Bogleheads® Live

Annie Duke: decision making

November 21, 2022 Annie Duke Episode 30
Show Notes Transcript

[00:00:00] Jon Luskin: Bogleheads® Live is our ongoing Twitter Space series where the do-it-yourself investor community asks their questions to financial experts live on Twitter. You can ask our questions by joining us with the next Twitter Space. Get the dates and times next Bogleheads® Live by following the John C. Bogle Center for Financial Literacy on Twitter. That’s @bogleheads.

[00:00:22] For those that can't make the live events, episodes are recorded and turned into a podcast. This is that podcast.

[00:00:29] Thank you for joining us for the 30th Bogleheads® Live, where the do-it-yourself investor community asks questions to financial experts live. My name is Jon Luskin, and I'm your host. Our guest for today is Annie Duke. Let's start by talking about the Bogleheads®, a community of investors who believe in keeping it simple, following a small number of tried-and-true investing principles. This episode of Bogleheads® Live, as with all episodes, is brought to you by the John C. Bogle Center for Financial Literacy, a 501(c)(3) nonprofit organization dedicated to helping people make better financial decisions. Visit our newly designed website at to find valuable information and to make a tax-deductible donation.

[00:01:10] Our next guest is Charles Ellis. Charles Ellis is the author of the investing classic, “Winning the Losers Game: Timeless Strategies for Successful Investing.” His new book, “Inside Vanguard: Leadership Secrets from the Company that Continues to Rewrite the Rules of the Investing Business.”

[00:01:28] Before we get started on today's show, a disclaimer. This is for informational and entertainment purposes only. It should not be relied upon as a basis for investing, tax, or other financial planning decisions.

[00:01:39] Thank you to everyone who submitted questions ahead of time. We might not have time to answer all of them. Let's get started on today's show with Annie Duke. Annie is an author, corporate speaker and consultant in the decision-making space, as well as a special partner focused on decision science at First Round Capital Partners, a seed stage venture fund.

[00:01:57] Annie's latest book is “Quit: The Power of Knowing When to Walk Away.” Her previous book, “Thinking in Bets” is a national best seller. As a former professional poker player, she has won more than $4 million in poker tournaments.

[00:02:10] Annie, thank you for joining us today on Bogleheads® Live. I love how you frame risk and decision making. It certainly brought me peace in some of the decisions I've made in the past to help me from saying or feeling, “if only I made this other decision instead.” In the beginning of your book, “How to Decide,” you write only two things determine how your life turns out: luck and the quality of your decisions. You only have control over one of those things. And let's start with an open and catchall question. What do Bogleheads® do-it-yourself investors need to know about decision making? 

[00:02:45] Annie Duke: That's a pretty broad question. I mean, I think that that explains it.

[00:02:48] So every decision that you make is really in reality a forecast. And the question is what's the quality of that forecast? And that has to do with, how are you framing the decision? How are you thinking about it? How you are exploring the different options that you have, and what is the information that you are bringing to bear on the choice that you make?

[00:03:07] And I think that what we all need to realize is that, for almost every decision that you make, there's very little that you know in comparison to all there is to be known. Those decisions are going to be made under uncertainty, which means that inevitably when you make a choice, you're going to learn a bunch of new stuff after you've made the choice.

[00:03:28] When you make an investment, information reveals itself. Not just how is luck influencing the way it turns out, but you may and very often do learn new information. And I think that the more that we can accept that, the better off we're going to be in terms of decision making because it's going to save us from two big problems.

[00:03:45] The first is believing that you can get to certainty and ending up doing constant analysis and second guessing and a failure to be able to start because you want to get the decision right in the sense of ‘guarantee a good outcome,’ which is impossible. And I think it also saves us from the opposite problem of just winging it.

[00:04:03] Because a lot of times when people recognize this decision is hard, and I don't know a lot of stuff, they'll just say I'm going to go with my gut. But when you start to focus on, let me try to make the best educated guesses that I can, understanding that those are uncertain and I can't guarantee a good outcome, I think it allows you to live in that happy place in the middle.

