Hello, I’m Stuart Crainer. I’m the co-founder of Thinkers50, and I would like to welcome you to the monthly podcast series Provocateurs, in which we explore the experiences, insights, and perspectives of inspiring leaders. Our aim is to provoke you to think and act differently through conversations with some fantastic people. This is a collaboration between Thinkers50 and Deloitte. So my co-host today is Steve Goldbach. Steve is Deloitte’s Chief Strategy Officer and co-author of the book Provoke, which ignited this series. Steve, welcome and please introduce today’s fantastic guest, one I know you are really excited about.
I am indeed, Stuart, and it’s really good to be here. And you are correct. I am super excited that we’re joined today by Annie Duke. Annie is truly an N of 1. She owns the space of decision thought leader turned poker player, returning back to decision thought leader, taking her own advice to quit, and she’s the author of two terrific books; Quit: the Power of Knowing When to Walk Away and Thinking In Bets, which was a national bestseller. I’ve enjoyed both of them. Annie is really an expert at deconstructing the world of decision making, and her analogies to the world of poker really resonate with me.
Yes, as a former professional poker player, Annie won more than $4 million in tournament poker. During her career, Annie won a World Series of Poker bracelet and is the only woman to have won the World Series of Poker Tournament of Champions and the NBC National Poker Heads Up Championship. She retired from the game in 2012. Today as well as being an author, speaker, and consultant in the decision making space, she is a special partner focused on decision science at First Round Capital Partners, a seed stage venture fund. Annie is also the co-founder of the Alliance for Decision Education, a nonprofit whose mission is to improve lives by empowering students through decision skills education.
Well, welcome Annie, and it’s great to have you here. Maybe let’s start with a little bit of your backstory for folks who aren’t as familiar with your career. So I’d love maybe just to orient you a bit, talk about how you ended up in the world of poker because that wasn’t the plan from the start, right?
Definitely not. Well, first of all, thank you for having me. I’m happy to be here. Yeah, no, I started my adult life, my post-college life, planning to become a professor. And I went to the University of Pennsylvania for five years to study cognitive science in their PhD program. Had a National Science Foundation fellowship and was well on my way. So during my fifth year, I had secured many job talks and was about to sort of launch that career, but I had been battling with a stomach illness that became quite acute. I ended up in the hospital for two weeks, and the advice of doctors was you need to take some time off to recuperate. Which I did, which meant that I had to cancel all of my job talks and also meant that during that time off, I didn’t have my fellowship. As modest as it was, it was what I was living on. So that was gone. And honestly I just needed a way to make money. And I had some constraints. I didn’t want to launch a new career because I was planning to go back and finish and go back out on the job market the next year. I wasn’t sure how I was going to feel from day-to-day, so I needed some pretty flexible hours. So there aren’t a lot of things that sort of fit into those constraints. And my brother was the one, Howard Letter, who actually suggested that I might try my hand at poker. That seems a little bit out of the blue. It wasn’t quite as out of the blue as it seems because he had been playing poker for a long time professionally. He had actually already made the final table of the World Series of Poker and I had spent a lot of time watching him play.
So I did understand quite a bit about the game. And he had sort of flown me out to Las Vegas kind of once a year while I was in graduate school for a vacation. And I found Las Vegas to be quite boring. I don’t really like gambling, which sounds weird coming from a poker player, but poker isn’t gambling, so I didn’t want to play craps, I didn’t want to play blackjack, whatever. I didn’t find it fun. So he would always give me a little bit of a budget, like a $300 budget to go play poker. So I had actually played a tiny bit as well. So he suggested that I start playing. I did, and I just absolutely fell in love with the game. He coached me. I started making money right away and I just kind of had a knack for it. And it felt to me like I think when I was thinking about what I’d been studying in cognitive science, that this was a very fast paced, high stakes, real world application of a lot of things that I was studying in graduate school.
And long story short, the meantime, which I was going to do in the meantime till I went back and finished my PhD, lasted for 18 years. I retired in 2012. So that’s how I ended up in poker, which was not your normal path, I guess, particularly at that time, which was in the 90’s. Poker wasn’t on television and it wasn’t even on the internet. So I think now for somebody to say, oh, I left graduate school to go play poker, people would understand it a little bit better. But at that time I mostly got asked if I was going to go to gamblers anonymous. I don’t think that people understood that poker was something that you could actually make a living at, which I think is actually another reason why I liked it.
