Think Like a Gambler: Innovation Is About Making Bets

I've been reading a new book from Annie Duke called Thinking in Bets. Who doesn’t love a former World Series of Poker winner who also has a PhD in cognitive psychology? But she doesn't just have a fascinating background. Her book also offers some great lessons for anyone interested in innovation. One of the key problems I see in innovation, particularly in government, is the tendency of leaders to spend too much time analyzing their choices. Then once they have made their decisions, they commit too many resources to them.

From Duke's perspective, most things in life are bets. When we order chicken over fish, we are betting we'll be happier with the chicken. If we fund a project, we are making a bet. Along with this is how a betting perspective impacts our thinking. As humans we are often overconfident in our decisionmaking and even if we are unsure, we become more confident after a decision has been made. Studies of confirmation bias show that we seek information confirming our views and filter out evidence to the contrary. That's a great strategy to feel good in the short term but isn't going to lead to the best outcomes for your organization in the long term.

Thinking in bets (or thinking probabilistically) forces us out of that framework. Duke points out that people who are asked probabilistic questions are less sure and tend to hedge. It's easy to say, "I'm 100 percent sure about this," when nothing is really on the line, but if I ask you how much would you bet that you are right, suddenly the calculus changes. So how does this impact government innovation?

First when we are selecting strategies and projects we should think probabilistically. We can't be sure what the right approach is so we need to place some bets and live to learn more. Many successful gamblers use a concept called the Kelly Criterion to carefully scale their bets in order to maximize their chance of winning. Similarly leaders should carefully scale bets on projects and initiatives. Cultivate a field of bets rather than going all in on any one. The world will change so keep your options open, carefully supporting winners and trimming the failures.

Second, leaders can use the psychology of probabilistic thinking or bets to their advantage. Advocates for various projects or approaches might argue vociferously for their idea but if you ask your stakeholders and team to place bets or assign a probability to an outcome they will have to think differently. The surest person might only bet 70 percent on their idea. That is important data that you would never get with a binary choice.

I've actually used poker chips with leadership teams who are working to select a set of priorities for the organization. Each person gets a small pot they can use to support their priorities. The priorities with the most chips move to the top. No one wins any money but the simple stage prop changes how people assess the odds and forces them to think more deeply about their choices.