[00:04:23] Jon: Yeah, it certainly saves you the mental energy from focusing on the past decision that may not have been the right one given resulting. Speaking of resulting, I can jump to a question I got from the Bogleheads® forums ahead of time, this one is from a username ‘NoRegret’ from the Bogleheads® forums who writes, “Annie embodies risk management, which to me is the antithesis of the Bogleheads® approach. If you're choosing an equity allocation that you can live with and stay the course, is that the extent of the risk management? You've just proven my point. So much of this forum is built on the extraordinary performance of the past decade that then serves as the basis for back testing to invalidate any need for risk management. This is the very definition of resulting.”

[00:05:02] Annie, what are your thoughts on NoRegret’s question?

[00:05:09] Annie: Resulting is saying, I'm going to look at a single decision that I've made. So, we're talking about a small “N” - one decision or some small set of decisions that I've made - whether they worked out or not is what I'm going to use as a signal to decide whether the decision itself was good or bad. And the problem there is that you're ignoring the fact that there's luck in there. Basically, you're forgetting about volatility.

[00:05:32] That being said, when you have a large enough “N”, it's no longer resulting because now you're going by base rates, which is really the best thing that you can do in terms of trying to figure out what's going to happen in the future. In this particular case what you would say is, “I have very good information. It's not resulting because I have a large enough sample size to say over time this has been the base rate.” Meaning what's happened in a situation similar to the one that I'm considering doing. So, we can look at how has indexing the market over 10 years, generally how would that have looked?

[00:06:00] And then that is going to be your best forecast for what would happen over the next 10 years. And you would then do that. The only thing is that you would add some “unlesses”, right? Which is, I'm going to assume that things regress to the mean and that the base rate is going to hold unless there's a paradigm shift, for example.

[00:06:17] An example of a paradigm shift would be: you could use the base rates from the nineties about valuations on retail companies, but that wouldn't apply very well to Amazon because there was a paradigm shift when it went online, in terms of what your capture of the audience could be.

[00:06:32] And so that was a paradigm shift. But paradigm shifts are pretty rare. What I want to be clear about is resulting is a small “N” problem, not a large “N” problem. When you start to get into large numbers, then you start to talk about base rates and data, and those are perfectly valid inputs into any decision.

[00:06:47] Jon: Here we've got username, “NoRegret” saying “Yes, the market worked in the past, but that's not necessarily going to mean it can work in the future.” And I think the important thing that we're not considering is not just the result of that decision, but how we made that decision in the first place. Which is to say, we're going to invest in low-cost index funds not because they worked in the past, but because we get to invest in profitable companies at low-cost with diversification. That's the argument for investing in low-cost index funds. Not because, hey, this is what's worked in the past.

[00:07:20] Annie: I would actually add to that and say, no, actually part of your decision is that it has worked in the past.

[00:07:25] That is not to say that it's a guarantee that it will work in the future, but it's an input. You have theses going forward, but part of what allows you to develop those theses and to have confidence in those theses is looking at what has happened over large sample sizes in the past. And that gives you a really good starting point for what you're thinking about going forward.

[00:07:46] Does that mean that that's going to be a guarantee that the past is going to predict the future? No. But it's going to give you center of gravity so that you don't end up predicting really wild things. An example of that that's really pretty simple is that if you looked over the last five years at the rate of hurricanes that have made landfall in the US, that would be your best start for predicting the rate of hurricanes that will hit landfall over the next five years.

[00:08:13] Is it going to be perfect? No. But it's going to give you the best place to start as you're trying to think about what would I want to do in the future? What is going to work in the future? So, it's actually a combination of the two things. So, we don't want to just say, “Here are the facts and then I'm going to think about my own thesis and my own experience.”

[00:08:30] We want an intermediate step which says, “Well, let me look at how things have done over time in the past just to make sure that I'm not completely out of my mind here.” And I think that that's totally fine as long as you're open-minded to the new information that comes in in the future, and you understand that that's just grounding your prediction. It's not that it is the prediction, if that makes sense.

[00:08:51] Jon: I think about Episode #5 we had with Christine Benz, where we had a similar conversation.

