Webinar: Decision-Making Amidst Uncertainty

March 1, 2023

From the poker table to the supply chain

Annie Duke Header Image 3

Best-selling author and former professional poker player Annie Duke and Flexe CEO Karl Siebrecht discuss embracing uncertainty, making better decisions and operating flexibly.

Flexe edited the transcript for brevity and clarity.

Karl Siebrecht, Co-founder & CEO, Flexe

Welcome to today's discussion. I am here with Annie Duke, best-selling author of books like Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts and Quit: The Power of Knowing When to Walk Away. She consults with organizations on decision-making strategy. And today we’ll discuss decision-making as it applies to the supply chain in today’s dynamic and uncertain business environment.

In fact, we navigated the biggest wave of uncertainty in the last 100 years with the COVID-19 pandemic. And yet, we are not always wired to make great decisions in that uncertainty.

Annie, welcome to our discussion.

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

Thank you for having me.

Karl Siebrecht, Co-founder & CEO, Flexe

I’m going to start by reading a short quote from your book Thinking in Bets:

“What good poker players and good decision makers have in common is their comfort with the world being an uncertain and unpredictable place. They understand that they can almost never know exactly how something will turn out. They embrace that uncertainty and, instead of focusing on being sure, they try to figure out how unsure they are, making their best guess at the chances that different outcomes will occur.”

I love this framing. Can you share more about what good poker players and good decision makers have in common?

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

About 12 or 13 years ago, I was on a show called RadioLab. They asked me how poker players find certainty. My response was: “What are you talking about? Poker players are just embracing uncertainty.”

If you take poker as a paradigmatic example of decisions we make in real life, we can see we have two sources of uncertainty. One is plain old luck. The other is hidden information. I know what my cards are, but I don’t know what your cards are.

So we need to narrow down the range of possibilities with that in mind. That’s what I mean by being unsure. If I fool myself into thinking I have certainty, that I have control over the outcome, I’m going to be a really bad decision maker.

You need to embrace uncertainty and acknowledge luck and hidden information. Otherwise, you’ll be constantly surprised by the world. And you’ll be overconfident—not looking for ways to change your mind in situations that demand it.

Karl Siebrecht, Co-founder & CEO, Flexe

So many of us want to be right. And at work, we’re paid to be right. There’s conditioning to have the right answer. That means we need a fundamental shift in thinking: We can’t always be right all of the time.

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

First, I think we need to define what it means to be right and wrong in the decision-making process. It's hard to say that a decision is “right” or “wrong” based on a short-term outcome. When we start defining “right” and “wrong” based on whether something turned out well, we’re doing something called “resulting”.

Resulting is an accuracy killer. Say you make a decision—a perfectly good decision—and the situation changes, then you begin to question and change the decision-making process.

Here’s an example: You make a decision in Q3 of 2019 to prepare a forecast for Q2 2020. And you go through a really good forecasting process. You make decisions on how much warehousing space you need in that timeframe.

Then the events of 2020 roll around, and the world explodes. Does that mean you made bad decisions in Q3 2019? Not necessarily. We’d need more information about the quality of the forecasting process to decide that. The real problem involved things you couldn’t foresee.

Second, The way we process outcomes with our teams exacerbates decision-making problems.

Let me do this thought experiment with you, Karl. Let’s imagine we create a sales forecast. And the company misses the forecasted target by 15-20%. Are we doing a post-mortem?

Karl Siebrecht, Co-founder & CEO, Flexe

I hope so.

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

And in that post-mortem, we say things like: “I’m not blaming you for anything. We want to understand what went wrong.” And what’s implied is that there were wrong decisions made, right?

Now, let's imagine that we have the exact same sales target and we exceed it by 15-20%. Are we holding a post-mortem?

Karl Siebrecht, Co-founder & CEO, Flexe

Less frequently.

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

Less frequently or not at all. In fact, I’m pretty sure we’ll have champagne and talk about our great decisions!