And what was the overlap with cognitive science then? Can you spell out how the cognitive science background helped you play poker?
Yeah, sure. So it was actually quite funny because people knew that I had studied psychology, which is the department that I was in at graduate school. And so people thought that I was sort of thinking about clinical psychology or psychoanalyzing or something, that I was somehow doing that, and that was helping me. I have no background in that whatsoever. As I said, I was studying cognitive science. And cognitive science is a lot about understanding where our thinking is flawed. So when we think about how do we build models of the world, there were kind of two things that I was studying. One was how do we think about learning under conditions of uncertainty? Meaning there’s a lot of hidden information, cards are face down, and there’s luck. So how are we thinking about how you map appropriately what someone’s actions are to their cards, when a lot of times you don’t actually get to see the result and there’s short term luck involved?
Just because you lose a hand doesn’t mean that you played the hand poorly. Just because you won a hand doesn’t mean that you played the hand well. So those things aren’t mapped one to one. So the feedback is quite noisy. It’s something that you have to sort of track over time and that presents, actually, a lot of difficulties in trying to figure out, how do you actually learn in that kind of system? And when you have that much uncertainty, when those feedback loops are so noisy, that’s the type of environment in which cognitive bias can really grab hold. So I’ll give you a very simple example of a cognitive bias that grabs hold in that particular type of situation.
There’s a bias called self-serving bias. And self-serving bias is kind of exactly what it sounds like, that the way that we reason about the world is to serve our own self narrative. So let’s think about a game like poker where it is possible that any hand that you win or lose could be due to luck or skill. It’s a mix of the two. What happens is that we’ll have a tendency, for ourselves, when we lose to blame it on luck. To say, oh, I just got unlucky. And when we win, to essentially blame it on skill. To say, I won because I was such a good player. Now the problem of course is that that’s not always true. And if that’s the way that you process your results, you’re going to be very slow to learn. And this is a very, very common bias. If anybody ever sits down at a poker table, they’re actually going to hear it out loud every single time that you play. Where players are going to say, I can’t believe I got so unlucky. That was what we would call a bad beat. Meaning a bad beat is just when someone overcomes the odds to beat you in a hand. People talk about that a lot on the losing side. And on the winning side, you don’t hear people say, wow, I played that hand like an idiot. They say, wow, I really outplayed that person. I played that hand so well, I read them so well. And so you can hear this going on at the table all the time. And people who succumb to that and don’t think really deeply about how to solve that problem are frankly not going to become very good at the game because obviously to become good at anything, it doesn’t matter whether it’s poker or anything else, you have to actually be able to close those feedback loops in an accurate way so that you understand what to attribute to luck and what to attribute to skill, because that helps you decide what you’re going to change in the future.
So there’s just a whole bunch of issues like that in poker, whether it’s overconfidence, or availability bias, or better than average effect, or confirmation bias is another one. Self-serving bias, you also get resulting in there, which is outcome bias. And this really creates a big problem in these types of environments for how do we actually improve.
Yeah, Annie, let’s pick up on resulting, because I did want to spend a little bit of time migrating maybe into the world of business decisions, which, like poker, there is an element of luck and there’s an element of making good choices. Talk a bit about the concept of resulting and why it’s a perhaps dangerous way to think about evaluating whether your decision was a good one or not.
So there’s different ways that we go wrong in evaluating results. I just told you one of the ways, which is self-serving bias. So when we’re sort of on the fly thinking about something that went wrong, we for ourselves, this is a result for us that went wrong, will tend to attribute it to factors that have to do with luck. You actually even see this in pre-mortems, when people do pre-mortems, which is thinking in advance about something going wrong. Imagine it’s a year from now and your strategic plan has failed. Why do you think that happened? They’ll tend to attribute, the reasons that they tend to come up with have to do with luck. And when I have results that go well, and I’m thinking about that on the fly, I’ll tend to attribute it to skill. So that’s self-serving bias.
But then there’s also something that happens called resulting, which I talk about extensively in Thinking In Bets, which is treating the world like there’s a one-to-one mapping between bad outcomes, bad decisions, and good outcomes, good decisions. All right, so how do we get to resulting? There’s kind of two ways. One way is if I ask you to think about the worst decision you made last year. So notice I’m not asking you to figure out on the fly why something happened. I’m saying what was the worst decision made last year? What you will actually tell me is your worst result. And if I ask you for your best decision last year, what you will actually tell me is your best result. So this is a very big error because those two things don’t map and it’s likely that your best decision is not actually associated with your best result unless you’re in a game that’s pure skill, which business is not.