[00:08:56] And she made the critique that doing lots of number crunching, getting deep into spreadsheets and finding a correlation among asset classes wasn't necessarily going to guarantee you a future relationship between two different types of investments going forward. And for those who aren't investing nerds, correlation just means the relationship between two types of investments, which is to say when stocks go down, usually a high-quality bond will go up.

[00:09:23] Now, exceptions to that. Yeah, absolutely. In that conversation, in looking at correlations between two different types of investments, it's not necessarily what happened in the past, but why did that happen in the past? This one is from a username, ‘abc132’ from the Bogleheads® forums who writes, “I consider good decision making to be about quickly gathering the information needed to chart the best course of action while rejecting less relevant info and competitive decision making. It is about who can best exploit advantages while they still exist. I'd be interested in hearing some first-person examples of either some ideas of Annie's or metrics for decision making that can be applied to poker, investing and life.

[00:10:05] Annie: I mean, what that user is describing is exactly what the problem with poker is. There's a whole bunch of information you have where you're trying to map your opponent's actions onto their cards. Essentially, you're trying to say, given that they made X, Y, or Z move, they bet this much, they raised when they bet, this is how much time it took them to do so. And this is again where that idea of past performance matters. What have they done in the past? Are they somebody who plays a lot of hands or very few hands? When they raise, do they usually have a strong hand? Do they have a weak hand? You're trying to build a model of the world.

[00:10:38] And to your point about Christine Benz, you're trying to make sure that you attach a “why” to it. So that you understand that you're not taking something that's just noise, meaning a correlation that isn't causal, where one doesn't cause the other. Morning doesn't cause me to eat breakfast, but they're correlated with each other. So, that's what we want to be careful of. And then you're trying to build these models in order to map that onto what the opponent is holding so that you can be very quick and metabolizing that information to figure out what you're supposed to do in order to maximize the chances that you win the hand or that you make money.

[00:11:09] And that's really, honestly true of all decision making. Competitive advantages come from understanding what the relevant information is, number one. Number two, actually being able to think about that information in a more rational way. So, we tend to think about things from our own perspective.

[00:11:25] How good are you at getting to other perspectives so that you can walk around that decision and see many different sides of it? Because most of the judgements that we're making, there are certainly facts, and you have to figure out what are the relevant facts, what are the irrelevant facts.

[00:11:39] But for any fact, you then have to make subjective judgments about it. You can tell me something about, for example, just a fact that this is what interest rates are today, but then what are the investment decisions that you're supposed to make given that interest rates are where they are? Those are subjective judgments.

[00:11:57] Those aren't facts. The cleaner your subjective judgements are, the better off you're going to be. The more accurate they are - the more able you are to get other people's perspectives and metabolize them into your own decision making - the better off you're going to be. And that's where those competitive advantages come in, not just in the sorting of relevant facts to irrelevant facts, but also in understanding that you're laying subjective judgments on top of those facts in terms of trying to model them so that you can figure out what you're supposed to do in response.

[00:12:25] And that's just true, whether it's at poker or in any job situation or what products you're supposed to develop or what investments you're supposed to buy. That's just decision making in a nutshell.

[00:12:35] Jon: Cody, you should be able to ask your question to Annie Duke.

[00:12:41] Cody: Oh, hey there. Hey Jon. And hey Annie. So, I love poker. I'm also a financial planner. I love thinking about financial planning in terms of a range of outcomes.

[00:12:49] In poker, when you go from being a beginner to more advanced player, you start thinking about a range of hands rather than specific hands, like binary outcomes. Could you share with us how helpful is it to think about a range of possible outcomes, financial and otherwise, rather than focusing on a binary like this either works out or this doesn't work out.

[00:13:10] Annie: So, thinking about a range of outcomes is actually the whole game. I'm not talking about the game of poker; I'm talking about just the whole game. For the reason that the world is probabilistic in nature. If we're going to think about how we become better decision makers, there's two pieces to it.

[00:13:27] One which has to do with hidden information is how do we increase the quality of the information that we're inputting into our decisions. Both in terms of the facts that we're inputting into those decisions, and also those subjective judgments - the perspectives - the way that we model those facts.

