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How to make smarter decisions ~ Get Rich Slowly
Luck and Incomplete Information
Why don't smart decisions always lead to good results? Because we don't have complete control over our lives — and we don't have all of the information.
You can opt not to drink on New Year's Eve, for instance, but still get blindsided by somebody who did to drink and drive. You made a quality decision, but happenstance hit you upside the head anyhow.
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Key Ideas
Separate decision quality from results
People have a natural tendency to conflate the quality of a decision with the quality of its outcome. They're not the same thing.
You can make a smart, rational choice but still get poor results. That doesn't mean you should have made a different choice; it simply means that other factors (such as luck) influenced the results.
You cannot control outcomes; you can only control your actions.
Thinking in Bets
Becoming comfortable with uncertainty and not knowing is a vital step to becoming a better decision-maker.
What makes a decision great is not that it has a great outcome. A great decision is the result of a good process, and that process must include an attempt to accurately represent our own state of knowledge.
Make smarter decisions
- Stop thinking in terms of right and wrong. Few things are ever 0% or 100% likely to occur. Instead, we should think in bets.
- Before we commit to a course of action, we should think about possible outcomes and how likely each of those outcomes is to occur. Every choice carries an opportunity cost.
Improve the quality of your decisions
- Learn to examine your own beliefs. If you're certain about something, explore the opposing viewpoint.
- Build a network of trusted advisors. Draw on people from a variety of backgrounds and belief systems.
- When you make decisions, think of the future. Practice backcasting, a visualization method in which you define the desired outcome then figure out how you might get there.
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Gambler’s Fallacy
The odds are always fifty-fifty. But most of us anticipate better odds, or better luck, after a bad streak, as if now we are due for good luck.
This ‘Gambler’s Fallacy’...
The Biggest Bluff
Maria Konnikova, in her soon to be published book The Biggest Bluff, tells us that Poker is a real game, closer to life as opposed to the modern games which try to ‘game’ our brains’ and exploit its weaknesses.
Poker pushes us out of our comfort zones and illusions and puts us where life is, unpredictable, and always with fifty-fifty odds.
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Key Ideas
Incomplete information and over-estimation
- Much of what you need to know in life is hidden from you. You need to make decisions, but is still the victim of chance or uncertainty.
- We tend to over-est...
Thinking probabilistically to avoid overestimating our abilities
To avoid the trap of overestimating our own skill, we need to start thinking probabilistically. That means estimating the odds and adapting your decision-making accordingly.
Even if the decision had a good outcome, we still need to objectively analyse the quality of the decision-making underneath.
Learn to deal with tilting
Tilting means realizing that your emotions are not separate from the logic of your decision making - for example, the despair that comes from bad luck, or the overconfidence that comes from a win.
You can learn to cope better by regularly checking in with yourself to see what you are feeling and how you react. Once you have identified those feelings, then try to analyse how they're influencing your judgment.
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Key Ideas
Pick The Right Table
A good poker player chooses a table where he has a better chance to win. A group of casual players is better than a table of professional players.
In your career, you need to pick the ...
Keep Improving
A poker player learns many skills initially about different combinations of cards, and how to play a basic game. He keeps on improving by further calculating the other aspects of the game, which were not understood before.
Similarly, one needs to identify the basic skills for the job and then grow with experience, improving your dealings with people and situations.
Stay Disciplined
A successful poker player constantly plays a high standard, and does not make impulsive decisions. A long-term discipline in a career path builds one's wealth, supported by one’s past success.
A single wrong decision can demolish one’s reputation and credibility.
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