It strikes me as you talk, Annie, that to play poker professionally, you need an enormous amount of resilience. Psychological resilience. Because you’ve got to accept you’re going to lose.
You’re going to lose money as well, which is often a difficult thing and it’s very personal as well. So you need an enormous amount of resilience to actually succeed.
Yeah, I think that that is absolutely correct. So there’s some funny things about poker that are actually quite different than business, but one of the funny things about poker that’s really significantly different than business is that, Stuart, if I’m playing you and I win a hand from you, which means that I have made money off of you, you have to actually hand me the money basically. So it’s an exchange that’s quite personal. You have to actually give the money to me. And so I think that that’s hard. That tends to heighten emotions. It’s not just a sort of a transaction. It’s like the difference between paying cash for something and paying with a credit card. One feels, and actually they’ve done work on this: if you’re asking people to budget or actually if you want people to eat healthier, having them pay cash at a supermarket is actually a better way to do that than having them use a credit card as an example.
And it has to do with how much are you feeling that transaction? How real is that transaction to you? So these transactions are very real. And poker is not fun unless you play for an amount of money that will hurt. So if you’re playing for pennies, you won’t really try to be good at the game. Now you might be having fun in other ways, like you might be hanging out with your friends on a weekend night at a home game and having some beers and it’s more social time. But if it’s like you’re trying to have fun with the poker itself, if you’re playing for an amount that literally doesn’t matter to you, the game itself won’t be very interesting to you and it won’t really be fun. So people are playing for an amount where when they lose their money, it’s going to hurt them.
They’re going to have to give the money over in a very personal way. And the best players in the world, for example, if you take a game like limit hold’em, if you are winning 56% of the time, you’re doing really, really well. So what that means by definition is like 44% of the time you’re going to lose. Now if you win 56% of the sessions that you play. So if you take an eight hour session and you win 56% of those, what that means is that by 1000 hours, you’re almost a hundred percent guaranteed to show a profit. So in the long run, obviously you would take any bet that you can win at 56% of the time. But it means that you do a lot of losing and there’s a lot of volatility. So this isn’t a low volatility game.
You can win a lot, you can lose a lot. It’s: How does it work out over time? And that creates a tremendous amount of emotion at the table and you have to be able to recover. Not just from the losing, but the fact that, look, here’s something that you figure out really quickly when you play poker is that if you’re 80% to win a hand, that means 20% of the time you’re going to lose it, and you’re going to observe that 20%, 20% of the time by definition. And when you lose, when you happen to be living in that 20% that you’re going to lose that hand, gosh, it feels unfair. Because in theory you’re supposed to win 80% of the time. So it just feels unfair and it’s really hard to step back from that and say, well, this is just part of the 20%. What can I do? And that’s the kind of thing that you have to really learn to shake off and kind of go on to the next hand. And interestingly, one of the best ways to become resilient is to focus on the things that you have control over. In other words, to start to discard the luck in the game in terms of what you’re ruminating on and what you’re thinking about. And start to think about how could I have played the hand better? What could I have done differently? And that’s true whether you’ve won or lost the hand. So one of the ways that you deal with the resilience issue is to dig down into the skill elements of the game, which interestingly enough is also one of the ways that you would overcome resulting. It’s one of the ways that you would overcome self-serving bias, is to start to really dig in this obsessive way to the skill elements of the game and really analyze your hands that way.
And the reason why that helps you be resilient is because once you start to get into analysis mode, it takes you out of the emotional part of your brain, specifically the amygdala, and puts you into the more rational part of your brain, specifically the prefrontal cortex. And the good thing about that is that the prefrontal cortex actually inhibits activity in the amygdala, as the amygdala inhibits activity in the prefrontal cortex. So once you start to recruit that part of your brain and go into analysis mode, it automatically calms your emotions down, which allows you to get yourself together for the next hand.
Well, that’s why human beings are the ones who are playing poker and not our reptilian brains. Maybe that’s a good pivot into the world of Quit because in Quit, you spend a lot of time talking about the role that losing can play in the inability to get away from something that you probably ought not to be doing. Maybe spend a little bit of time talking about why losing, or being in the red, makes us weaker decision makers and how we can overcome that.