[00:13:40] That is also a part of that informational side. But the other side is luck. And the thing I say about luck is that you can't control it, but you need to see it appropriately. So, we're trying to create some sort of model of the world that tells us what the range of possible outcomes are. There is almost no outcome which is binary.

[00:14:00] Things aren't very coin-flip in general, where it's going to be 50% heads, 50% tails, and that's it. Obviously in investments you either win or you lose, but that doesn't mean that the range of possible outcomes is binary because there's a certain amount you could win, right? You could win a lot, a little, you could win over the long run, in slow spurts, it could be relatively low volatility where it stays around the same, and so on and so forth.

[00:14:26] And that's true no matter what you're doing. If you choose a route to work, there's a range of possible outcomes that could occur. And for any of those outcomes, there's some probability of those things occurring. So, if we want to improve our decision making, we actually have to think about our decision making as the world is objectively, which is probabilistic.

[00:14:45] And once we can start to do that, a couple of really good things come out of that. One is your decisions are going to be more accurate because you're actually going to be embracing the uncertainty which just exists in the decision and trying to get really good at these forecasts. What are the range of possible outcomes?

[00:15:02] What's the probability that I think those are going to occur? Obviously for any of those outcomes, there's going to be a payoff that's associated with it. And then as you're trying to do that, you can say, what's the other information I could find out that could help me to try to figure out what the range of possible outcomes are and what the probability of those things occurring are?

[00:15:18] Who else could I talk to? What are the other perspectives that I could get? Are there any other facts that would help me to do this? And you can write all of that down and that gives you a really good view of the decision going forward. It also manages your expectations. It allows you to make smarter choices because you can see, for example, where you might want to be hedging against some low probability, but very bad outcome, for example.

[00:15:41] You could figure that out. This just allows you to manage across all of your decisions. Also, if you understand that, then that helps you to construct a portfolio appropriately because portfolios are obviously meant to be de-risking you. If you don't think about things as non-binary, instead as probabilistic, it's hard for you to actually figure out what is the risk in any investment that I have, because that's also probabilistic in nature. So that's a really good thing that you're doing going forward. But then also retrospectively, it really helps you because across a range of decisions you can now go look and say, how was I viewing the world at the time?

[00:16:17] How probable do I think the outcome I observed actually was? What were the other outcomes that I thought I might see? And you can start to close those loops to see how good of a forecaster you actually are. That then causes your decision making to be better going forward. If you're not doing that - and people used to say this in poker - someone would make a joke, what do you think the odds of me winning were? The answer would be, “50/50 because I was either going to win the hand or I wasn’t.” Of course, that's an absurd way to look at the world, but it's the way that most people look at the world and you're just not going to get very good at whatever you're doing if that's the way you're thinking about things.

[00:16:51] And when we go back to resulting, that's actually the problem with resulting is that things are probabilistic. But then once you observe the outcome, you either win the hand or you don't. It doesn't matter that you were 33% to win the hand, because that's a long-run outcome that you're going to get. You're not going to win 33% of the hand on any given trial. You're either going to win the hand or not. That's where I was saying, it's a small “N” problem, resulting. When you then start to think about the world going forward in the way that it actually settles out retrospectively - I won or I didn't - so now going forward, you say, well I'm either going to win or I'm not. That's going to really ruin your decision process, and it's going to make you very inaccurate in your decision making. Frankly, it's going to make you make bad decisions.

[00:17:36] Cody: Just a quick follow up, in terms of thinking about anxiety a lot. And a lot of people in this space and even the Bogleheads® community, say we do things simply. But simple doesn't mean easy. We definitely have paralysis by analysis issues. Once you do make a decision, what type of framework do you use to just be okay with the decision and move on mentally from that?

[00:17:56] Annie: I mean, there's one thing you can do, which is just not to look at it. I actually do that myself. I actually couldn't tell you what's going on with my portfolio right now because I haven't looked at it. So, I'm very committed to that strategy. I like it. But I think the more important thing is this; I think a lot of our anxiety comes from the idea that our decisions are last and final.

[00:18:15] When we make a decision, we're so concerned about getting it right - where getting it right means getting a good outcome - that we can get paralyzed and then just start to worry about what's going to happen because we act as if once we make the decision and we start it, that that's it. Our hands are tied.

