Everything in Life is a Gamble | All The Hacks
00:00:00.000 | (upbeat music)
00:00:02.580 | - When I think about base rates,
00:00:06.660 | it reminds me of kind of the whole premise
00:00:08.740 | of thinking in bets, which is that, you know,
00:00:11.960 | and it really brought to life the idea
00:00:13.860 | of asking someone to want to bet, right?
00:00:15.180 | Like the fact that we think of these beliefs,
00:00:18.380 | we have these ideas that we think are so certain
00:00:20.300 | and we're so confident,
00:00:21.120 | I'm gonna hire someone, they're gonna be the best,
00:00:23.480 | is really just thinking about everything in life as a bet
00:00:26.780 | and challenging yourself to put certainties around things,
00:00:30.060 | even mundane, silly decisions,
00:00:32.660 | kind of the best way to rewire
00:00:34.460 | how this all works in your head?
00:00:36.220 | - Oh, I think so, absolutely.
00:00:37.860 | So here's the thing, when I say, do you want to bet?
00:00:40.660 | All I'm doing is making you examine the assumptions
00:00:44.500 | that are going into your statement.
00:00:46.260 | - Yeah, one for my wife and I is always just like,
00:00:48.260 | remembering something.
00:00:49.100 | I'm like, oh, I'm totally sure that our daughter's preschool
00:00:53.980 | is starting next week.
00:00:55.580 | And like- - Right, do you want to bet?
00:00:57.100 | - My wife didn't ask that, but if she had,
00:00:58.620 | I would have been, oh, you know,
00:00:59.460 | like I don't know if I want to put all my money on the line.
00:01:03.180 | - Right, because what it makes you think about
00:01:05.060 | is like, there's a couple of things.
00:01:06.180 | Well, what does the person who's betting me
00:01:08.060 | know that I don't know?
00:01:09.080 | So in some sense, when I say want to bet,
00:01:11.020 | I'm acting a little bit as a coach to you.
00:01:13.580 | 'Cause I'm telling you that I have a perspective
00:01:15.580 | that is different from yours.
00:01:16.660 | If I'm willing to bet, that means that I'm saying
00:01:19.220 | that I believe something different than you.
00:01:22.220 | Okay, so it's automatically making you start to think like,
00:01:25.060 | well, what's a different way to look at this, right?
00:01:27.660 | And then you have to start examining like,
00:01:30.660 | well, exactly how sure am I of this?
00:01:32.620 | Like, so this is, you know,
00:01:35.740 | my husband and I talk like this all the time, right?
00:01:39.220 | Where generally where it is, it's like,
00:01:42.900 | well, what's the price?
00:01:44.460 | That's what we ended up doing,
00:01:45.340 | which is just a way to say what's the probability, right?
00:01:47.500 | So we don't think about bets as just like dollar for dollar.
00:01:52.100 | Like he might say that, you know, he's,
00:01:57.060 | let's say that it's an election, right?
00:01:59.900 | And you say, I live in Pennsylvania.
00:02:03.980 | So let's say you say like,
00:02:05.100 | I'm sure John Fetterman's gonna win the election
00:02:07.780 | and someone says want to bet.
00:02:09.240 | They might, you could say, you could immediately say yes,
00:02:13.020 | but then the response would be, well, what's the price?
00:02:15.460 | What are you willing to, are you willing to lay me a price?
00:02:17.980 | Are you giving me a price?
00:02:19.380 | So in other words, like as an example,
00:02:21.580 | if I say to you, I'll bet $10 for every dollar that you bet,
00:02:25.340 | I'm telling you that I'm very certain that I'm right.
00:02:28.540 | 'Cause I'm risking a lot compared to what I can win.
00:02:31.700 | But if I say, no, no, no, no, no, right?
00:02:33.940 | So the implied thing is like,
00:02:36.340 | if I say I'm 90% sure of something,
00:02:39.060 | I should be willing to lay you nine to one,
00:02:41.980 | $9 for every one, right?
00:02:43.940 | But as soon as I'm like, what?
00:02:46.060 | When you say, okay, I'll take the nine to one
00:02:48.620 | and I go, wait, no, no, no, no, no, like even money.
00:02:53.300 | Then what I'm saying actually is actually,
00:02:55.100 | I think it's 50/50 and I was, you know,
00:02:57.420 | I wasn't really thinking about it.
00:02:59.140 | So it's like a good way to kind of be like interacting.
00:03:04.140 | And I can tell you that I do this with little things
00:03:07.060 | and big things and whatever.
00:03:08.540 | It's actually kind of fun once you start like,
00:03:11.540 | well, what price do you want to lay?