So here’s the fundamental issue that I’m trying to cover in Quit. So we’ve talked a lot about decision making under uncertainty. When we’re making decisions – whether it’s in poker, whether it’s in business, whether it’s who you want to marry, whether it’s what job you want to take, what college do you want to go to, what major do you want to decide to pursue – we’re making those decisions under conditions of uncertainty. So there’s a whole bunch of stuff we don’t know, and luck is also going to influence the outcome. And I think that we’ve all had that feeling after having started something of, oh, I wish I knew then what I know now. So when we have that feeling, that’s the feeling of I made this decision when I didn’t have all the facts. And that’s just how we have to be as decision makers.
I mean, if you think about when somebody starts to develop a product; is the product going to work? Is the market going to want it? Am I going to find product market fit? What’s going to be the right go to market motion for this product? These things are all things that we don’t know. And if you wait to find those things out, you’re going to be too slow. So we have to start these things under conditions of uncertainty. And then what we’re going to say a lot is, I wish I knew then what I know now. Now here’s the good news, is that the option to quit is incredibly valuable to us and it’s a big gift that we have it, because it allows us to react to that information once we find it out. So when we say, I wish I knew then what I know now, what we’re saying is this information is probably pretty bad.
I kind of wish that I hadn’t started this. I wish I had made a different choice. And the option to quit something, to stop doing something, allows us to react to that in a way that’s going to get us out of it so that we can move on to something that is actually going to help us to achieve our goals. So in the simplest sense, if I decide, say, to climb Mount Everest, when I set out maybe it’s a beautiful clear day and the weather forecast is really good, and then I’m halfway up to the summit and a blizzard hits me, well, isn’t it good that I have the option to turn around so I can get out of the blizzard? So that’s why we want to really think about how do we become good at quitting? Now, the problem that we have though is that we have the intuition that when we get that news that things are bad, when that blizzard comes upon us, that we will actually turn around, that we will actually quit.
That stands to reason. Obviously when you’re thinking about it in the abstract, if you buy a stock and it starts to tank in a way that completely disproves your thesis for buying the stock in the first place, obviously you would sell it. If you take a job because you think it’s going to be your dream job and it turns out that you don’t like the culture of the company, obviously you’re going to walk away from it. If you develop a product and you can’t find product market fit, obviously you’re going to stop developing the product. These things seem super obvious to us, in the abstract, but it turns out that that intuition that we have is bonkers. Because we don’t actually walk away from some things, not once we’ve started them, not enough. And the reason has to do with what you just alluded to, which is what we would call being in the losses.
So what does being in the losses mean? It can mean two things. It can mean that we’re in the losses, meaning that we’ve sunk resources into something and those resources can be time, money, effort, attention. And if we walk away, we’re going to have to abandon those resources. Those resources will have been wasted. So there we can think about it as, for example, if I start a project and I put all this time into developing the project and now the project doesn’t actually come to fruition, then everything that I put into that will have been wasted. That’s the way that we think about it. We can also think about it more simply as actually in a monetary sense, being in the losses. If I buy a stock at 50 and it’s trading at 40, I am in the losses. I am $10 in the losses.
And it turns out that when we’re in the losses in this way, that we don’t want to quit things. Because we want to get our money back. And we have that, I mean, I hope that you can sense this, that there’s a really different feeling between buying a stock at 50 that’s trading at 40 and trying to make the decision about whether to sell it in that moment versus coming to that stock fresh when it’s trading at 40 and trying to decide whether to buy it. We will behave very differently in those two situations. So in situations where we would decline to buy the stock at 40, we will hold it at 40 because we bought it at 50. And of course that decision should be identical. If you’re declining to buy it, you ought to decline to hold it, you should actually sell it.
And Annie, one of the things that I’ve observed as a strategist is that when you look at industries where there are relatively few competitors, when you have a competitor who “gets sick” – where you maybe have a five competitor market or a six competitor market and one of the competitors gets really weakened – they start to make what other competitors start to say as they might be irrational decisions, but they could be this doubling down or I’ve got to play to get out of my losses, I’m going to do things that don’t seem economically rational, but that might have a leg in the concept that you’re describing because they’re going to make moves to get out of this losing streak in some way.