[00:18:30] But what we have to remember is that we're making those decisions under conditions of uncertainty, and we will learn new things after the fact. And when we learn that new information, we're allowed to react to it. In fact, that option to be able to react to it - the option to quit if you want to, to walk away from it, to change your mind - is incredibly valuable when you're making decisions under uncertainty.

[00:18:54] The trick is in understanding when the path you're on, no matter what's happening, is still worthwhile versus when the path you're on is no longer worthwhile. So, one of the ways that you can do that is when you enter into some sort of investment decision, you have a thesis. And that thesis implies certain states of the world.

[00:19:14] It just implies that. And when that thesis implies those states of the world, write those things down and have those as criteria that you're thinking about in advance. So, this stops you from panicking. It stops you from overreacting or underreacting to things that are happening in the world. So, write that thesis down and say, “so now let me imagine that my thesis didn't play out.”

[00:19:37] How would that happen? What would be the things that I would see that would tell me that? So, I mentioned Bitcoin before. If I have a thesis that the reason why I'm investing is because it's uncorrelated with inflation, then I can have some sort of criteria going into that that says, well, if I see inflation go up this much, and I see that Bitcoin remains correlated with that increase in inflation over a certain period of time - and I can decide what that is - such that I gain enough confidence that it is actually correlated, then I should exit because the reason that I got in, it just turns out that my forecast was wrong. That's one way that you can relieve some of that anxiety is saying essentially, I'm holding for the long run “unless”, and really understanding what those “unlesses” are very much in advance.

[00:20:21] That's piece number one. And then piece number two is get yourself a really good financial advisor. Because what you want to be able to do is see these things over the long-run and have people able to frame this for you over the long-run as well. And so, you want to go to somebody who actually has expertise, who has seen this over and over and over again.

[00:20:39] When you're feeling that anxiety and say, “Is this reasonable for me to have anxiety about? Am I overreacting? Am I underreacting? Can you help me to be able to see this from the outside looking in?” And that can be actually incredibly helpful in terms of relieving that pressure and anxiety you feel in the initial starting decision.

[00:20:57] When you actually sort of plan out some of these exits, some of these coaching decisions, really right when you get into the investment.

[00:21:05] Cody: Thank you. I appreciate it so much. Reminds me of the Investment Policy Statement that many of us create for ourselves. So, appreciate it Annie, and thanks for being here.

[00:21:12] Jon: This question is from username ‘Alex_686’, who writes: “How do you know what the right investing allocation is if it is a sleep soundly at night portfolio? Well, isn't that just another way of saying trust your gut, which is just another way of saying that you should trust blind emotions over logic?”

[00:21:32] Annie: No. First of all, let me just say don't trust your gut. Please. I'm not saying that your gut isn't sometimes right. The issue is that, look, we all have experience and sometimes our gut is leading us in a good direction. The problem is that if we don't actually make explicit and work a decision process around what our gut feeling is, then other people can't examine it. Other people can't find out when bias is driving you to a bad decision.

[00:21:57] Maybe because in that moment you're feeling really risk averse or loss averse, or maybe you were just on a winning streak and you're overestimating the probability that you're going to win at something because of that. Maybe you just want certain things to be true because you're trying to confirm past decisions that you made.

[00:22:13] All of those types of bias that you might have read about in a book, like, “Thinking Fast and Slow” by Daniel Kahneman are going to exist in your gut. First of all, if you want to make a decision with your gut that's an important decision - I don't care if it's an unimportant decision, because I don't care if you make a mistake for something that doesn't really matter - but if it's for an important decision, write down what do I think my gut is really telling me? Why am I thinking that? What's the information that's telling me that? What are the outcomes that I think are going to occur? And then show the work to somebody else so that you can really get a gut check.

[00:22:44] But a gut check that's recorded where you can go back and look at it so that you can start to close those feedback loops on your decisions. Now as far as the question is concerned, that's a matter of values. So, we all have different values. So, one person's value might be, “I want to just be able to sleep at night. I want a portfolio that's going to have very little risk associated with it.” Maybe you want one that's just going to literally do exactly what the market does because you just don't want to have the headache and you just want to be secure that in the future, you're just going to make your whatever percent on average per year. And that's fine with you.