Notice that our forecasts were equally off in both cases, however. If we really care about the decision-making process, we should have the exact same conversations in both cases.

Instead, we teach people in our businesses that they better not get anything wrong, which causes people to be conservative, to not innovate.

Karl Siebrecht, Co-founder & CEO, Flexe

Before we change topics, I have a question for you. I live in Seattle, and I'm a Seahawks fan. Was Pete Carroll’s decision to throw the ball on the second down with 20 seconds left on the clock in the Super Bowl a bad decision?

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

That was one of the best decisions in the history of football.

And this is actually a good example of the unwillingness to move off of legacy choices. The status quo choice: Hand the ball off to Marshawn Lynch.

The Seahawks are down by four points and there’s 26 seconds left in the game. They’re on the first yard line, and it’s second down. They have one timeout left.

Now imagine if Pete Carroll calls for a handoff to Marshawn Lynch, a legacy choice, and they lose. What are the headlines? “Patriots Defense Held”. We feel bad outcomes less deeply when they result from legacy choices.

But Pete Carroll calls for a throw. That’s an innovative choice, because it can stop the clock and create new opportunities to score, with a relatively low percentage chance that the Patriots will intercept the ball.

Karl Siebrecht, Co-founder & CEO, Flexe

How else does focusing on results over the decision-making process tend to stunt innovation?

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

There’s a really important concept in behavioral economics and cognitive psychology called “loss aversion”, where we asymmetrically focus on losses over gains. Losses feel twice as bad as gains.

When we start something new, we often overly focus on the downside—because of loss aversion. We ignore the upside possibilities of options we consider.

Now, why is this a problem for innovation? The fear of loss forces us into status quo decisions. We avoid switching to something new because we focus on the downside possibilities—even when the new option reduces the probability of bad outcomes.

I had a conversation with a hospital administrator named Sarah Ulster Martinez. And she started this conversation with me because she couldn’t decide whether to quit her job for a new job. She’d been miserable for years, and she didn’t know if the new job would change things.

This is the asymmetric application of loss aversion! I simply said, “What’s the probability you’re going to be unhappy in your current position after another year?”

And she told me that it was a 100% probability she’d still be miserable.

I then asked, “What about the new job?” She told me it was a 50/50 chance she’d be miserable. I noted that 50% is better than 100%, and she quit the next day.

Karl Siebrecht, Co-founder & CEO, Flexe

Let’s take a step back. Can you share more about how to measure the value of different options when making decisions?

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

There’s a set of possible outcomes associated with any option we consider. And each outcome will have some probability of occurring—and a good or bad payoff. We can determine that probability with a certain amount of precision, depending on the information we have.

We then figure out the value of a particular option by multiplying the probability of it occurring by the payoff. Then we add those things together.

For example, I flip a coin, and I give you $2 on heads. On tails, you give me $1. We can multiply that 50% probability by $2 ($0.50). The $1 you may lose minus $0.50 leaves $0.50. That’s a great bet for you, right? You’ll make $0.50 on every dollar you risk.

Karl Siebrecht, Co-founder & CEO, Flexe

Uncertainty leads to indecision. How can we break through indecision to make the right bets?

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

Uncertainty sometimes leads to indecision because we want 100% certainty. Sometimes it leads us to make decisions too quickly because we wing it.

How do we escape both these problems? We embrace uncertainty. We consider our decisions’ impact and their reversibility.

My definition of impact: “If I get this wrong, how bad is it?”

And how easy is it to reverse the decision? The more you can reverse the decision to either return to alternatives or pick new options, the more you can mitigate the downsides of getting something wrong.

The lower the impact—and higher the reversibility—the faster you can deal with uncertainty with flexibility.

Recognize you can’t get to 100% certainty. When you have an option that’s clearly better than others, but you’re stuck in analysis, ask yourself what further information you need to make the choice—and whether you can afford to get that information. If you can’t afford the time or resources to get the information, then make the decision.