I think that one of the best examples of this problem is the California bullet train where we can really see what happens once you’ve started to dump resources into something. And if you quit, then what does that mean? Didn’t you just waste all of those resources? Now I just want to be clear, waste is a forward looking problem, not a backward looking problem. And this is where this problem of being in the losses or it’s related to the sunk cost fallacy, that we take what we’ve already sunk into a project into account when we’re trying to decide whether to continue on and sink more into it, is that what we’ve already spent is already gone. What we care about is, is the next dollar that we put into it worthwhile or is that going to be a waste? And what ends up happening is that we will dump more resources into something trying to protect what we’ve already spent, and that’s what actually creates the waste.
That’s why waste is a forward-looking problem. So the California bullet train I think is such a good example of this problem. So this is a high speed rail system that they want to build in California that’s going to connect San Francisco and Silicon Valley, which obviously are economic engines of that state, to LA and San Diego to the south, also economic engines of the state. So what you see in California is that those two areas are incredibly economically prosperous. And then the Central Valley, everything that kind of is in between those two areas, is economically depressed. Not only that, the housing markets in LA and San Francisco are incredibly congested. Not just congested, but very expensive. So it’s actually hard for people to live anywhere near there in order just to work in those cities. So the idea was we’re going to create high speed rail. That’s going to allow us to connect the Central Valley to these economic engines. That’s going to help to spread economic prosperity throughout the whole state, and it’s going to relieve these congested housing markets.
So that all sounds great. So they floated a bond in 2010. The bond got approved for $9 billion on a $33 billion estimated budget to start building the bullet train. And they approved a bit of track to start with between Madera and Fresno. So this is sitting in the Central Valley. They expected enough of the line to be running by 2021 that there would be an operating surplus, that along with some public-private partnerships would fund the rest of construction. So that’s sort of their plan. They don’t break ground until 2015. By 2018, as they’re building this section between Madera and Fresno, they all of a sudden realized that they had an issue. There were two mountain ranges in California. One is to the north of LA called the Tehachapi Mountains, and one is to the south of San Francisco called the Diablo Range, which has a very precarious pass called the Pacheco Pass that you drive over – for anybody who’s driven that route. And they realized these are going to be really hard to engineer because it involves blasting through mountains in a seismically active area. So now the authority which runs this project says, oh, we’re not actually sure if we can do that.
So from the perspective of California, if you stop now, won’t you have wasted $7 billion in taxpayer money? Right now they have an estimated completion date of I think 2033, and the budget is up to I think about $115 billion at this point. So here we have, and this is very common in public’s works projects, that once you start it, it’s really hard to stop once you get in the losses, once you start those spends.
So these mega projects should be run by poker players.
Well, I don’t know poker players, but maybe I would choose Astro Teller. So Astro Teller is the CEO, otherwise known as captain of Moonshots of X, which is Google’s in-house innovation hub. So he’s actually dealing with these decisions about what to invest in that are big swings. Their charter is to take projects from initial idea to commercialization in five to ten years. And they want a 10x change to the world. So these are really big swings. These are moonshots. The reason why they choose that five to ten years to commercialization is because they figure if they can do it earlier than that, someone’s probably already developing the tech. And if it takes longer than ten years, by the time they do it, the tech will probably be obsolete. So that’s where they’ve come up with that idea as the charter. So he’s going to take a lot of big swings.
And his idea is, look, if you understand the sunk cost problem, if you understand this problem of not wanting to walk away from things when you’re in the losses, then you have to be really thinking in advance as you enter into a project about how do I get the answer of whether this is worth pursuing as quickly as possible so that I can get out of the project as quickly as possible when I get that signal that it might not be worth pursuing? And he’s developed a mental model called monkeys and pedestals that helps X think about this, and we can apply this to the California bullet train pretty easily. So monkeys and pedestals goes like this:
So Stuart, imagine that you’ve decided that you’re going to now create an act to make a lot of money, and the act is that you’re going to train a monkey to juggle flaming torches while standing on a pedestal in the town square. So people will obviously throw a lot of money in the hat for that. So my question for you is, if you’re going to do that, what part of the problem should you tackle first? Should you figure out if you can train the monkey to juggle the flaming torches first, or should you build the pedestal first?
Well, the monkey’s the problem, isn’t it?