00:03:12.940 | And we always bet a dollar, it's really fun.
00:03:16.340 | So, but I think that the thing that's really important
00:03:19.900 | about the betting and this is really,
00:03:23.180 | this is so crucial to good decision-making
00:03:26.300 | is that it forces you to make the things
00:03:30.460 | that are implicit in the decision you're making explicit.
00:03:33.560 | Okay, so as an example,
00:03:38.380 | the simplest example is one of the things
00:03:41.180 | that is always implicit in the decision you're making
00:03:44.180 | is your forecast of the probability
00:03:48.460 | of different things occurring.
00:03:49.420 | In other words, whether you know it or not,
00:03:52.100 | base rates are part of the decision-making.
00:03:55.460 | So when I say to you,
00:03:59.780 | I'm gonna meet you for dinner at seven o'clock
00:04:04.460 | and I promise I'll be on time.
00:04:06.780 | And you say, wanna bet?
00:04:08.200 | Implied in that is that I must have a tendency to be late.
00:04:14.060 | And the question is how much of a tendency
00:04:15.820 | do I have to be late?
00:04:16.780 | And how willing am I to say to you,
00:04:18.660 | yes, I'll bet you that I'm gonna be on time, right?
00:04:22.660 | So when I say things like that and then you bet back,
00:04:26.100 | those are all things that have to do with base rates, right?
00:04:30.260 | You could say something like,
00:04:31.940 | I know the stock market is gonna go up this year.
00:04:35.140 | Well, that's a prediction of the future.
00:04:36.940 | And if I know the base rates, I may bet you on that,
00:04:39.740 | depending on what you're willing to lay me, right?
00:04:42.680 | 'Cause the stock market goes up actually somewhere
00:04:44.300 | between like, it depends on how you measure it,
00:04:45.940 | 65 and 75% of the years, it will go up.
00:04:49.900 | So if you say I'm a hundred percent sure
00:04:51.420 | it's gonna go up this year, I might bet you.
00:04:53.480 | Because now what I'm doing-
00:04:54.740 | - I would take that bet because there are actually options
00:04:57.500 | out there I could use to arbitrage your confidence.
00:05:01.900 | - That is true, that is very true.
00:05:04.740 | But I'm not involved in the arbitrage.
00:05:08.020 | So you can hedge away, I'm just gonna take my bet.
00:05:11.140 | And then maybe I'll hedge it as well.
00:05:13.100 | But the point being that,
00:05:15.980 | when somebody says wanna bet, it's like, when you say,
00:05:19.900 | I think this person I'm gonna hire
00:05:21.560 | is gonna work out 90% of the time and I bet you,
00:05:24.140 | it makes you actually go through and start thinking,
00:05:26.100 | well, wait a minute, why do I believe that?
00:05:28.260 | Remember one of the things that we wanna do
00:05:30.740 | in order to improve decision-making
00:05:32.860 | is to start thinking about what's the quality
00:05:35.620 | of the beliefs that we have that go into any decision
00:05:37.700 | that we're making.
00:05:39.020 | And part of that is making the implicit explicit.
00:05:43.140 | And this is one of the things
00:05:44.460 | that's so incredibly important.
00:05:46.900 | I mean, even talking about a hiring example
00:05:48.900 | where like you send out to a bunch of people like,
00:05:51.220 | what do you think the job description should be?
00:05:53.420 | What do you think the person,
00:05:55.120 | if you were describing them to a recruiter,
00:05:57.280 | what, and you're getting that all independently, right?
00:06:01.200 | What you're finding out is in an explicit way,
00:06:05.040 | when they would otherwise just go and interview somebody,
00:06:08.140 | what are the things that they think are important
00:06:10.500 | for filling this role?
00:06:11.740 | And now you've made that explicit in a way
00:06:15.180 | that you can, first of all, examine it,
00:06:16.860 | which is incredibly important, right?
00:06:19.180 | We have to be able to examine our decisions.
00:06:21.380 | And that means that we have to actually make all this stuff
00:06:26.340 | that's sort of in our gut explicit in a way
00:06:29.140 | where you can examine it like an object.
00:06:31.720 | You can walk around it, you can have discussions about it.
00:06:35.060 | You can, I can see that you have a different perspective.
00:06:38.180 | And when we see that we have a dispersion of opinion,
00:06:41.380 | we can sort of dive into that dispersion
00:06:43.780 | to see where the gaps are,
00:06:44.980 | to see why you believe something different
00:06:46.940 | about the world than I do.
00:06:48.660 | And this is the way that we start to learn really fast.
00:06:52.140 | It's the way that we start to get our decisions
00:06:54.660 | to be much more accurate.