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Thinking in bets

A poker champ turned strategy consultant can help you understand markets a bit better

Poker strategy can help you make better marketing decisions, according to one author.

Last month I explored a book called History’s Worst Predictions And The People Who Made Them, and the simple conclusion was that predicting the future is difficult.

I said that: “While there is nothing wrong with financial forecasts or market outlooks, be careful of right or wrong statements and all or nothing thinking. Avoid words like certainly or always and never say never. Market prices can and will move to extreme highs or lows and stay there longer than you think so you’re not going to be right all the time. Another take-away from these predictions is that when circumstances and information changes, your analysis and decisions must change as well.”

Having said all that, how do you go about improving your decision-making process so you don’t have to just guess what will happen in the future?

Another great book called Thinking in Bets: Making Smarter Decisions when you Don’t Have All the Facts, provides some answers to that question. It’s written by a World Series of Poker champion Annie Duke who is now a corporate speaker and consultant on decision strategy — so it goes to show you just how similar poker, business and trading can be. It’s not a book about poker but rather decision-making under pressure and can offer some practical guidelines when designing, planning and implementing your farm revenue management strategies.

Betting means having money on the line and skin in the game. This makes us more fully vested in the outcome so we are naturally going to put more effort in to making well-rounded and ultimately better decisions. One important way to do this is to be open minded and try to be aware of all facets affecting a situation. Seeing the overall picture helps us understand what’s really happening and provides some insights into better ways to move forward.

According to the author: “Thinking in bets triggers a more open-minded exploration of alternative hypotheses, of reasons supporting conclusions opposite to the routine of self-serving bias. By taking someone else’s perspective we are more likely to explore the opposite side of an argument more often and more seriously and that will move us closer to the truth of the matter.”

Likewise, it doesn’t help being too stuck in our ways: “We don’t win bets by being in love with our ideas. We win bets by relentlessly striving to calibrate our beliefs and predictions about the future to more accurately represent the world. In the long run, the more objective person will win against the more biased person. In that way, betting is a form of accountability to accuracy.”

You can even take this point one step further by really taking a good look at your analysis and beliefs with a healthy dose of self-prescribed skepticism.

She says: “Skepticism is about approaching the world by asking why things might not be true rather than why they are true. Thinking in bets embodies skepticism by encouraging us to examine what we do and do not know and what our level of confidence is in our beliefs and predictions. This moves us closer to what is objectively true and to present the other side, to argue why strategy might be ill advised, why a prediction might be off or why an idea might be ill informed. To do so raises alternative hypotheses.”

To put it another way, if you’re selling, someone is on the other side buying, and vice versa, so think about it from the other person’s point of view. Ask yourself, would you want to buy at this price level? If so, maybe you want to think about your selling decision a little more carefully.

The book also develops the idea of backcasting. Like forecasting, you envision where the future will be but instead of just imagining the future, you look backward from that future point to see how you would have got there.

This is how she explains it: “The more expert the player, the further into the future they plan. Before making that decision to bet, the expert players anticipate what they’ll do following each response as well as how the action to take now affects the future decisions on the poker hand. The best players think beyond the current hand into subsequent hands: how do the actions of this hand affect how they and their opponents make decisions on future hands? We can anticipate positive or negative developments and plan our strategy rather than being reactive. Being able to respond to the changing future is a good thing; being surprised by the changing future is not. When it comes to advanced thinking, standing at the end and looking backward is much more effective than looking forward from the beginning. Also, imagining both positive and negative outcomes helps us build a more realistic vision of the future, allowing us to plan and prepare for a wider variety of challenges. We make better decisions and we feel better about those decisions once we get our past, present and future selves to hang out together.”

Bottom line, the idea of betting means having money on the line and skin in the game. That makes us more fully vested in the outcome. Given the amount of money on the line, and the market risks farmers face, increasing the odds of profitable market decisions will have a positive impact on your bottom line. A lot of farming is about planning for the future so we can’t avoid making forecasts and predictions. Hopefully some of the thinking patterns described in this book can help you do that in a more effective and efficient way.

The back inside cover of the book gets the last word and gives a good reason why you want to think in bets: “No matter what the future holds, you’ll become more confident, calm and self-compassionate when facing it. You won’t make the right call every time, but you’ll have a huge advantage over people who bet with their guts instead of their brains.”

Estimates and projections contained herein are our own and are based on assumptions which we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness, nor in providing it does PI Financial Corp. assume any responsibility or liability.

About the author


David Derwin is a commodity portfolio manager with PI Financial Corp. The views here are his own, presented for educational purposes, rather than as specific market advice. For a copy of the complete research study “Farming Big Data — Myths, Misperceptions & Opportunities in Agriculture Commodity Hedging” contact him at [email protected]

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