Annie Duke – Wanna Bet?

**Patrick O'Shaughnessy** (0:04)
Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (0:24)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (0:48)
My guest this week is Annie Duke and the topic of our discussion is how to improve decision making. We break decisions down into their component parts, values, beliefs, decisions, randomness and outcomes.
After diving into each, we discuss how to make better decisions, how to work in group settings, and how to harness the power of tribes and identity to improve our behavior. Annie has thought about this topic as much as anyone and her methods for getting us to think in probabilities and to stop evaluating decisions based on outcomes tainted by randomness will be useful for anyone listening. Please enjoy.

**Annie Duke** (1:22)
Here's the main thing I think about, there's so much information out there. We know what's right to do. So we can look across lots and lots and lots of data and say for the average person who's investing, what's the best thing for them to do? And we know, don't be an active investor. Put your money in, walk away and let it sit. And we know that that's true. But what's interesting about that is that despite the fact that that information is readily available, that people know it, people don't do it.
And so, the question that I'm always trying to think about is why.
And I think about it in two ways. One is, how much are we communicating with people in a way that activates identity and tribe in a really positive and good way?
And then, how are we thinking about what the rules of the game are?
So on the tribe side, I feel like tribe gets a very bad rap, not surprisingly, because we see it in the political context all the time, that people are fighting with each other. So we get this idea that activating identity is really bad and really destructive. And obviously, you look at the political arena and you can see that sometimes that's true, but it's not always true. So if we think about back to why did we as human beings form tribes in the first place? Obviously, it had to be adapted. Otherwise, people who were in tribes wouldn't have survived as much as people who weren't in tribes. So we know that there was some selection for tribes and why was that? Well, human beings don't have big claws and we don't have big teeth and we're not really strong and we're terribly slow. And we're kind of weaklings for our size if you think about us compared to lions and bears and tigers, Wizard of Oz type of things.
So what did tribes do? It's like we formed these groups that were generally based off kinship. So they were like these kinship groups and now we all work together because we had brains. So we could figure out how do we defend our territory if we all kind of work together.
Now obviously part of working together like that is that now you, Patrick, are going to do something that's really hard that you might otherwise not be willing to do. So for example, in defense of the tribe, you might fight a bear, which normally you would run away from a bear, but now you're protecting your kin and so you'll actually fight the bear. You might march 100 miles in order to find a resource, for example.
So the bad part of tribe comes from, okay, so we're going to protect our own little group and if another group tries to come and invade, they're bad, they're other, whatever, and we're going to kill them. But the good part of tribe is that it can help you to do things that are really hard that you otherwise would not do, that would be against what generally your instincts might be to do. So how do you sort of get that working for you? Well, we can think about what is tribe offering us and there's really wonderful work by a guy named Jay Van Bavel and I really highly recommend him as a follow on Twitter. I think he's a great science communicator and he does work in tribe and identity and the intersection of identity and beliefs. And he kind of frames this as a few of the things that tribe is giving you. One is what are the things that we know or don't know so we could think about like we know we should hold so tribe can help with that. But the other thing is distinctiveness and belongingness and these are two incredibly important things for human beings. We want to feel like we belong to something, but then also we want to feel like we are distinct from other people. So I really feel like when we're really thinking about we know what the data is telling us in terms of the right thing to do, instead of just talking to someone being like here's the data and this is what I think you should do, to start to activate identity and say this is what we do and this is what we do that is distinct from other people. And when we think about the group of people that succeed and the group of people who fail, this is what the people who succeed do.