were on Future Value and Playing to Win. These sports focused books clearly had takeaways for a movement analysis company working in baseball.
But one of the interesting things when starting a company is you look for lessons everywhere…and Annie Duke’s Thinking In Bets was full of them.
Below are the top things I learned from poker pro Annie Duke on decision making:
Lesson 1: Life is Poker, Not Chess
If there is one takeaway from Thinking in Bets, it is that life is poker- not chess. In poker, chance is always involved. A player can make every right move in a hand or in a tournament and still end with a poor outcome. This does not happen in chess. It absolutely happens in business and in life.
The Baseball Lesson
Duke talks about Pete Carrol’s infamous decision to pass at the end of Super Bowl XLIX, explaining why it was the right decision…with obviously the wrong result.
But ask anyone in sports media (or sports in general) and you will get a different opinion.
Baseball has their own version of this, with Kevin Cash’s universally hated decision to pull Blake Snell in last year’s World Series.
As with Carrol, I am afraid we are falling victim to what Duke calls “resulting”. Yes, Snell was dealing, but this was true throughout 2020. Pitchers regularly do worse the third time through the lineup and the Rays have regularly decided they have better alternatives than leaving Snell in to see how he fares.
During the 2020 season, Snell was pulled on 6 occasions that mirrored the World Series game- 5 innings pitched, 1 run or less allowed. The previous five were all wins. And four of them came with the Rays bullpen- one that has been great all year- giving up one run or less.
Want further proof? Below is a fangraphs analysis of Snell’s curveball and fastball velocity in that game:
While the sample size is small, we already see a drop in performance. If Snell was left in, the next few batters may have proven it.
The Reboot Motion Lesson
While our decisions will not be as public, we are forced to make decisions based on imperfect information all the time.
We will spend time with MLB teams and academies before knowing if they will work with us.
We will explore partnerships with other software companies prior to seeing if they will pan out.
And we will make hires that end too quickly.
A poor result does not guarantee a bad decision was made. It may have been. It may have not been.
The key is to 1) admit you are not sure and 2) learn from the decision making process, not the result.
Lesson 2: Your Bet, the Odds, and the Magnitude of the Outcome Must Line up
Events with below a 50% outcome often end up happening, and events with above a 50% outcome often do not. That does not mean the odds are wrong, it just means odds are odds.
Every decision is a bet, and every decision maker needs to make sure his/her bet (allocation of resources) lines up with the 1) odds and 2) magnitude of the outcome in the long run.
The Baseball Lesson
When Cash pulled Snell in Game 6, he was making a bet. He was betting his bullpen would give up less runs in the sixth inning (and maybe beyond) then Snell. While the outcome was bad, the odds may have been in his favor.
In this case, the magnitude of the outcome- while large- was the same. Either the bullpen would perform better than Snell and the Rays would be more likely to win Game 6, or they would perform worse and they’d be less likely.
But sometimes the magnitude of the decision has a huge effect. When the Cubs traded for Aroldis Chapman in 2016, they were making a bet he was the missing piece for their first World Series in over 100 years.
More specifically, they were betting Chapman helped their odds enough that it was worse what they had to offer in return.
While the Cubs odds of winning the NL and simply making the World Series improved after the deal, they were still only +160 according to Vegas- meaning it was far more likely they would not win.
The most likely outcome was 1) a playoff exit and 2) the loss of top prospects to New York.
However, the magnitude of a World Series win made the bet worth it in Theo Epstein’s eyes. The price was big, and while the incremental increase in odds was not huge, the asymmetric payoff made him pull the trigger.
The Reboot Motion Lesson
At Reboot, we are implicitly fans of this type of thinking. But going forward, I will be push us to be more explicit.
We’ve already started this. During our 2021 MLB sales cycle, we started putting odds on our likelihood of working with each team we talk to. We update these odds regularly and, when the season starts we will go back, look at our predications, and analyze them.
We will do the same for potential partnerships- writing down 1) the potential of success 2) the payoff of positive outcomes and 3) the cost of a negative one.
While we will not explore every opportunity, we are aware the payoff of success can be orders of magnitude higher than the cost of failure.
In these cases, exploring opportunities that are 80%-90% likely to fail is good business.
Lesson 3: Positive Outcomes are not 100% Skill. Negatives are not 100% Bad Luck
People have a habit of attributing their own good outcomes to skill, and blaming their negative outcomes on bad luck. And they do the opposite for others- crediting other people’s good outcomes to good luck while blaming them for their negative results.
Overcoming this phenomenon is hard, so the better lesson is to be aware of it, think about where we may fall victim to it, and put processes in place to change it.
The Baseball Lesson
Whether competing on the field or cheering from the stands, this may be the most applicable lesson to the sports world.
When our team wins, it is because of our great hitting, superior pitching, advanced front office, and more.
But when we lose…unfortunate injuries, a bad bounce, or a lucky hit by our opponents doomed us.
As fans, we don’t need to overcome these biases. They’re part of fandom.
But front offices should look back every season and ask: What great decisions may have been luck? And what bad luck may have been poor decision making?
The Reboot Motion Lesson
The sports world is far from the only place we fall victim to this thinking. Throughout 2020, I considered Reboot’s survival and adaption a tremendous accomplishment, proving our skill.
While I still believe launching months before a pandemic was unfortunate timing, I also must acknowledge the good luck we had:
We were new- our costs were low, allowing us to weather the storm.
We had MLB clients who continued our relationship throughout the year. While we would like to attribute this to the value we provide, we must admit luck was heavily involved given the revenue drop in baseball.
We launched a digital business. Our small team was already remote and we were building software. We were lucky the pandemic did not limit our ability to execute.
Understanding what is truly luck vs truly skill will not only aid in our future decision making, but it will also make us better partners to our MLB teams, academies, software partners, and more.
Lesson 4: Thinking in Bets is Easier in a Group
Outcomes give you feedback but, as discussed above, we are quick to attribute good outcomes to skill and bad ones to luck. Rather than trying to power through your own biases, people can benefit by working with a group.
If we find groups with a diverse set of backgrounds and ideas, and if we are explicit about the intention of the group, we can set ourselves up for success.
The Baseball Lesson
Top organizations embody this lesson to a tee. Baseball teams employ the best people across the board- in baseball talent, coaching, and scouting, but also in data analysis, business operations and more.
To maximize this group, teams need to:
Employ a mix of talent across a variety of fields coming from a variety of backgrounds, AND
Embody a feedback first culture.
If they do, each individual should be constantly learning about their decision making process, improving it in the future, and advancing the organization.
The Reboot Motion Lesson
For a startup, we should have two goals:
Build towards an environment that makes group feedback and group learning easy, AND
Find a way to fake this environment until it exists.
We are still a small team. While we do a good job asking for feedback, we simply do not have that many people to ask.
To overcome this, we expanded our group. I write monthly Reboot updates, and have added non Reboot recipients to get more eyes on how we analyze things.
I get feedback from 1) every member of our team 2) our current business partners and 3) outside operators and investors I admire. Every month I not only update them on our progress, but ask where we may be going wrong.
I know I have blind spots and biases. Crowdsourcing where they exist is a huge win.
Lesson 5: The Goal is to Improve Decision Making
Finally, it is important to remember why we should think in bets. It is not to prevent lucky wins from making you happy. Lucky wins still count, so go ahead and smile.
Thinking in bets is key because it allows you to improve your thinking, learn what drives outcomes, and be more effective in achieving your future goals.