Yeah, exactly. So the monkey is the unknown, it’s the bottleneck. So we don’t want to build the pedestal first, really kind of for three reasons. Reason number one is if you can’t train the monkey, what’s the point? Then you just have a useless pedestal lying around. Problem number two is that the pedestal actually represents false progress. It creates the illusion of progress. And the reason why is if you build the pedestal, it may feel like progress except that you already know that you can build it. So you have learned nothing if you build that pedestal. So we don’t actually want to do things that don’t actually create progress. So the only pedestals we would ever want to build would be ones that are in service of figuring out the monkey.
So you could go buy some torches as an example. So you need those in order to figure out if you can train the monkey to do this. And then the third problem, which I think is probably Astro Teller’s biggest insight, is that building the pedestal first is going to stop you from quitting the project when it turns out the monkey’s really hard to train. Because again, as you create that false progress and you’re building that pedestal, that’s time and effort and energy that you’ve put into building something that you now are endowed to, that you have ownership over, that you’re going to think is the most beautiful pedestal ever.
And then when it turns out the monkey’s really hard to train, you’re going to say, but I can’t quit now because I put all this effort and look at this pedestal I built. So his whole thing at X is you have to approach things monkeys first. So you have to identify what are the monkeys, what are the unknowns, the bottlenecks, the things that we’re not sure if we can solve for? And then you’ve got to go at those first before you build any pedestals. Now, first of all, I know that again in the abstract, I know that this seems really obvious, but I’ll put it to both of you, Steve and Stuart. How many meetings have you ever been in where people say something like, what’s the low hanging fruit? Where are the easy wins?
Almost every one of them.
Every one of them. And so what they’re saying is, what are the pedestals? And then they’re telling you to go do those first so that people feel like they’re making progress. But that feeling of making progress is actually really bad because that’s what causes us to not abandon. We’re accumulating sunk costs, we’re getting endowed to the project. Our identity is getting tied up in what we’re doing. We become afraid of failure because we’ve invested so much already. So we want to say, instead of that, we want to say, what’s the hard part of the problem? What are the bottlenecks? What are the things that are going to really trip us up? Let’s figure out if we can do those first. So let’s think about that for the California bullet train. So I’ve just described the whole bullet train project for you. What’s the monkey here in the bullet train?
It’s coming right through the mountains.
The mountains. So let’s imagine that we were thinking about project planning the bullet train using this monkeys and pedestals mental model. So we would say, let’s identify the monkeys. So I think in this case there might be two monkeys. One would be the mountains. That would be monkey number one. I think there’d probably be another monkey, which would be a kind of ‘not in my backyard’-issue. Are townships going to allow the train and approve the train going through the backyard? But clearly the mountains, this problem of these seismically active areas and blasting through the mountains, are the biggest problems in the project. So what did they do? They went at the pedestals first, right? So if you build track on flat land in the central valley, that’s a pedestal. We already know we can build railroad track on flat land. We’ve been doing that for 200 years or so.
And this is another insight of Astro Teller’s, is that once you’ve started building those pedestals, when you butt up against a mountain, instead of quitting, you’ll go and build more pedestals instead.
Now, before you actually build anything, you just do this feasibility study, and then you figure out whether you can do this thing for a lot less money. You’ve reduced your sunk costs, you’re going into it understanding there might be a no at the end because you’re sort of pre-planning for that. And then if the feasibility study comes back, yeah, I think we can do it, then you start building at the mountains instead of in the flat land. But obviously they approached it in the opposite way, which is the way most of us approach projects actually.
Yeah, I think the reason why the concept of monkeys and pedestals resonates so much with me is I’ve spent, as Stuart knows, a chunk of my career working closely with Roger Martin, who coined the phrase “what would have to be true.” And it’s an expression of applying that to the world of strategy where you’re trying to, and I’ll take a term from you, you’re effectively trying to back cast what would have to be present in the future for those sets of decisions to be the right ones to make now. But it’s a very challenging thing in a boardroom with many different personalities. And maybe if I could talk about what you call the hardest thing to quit is your identity. That to me is an interesting thing when you think about boardroom dynamics and company dynamics where it’s very difficult to change who you are. Maybe talk a little bit about why that’s so hard in the world of decision making.