[00:23:21] That's not a gut decision. That is your values. And then what you do is you take those values and say, okay, let me work with somebody and talk to somebody to try to figure out how can I construct a portfolio that has the highest likelihood of allowing me to get to my goal, which is to be able to sleep at night. Which is what my values are.

[00:23:41] Maybe somebody else is much more risk-seeking and they're like, “I want the gamble. I like to ride the highs and lows. I want to have the big payoff associated with it. And I understand that in order to be able to get that opportunity to have a humongous payoff, that what might come with that, is that I could take a really big loss and that's fine with me.”

[00:23:59] Then you could sort of say that's what your gut is telling you, but that just means that's what your values are. And then what you're doing is trying to express those values through your decision making to create the highest probability that you can actually get to achieve the things that you want to achieve.

[00:24:13] So, I think you need to separate out what are the things that I want for myself from would that be correct then just to make a gut decision. Because that's almost never correct. 

[00:24:25] Jon: You'll sleep well at night, not because you won't have losses, you'll sleep well at night because you'll have the most optimized portfolio that you can possibly have.

[00:24:31] Annie: Right. And then you can sleep well at night because you made a good decision that was completely in concert with your values. And that's what we're really trying to do.

[00:24:41] Jon: Let's turn to a live audience question.

[00:24:44] Audience Member: Okay. Hi. Annie, I was listening to your conversation on some other podcast, and you were saying that the worst time to make the decision is when you are in the situation and you should make the decision beforehand.

[00:24:58] My question is, isn't this something like when we go on a dieting plan in front of us, when the actual time of executing comes up, there are so many emotions and sooner or later you quit the path and go on your original one? If you can, throw some more thoughts or more light on that.

[00:25:14] Annie: Yeah. So, the answer is that's true. Let me first say, so what does it mean to be in the decision? And it means that you're actually facing the choice in that moment. So, as an example, we all kind of know that the market might go down 20% at some point, but leaving the decision to what you're going to do about it until the moment that the market actually goes down 20%, and then you're trying to now decide what to do, then you're in it.

[00:25:42] And that's when you're going to make really poor decisions. And to the dieting point, I want to eat healthy, but then there's an open box of chocolates in front of me. What I recommend is, as much as possible, try not to have to make that decision in the moment and do a whole bunch of advanced work.

[00:25:57] So, in the case of I want to eat healthy, you can think about if I know that I'm going to be a poor decision maker when an open box of chocolates is in front of me - first of all, you can try to figure out how to avoid the chocolate, which is a perfectly reasonable thing to do - but then the other things that you can do are just have a pre-plan for how am I going to react?

[00:26:16] What am I going to do when those chocolates are in front of me? Right? Am I going to exit the room? Am I going to walk away? Am I going to talk to someone who knows that I would like to eat healthy and get them to help me to avoid the chocolates? There's a whole bunch of things that you can do. We can think about also how am I going to react when the market goes down 5% and think in advance about, let me imagine that I made some pretty bad decisions.

[00:26:37] Why might that be? Well, because I was panicking when the market went down. Okay, so let me imagine that the market goes down 5%. Let me try to figure out why that's happening, and let me pre-game and pre-plan what my reactions are going to be. Some of it might just be a stop-and-think, like I'm not going to make any decisions until I wait 24 hours and talk to my financial advisor. Which would be like I'm not going to eat the chocolates until I talk to my friend.

[00:27:00] But the thing I want to make really clear, to your point, is that you will not be perfect at this. There's going to be plenty of times when you're going to eat the chocolate. If I say, look, I know that one of the ways that I lose a lot of money as say a salesperson - let's say I'm selling software - is that I really stubbornly stick with leads that it's very clear I can't win. Because I know what those signals are that I can't win it. They're only talking about price. They don't even want a product demo. And it's really clear they have a competitor installed. These are all very bad signals, but I know that really feel like I can still win those deals.

[00:27:35] And so then in the end, I end up wasting my time pursuing leads that really aren't worth my time because I'm not going to close them. And that's time. There's huge opportunity cost involved with that because now I can't go do other things, pursue other leads, or create other leads. So, I'm going to think about that in advance.

