In this episode of 20 VC, host Harry Stebings interviews Annie Duke, a former professional poker player, World Series of Poker bracelet winner, and author of "Thinking in Bets." Duke discusses her journey from cognitive science Ph.D. work to poker and how her experiences have shaped her understanding of decision-making, risk, and critical thinking. She emphasizes the importance of forecasting, pre-mortems, and learning from the dispersion of opinions to avoid biases and sunk cost fallacies in both poker and venture investing. Additionally, the episode touches on the value of collective decision-making in partnerships, the necessity of exploring outside one's comfort zone, and the potential pitfalls of not adequately assessing one's expected value in risk evaluation. Harry also endorses various products and platforms, including AngelList's fund admin platform, Remote's global employment solutions, and Ramp's spend management platform.
"Her book thinking in bets really impacted so much about how I think about decision making, and so I'm thrilled to welcome Annie Duke to the show today."
The quote highlights the profound impact Annie Duke's book had on Harry Stebbings' perspective on decision-making and sets the stage for the interview's focus on decision-making strategies and thinking processes.
"I was actually doing phd work at the University of Pennsylvania. I was going to become a professor and really had no intention of doing anything else."
This quote explains Annie Duke's original career intentions, which were focused on academia before her unexpected shift towards professional poker playing.
"The gap between the people who understood the game and knew the game and everybody else was so wide that as a professional, you didn't need to be nearly as good then as you would need to be now in order to win."
Annie Duke highlights the significant advantage that knowledge and understanding of the game provided to poker professionals in the past, an advantage that has diminished as information has become more accessible.
"I don't think about most decisions that I make as permanent. So that's a way to derisk."
The quote emphasizes Annie Duke's approach to decision-making, where she views decisions as non-permanent and believes that this mindset can reduce the perceived risk associated with them.
"A lot of decisions that we think are irreversible are actually reversible. I think that we feel like we can't go to options, back to options that we've rejected in the past much more than is actually true of the world."
This quote challenges the common belief that certain decisions are final and encourages reevaluating the true reversibility of our choices.
"So when the cost to reverse is quite high, what I actually think about is what are the things that I can do beforehand that are going to help me to build a really good model of the world that will make my decision more accurate when the cost of reverse is high."
The quote emphasizes the importance of preparing and building a good model to make accurate decisions when stakes are high and reversibility is costly.
"So there's a couple of solutions that you can do for that. One is another way to mitigate the cost of being less accurate is it's essentially just portfolio theory, right?"
This quote suggests using portfolio theory to reduce the impact of inaccuracies by diversifying investments.
"One is that when we're making really large judgment, we know that a lot of bias can enter into the process and actually a lot of noise as well."
This quote highlights the challenges of bias and inconsistency in collective decision-making and the need for structured approaches to mitigate them.
"So one of the things we want to do is break sort of broad judgments down into their component parts."
The quote stresses the importance of deconstructing complex decisions into smaller parts to reduce bias and improve decision-making accuracy.
"So there's a whole bunch of work by a bunch of different people. There's a study by Thasser, Richard Zeckhauser and Dan Levy at Harvard have done work on this."
This quote points to research supporting the practice of obtaining individual opinions before group discussions to improve the quality of collective decision-making.
Everybody can see the agreement, so you don't need to go and double click on that over and over again. You can say, okay, we generally agree about the market opportunity, but there's a lot of dispersion in the group about the quality of the team.
The quote emphasizes the importance of identifying and exploring areas where group opinions diverge to enhance the decision-making process.
If you only talk about the agreement between the group, why do you have more than one person having the discussion?
This quote highlights the redundancy of group discussions if they only focus on points of agreement, rather than exploring diverse perspectives.
This consensus, this feeling of consensus that groups are trying to get to, actually builds velocity very quickly. And once people start to sense consensus, it just speeds up.
The quote describes how a group's rush to consensus can lead to hasty decisions without adequate exploration of information.
Sunk Cost is really kind of the dark side to grit, right. We don't want to stick to things long after we're supposed to.
This quote explains how the sunk cost fallacy can mislead individuals into persisting with unprofitable endeavors due to past investments.
As soon as you make an investment, you need to do pre mortem and you need to say, what are the ways that this investment can go wrong that both have to do with my own decision making and luck, figure out what those are, what the probabilities of those occurring are, and then you need to do a bunch of different things off of that.
This quote underlines the importance of conducting a thorough analysis of potential failure modes for an investment before problems arise.
The pre mortem doesn't live in stone. You're going to learn new information as you go along.
This quote stresses the need for adaptability in investment strategies, acknowledging that circumstances change and new information must be incorporated.
What I would say is kind of number one, that's a little bit why you have a partnership, because I think there's no doubt that individuals are going to get affected by the things that have worked for them in the past.
This quote highlights the benefit of partnerships in venture capital, where the diverse experiences of partners can mitigate individual biases.
You always have to have some exploratory lines open. Right. You have to say, I'm specifically going to take some meetings... with people that I think are going to be really bad because that's going to actually, is what's going to give you the information.
The speaker advocates for deliberately exploring seemingly unattractive opportunities to gain broader market understanding and to challenge personal preconceptions.
"You need to spend some time specifically and set it aside and say, I'm going to take first meetings. A certain percentage of my first meetings I think are going to have a high failure rate, but it's so that I can learn those markets and understand them."
This quote highlights the importance of dedicating time to explore unfamiliar markets despite expecting a high rate of initial failures, as it can lead to discovering valuable opportunities.
"So just that little trick is really huge, right? Because now I'm going to get more of that dispersion out of you."
This quote suggests that by asking for opinions before revealing one's own, you can gather a wider range of perspectives, which aids in expanding your mindset.
"But what I care about is that I have some accurate model of how the world is going to unfold."
Annie Duke emphasizes the value of striving for an accurate prediction of future events rather than clinging to one's current beliefs, which is crucial for effective forecasting.
"The book that I always try to get people to read is the success equation from Michael Mobison."
Annie Duke recommends "The Success Equation" for its in-depth analysis of luck and skill, which she considers vital for understanding success.
"I think that we can get caught up in discussions about what should our bet sizing be and how broad should our portfolio be and whatnot. And we don't circle back to say, are we actually winning in the first place enough."
Annie Duke points out that the preoccupation with risk management often overshadows the fundamental assessment of whether the overall strategy is successful.
"I think my biggest strength is that I think I'm curious."
The quote reveals that Annie Duke considers her curiosity to be her greatest strength, leading her to pursue various interests deeply.
"I have done angel investing, but it's always alongside. So I'm really betting somebody else's opinion who I think is much smarter than I am."
Annie Duke shares her strategy for angel investing, which involves collaborating with investors she considers more knowledgeable in the field.
"I've got a pretty good idea of what the next two years is going to look like."
Annie Duke outlines her plans for the near future, which include a mix of professional and personal activities centered around her interest in decision-making under uncertainty.