Karl Siebrecht, Co-founder & CEO, Flexe

There's an Amazon thing I hold onto: There are one-way and two-way door decisions. Two-way door decisions are reversible.

I love what you added, which is the question about information I could seek to improve the bet. What’s the cost? It’s almost always time.

Let’s switch gears: Sometimes you face a decision, particularly if you're making a capital investment, where there’s a big financial commitment without a known outcome. It could be a manufacturing plant or a new warehouse.

How do these principles play into those types of decisions?

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

There's a concept called decision stacking. We often make commitments that are big and somewhat irreversible. Like a long-term forecast or a contract.

If we can figure out a way to gather information through smaller, low impact and reversible decisions, we’d like to do so.

Here’s where we get decision stacking. How can we stack low impact, reversible decisions in front of a big, long-term commitment? If there is a way to stack something with lower impact in front of long-term commitments, we can inform ourselves and make more accurate decisions. That creates flexibility before making the commitment.

The world doesn’t stop. For that reason, I don’t accept ten-year-long feedback loops. I don't like ten-year forecasts because they're very inaccurate, and we're much too confident about them.

I can predict what’s going to happen in the next minute with accuracy. If I predict what’s going to happen tomorrow, I’ll be less accurate. With long-term commitments, look for signals that tell me the decision isn’t unfolding the way I imagined. You can hear those signals quickly—within a month, right? Write those down. Make an action plan. Find ways to stay flexible and maintain optionality.

Karl Siebrecht, Co-founder & CEO, Flexe

I love the concept of decision stacking—find ways to line up small, reversible decisions in front of big ones.

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

There’s an idea in game theory called “explore and exploit”. When we find something that's working, we’re in exploit mode. And when something doesn’t work, we go to explore mode.

We often end up in one mode or the other. Take Blockbuster: They ran retail stores and sold physical products. They had the chance to explore streaming with Netflix. But they said, “No”. They didn’t switch to exploration.

Let’s talk about ants. Ants explain why this is such an important concept in an uncertain world. Ants enter new territories and they explore. Then they find a food source and lay down a pheromone trail to exploit the resource and reinforce its location to other ants. That’s how they end up walking one-by-one in a line. They follow that pheromone trail.

What’s interesting is that not all ants do this. If you look at a colony, some ants are wandering outside of the single file line. Those ants continue exploring as the other ants gather resources. They do that because the world is an uncertain place. They’re looking for alternatives in parallel while the other ants exploit the big bet. And these ants may find even better resources in the process.

We can do the same. We can make plans in parallel to be more responsive to the world changing around us. It gives us a huge competitive advantage.

Karl Siebrecht, Co-founder & CEO, Flexe

It’s sometimes tough to get broad commitment on a decision. What's the best way to explain why we make these decisions and get commitment?

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

Often, when you don’t get commitment, you’re not making it clear to the team that this isn’t a collective decision. When you’re making a decision, you let the team know you’ll hear input, but ultimately the decision is on your shoulders.

I also suggest gathering input on a decision before you call a group together. Get actual feedback from the team in advance, asynchronously and independently. Then bring the group together to discuss the information. That’s a way to get buy-in, because then every single person knows they were part of the decision and heard. That creates a culture of decision-making. And it improves decision accuracy.

Karl Siebrecht, Co-founder & CEO, Flexe

How can we improve our decision-making process and make it into a habit?

Annie Duke, Author, Professional Speaker, Decision Strategist, Former Professional Poker Player

This is something I face in my consulting. When I join teams, I ask them to embrace uncertainty, to stop pointing fingers over bad results. I’m asking them to fundamentally change the way they approach meetings and decisions.

So I start small. I make sure they tackle new decision-making habits in small pieces. And then build on top of those beginnings.

It's really hard at first. And once people do it, they never go back.

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