[00:27:50] I'm going to commit to when I see those signals, I won't pursue the lead anymore. But you're not going to be perfect at it. You're still going to pursue some leads where they're talking about price all the time. You're still going to eat some chocolates when they're sitting in front of you. You're still going to maybe do some panic selling when the market goes down 5%. But you're going to do it less.

[00:28:09] And this is the key is that there is no decision advice that I can give you that's going to make you a perfect decision maker. Not in comparison to someone who is perfectly rational or omniscient. Because you're neither of those things. But if you can do it more often than you would have because you thought about these things in advance and didn't trust yourself to react rationally in the moment, you're going to be better off.

[00:28:35] And I think this is part of the problem that we have as decision makers, is that we just sort of assume that when we get signals that we should act in a particular way - let's say that start something, we buy a stock and it starts going down - we assume that, well, when it starts going down, we're going to be pretty rational about figuring out what that means.

[00:28:55] Is that because the stock, I misjudged what the quality of the stock was, or is it because the stock is still really good and it's just volatility, and I should just stay in it? And I'll be good at figuring that out. The fact is you’re not good at figuring out once you've already started it and you're on the path and you're seeing those losses start to accrue on your balance sheet. You're just really bad at it. Start thinking about it in advance because it's going to make you better at those decisions, but not perfect. But as we know in investing where you might be grinding 1% or 2% or 3% or 4% edges, and that's enough to make you very wealthy in the long-run, that's true for decision making as well. If I can improve the chances that I act more rationally by 5% because I'm putting these strategies in, I am a hell of a lot better off for it. And that's what we have to remember.

[00:29:45] Jon: Annie, any final thoughts before I let you go? 

[00:29:51] Annie: I think that my final thought is this: we need to be really accepting as human beings that we're making decisions under uncertainty. And there's just a lot of stuff we don't know. There's a huge influence of luck. We're addled by cognitive bias. And our goal needs to be to try to see the world as objectively as possible, to accept the fact that it's probabilistic - that it's not black and white - and really embrace that. 

[00:30:20] And start understanding that if we embrace that, that is what is going to improve our decision making because it's going to allow us to approach the world in a way that's truer to what the world actually is. And that means that we're going to be able to close feedback loops better. We're going to be able to figure out ways to actually act in the long-run the way that we wish to act in the long-run, to not overreact or underreact to the information we discover after we've actually started down a path so that we know when should we stick with it?

[00:30:48] When should we walk away? When should we switch to a different thesis? How do we actually hold true to the goals that we're trying to achieve? And I think that we just need to accept that. And if we can accept that and work with what we have, warts and all, we're going to be a lot better off going forward.

[00:31:07] Jon: That is fantastic. Be okay with making that imperfect decision. You're not going to know what is perfect until you finally have that luck play out. 

[00:31:19] Annie: Even then you may not know, so that's okay too.

[00:31:21] Jon: Yep. Absolutely. Absolutely. But it will help you improve your decision-making process, being okay with having that imperfect result. Wonderful. That is all the time we have for today. Thank you to Annie Duke for joining us today. And thank you for everyone who joined us for today's Bogleheads® Live. Our next Bogleheads® Live will have Charles Ellis, author of the investing classic, “Winning the Loser’s Game: Timeless Strategies for Successful Investing.”

[00:31:45] His new book is “Inside Vanguard: Leadership Secrets from the Company that Continues to Rewrite the Rules of the Investing Business.” Between now and then, you can submit your questions to future guests on the Bogleheads® forum at and on Bogleheads® Reddit and on our Bogleheads® Facebook page.

[00:32:00] Until then, you can access a wealth of information for do-it-yourself investors at the John C. Bogle Center for Financial Literacy at For our podcast listeners, if you could take a moment to subscribe and to rate the podcast on Apple, Spotify, or wherever you get your podcast. Finally, I'd love your feedback. If you have a comment or guest suggestion, tag your host @JonLuskin on Twitter.

[00:32:21] Thank you again, everyone. Look forward to seeing you all again next time. Until then, have a great one.