So let’s talk about Sears for a moment in order to start to see where this identity problem really gets in the way of walking away from things. So we all know Sears, retail company founded in the late 1800s with the Book of Bargains, 512 pages. You can buy anything in there, socks or a house, pretty much anything you could imagine. And the idea was that mail routes had just opened up. There were people who lived in rural America. Remember this is before cars, so people couldn’t get to cities to buy things that were available to people in the cities. And the Sears catalog was the way that people would be able to buy goods. Very, very, very successful company. I think in the twenties, Sears was worth $26 million. I mean Sears the man, the founder, was worth $26 million. So this was a really successful company.
In the 1930s, cars started to become ubiquitous. And what Sears found was that the catalog business was starting to dip because people could actually drive now to places where they could get these goods. And so they had the idea at that point to open up retail locations, actual physical stores, sort of play-off of the brand that they had already developed with the Sears and Roebuck catalog in order to have people go into these stores. That was also a very successful pivot. But in the 1950s, Sears represented 1% of US GNP, so it was a very big company. The problem for Sears was that the Targets and the Walmarts and the Kmarts start to come along throughout the sixties, seventies, eighties and nineties, the retail business starts to falter starting in the eighties. By the nineties, it’s actually no longer the number one retailer.
After it falls to number three, the company kind of stumbles along trying to save this retail business until it merges with Kmart, which at that point had also faltered, in something that the press called a double suicide as the merger. It gets acquired at some point, but eventually goes bankrupt. So we all kind of know the story of the rise and fall of Sears in that way from the 1950s being 1% of US GNP to this kind of sad decline that really begins for earnest in the early nineties. But there’s a story of Sears that most people don’t actually know. And that’s as Sears, the financial services company.
So as you recall, in the thirties, I said they opened these retail locations because people started to have cars, and that was hurting their catalog business. And when they opened those retail locations, they said, well, everybody has these new cars, they may need insurance for them. And so they founded a company called Allstate Insurance, and that was originally desks inside of Sears stores where they would sell insurance to the people who had just come into the store, for their cars. That obviously ends up, it’s sort of a company on its own, but that Sears owns, which becomes the largest insurer of personal liability. So they move out of just insuring cars into all personal liability. And Allstate is a very, very big company at this point. They also, in the seventies, have Dean Witter, which was a big stock brokerage firm, and they also found the Discover card, which we all know is a credit card, and they acquire Coldwell Banker, which is a real estate company.
So now they have this thriving financial services business. Now, just to give you an idea of how big this financial services business was, Allstate alone, I think the last time I checked its market cap was $40 billion, I believe. Coldwell Banker has merged with a few things, but that’s around $2.2 billion. Dean Witter Discover, it’s hard to know exactly what the value of that entity was. I think it was acquired by Morgan Stanley, and at the time, in the seventies, represented 40% in Morgan’s family’s market cap. So it’s big, let’s put it that way.
So we’re talking about billions and billions and billions of dollars of value here. So the question then becomes if they owned this thriving financial services company, how on earth did they go bankrupt? Which I think is a reasonable thing to ask. And it turns out it has to do with the problem we have with quitting things that are associated with our identity. Because in the nineties, it went to the board. We have to save this company because at this point, the retail locations are losing money. So what are we going to do? The retail locations are losing money. You tell us what to do, board. And the board obviously has a decision between this financial services empire that they have and the retail company that they have that’s faltering. And the board comes out of that saying, our decision is that we have to get back to our retailing roots.
So they spin off all of the financial services in an IPO in order to raise money to be able to save the retail business, which obviously did not go well. Now the question is why on earth did that happen? And it has to do with what they said. We need to get back to our retailing roots. If I asked the person on the street, what is Sears? None of them would’ve even known that they owned Allstate Insurance or that they had Dean Witter Discover or that they owned Coldwell Banker. Everybody would’ve said this is a retail company where I go to buy my wrenches and my socks and I get my car serviced there.
That’s what they would’ve said. And so this was wholly part of their identity. And when they were faced with the choice, from the outside looking in, what was completely obvious: save the thriving business and get rid of the faltering business; they saved the faltering business because that is who they were. And what is true for Sears is also true for us as individuals, not surprisingly, because companies are collections of individuals making decisions. But this is one of the biggest problems of quitting, is that the things that we do become part of our identity. And once it’s integral to our identity, it’s incredibly hard to walk away from them because what does that mean for who you are? Are you a consistent human being? Were the decisions that you made in the first place mistakes? And we will protect those to our own demise.
So how did you walk away from poker? So you retired in 2012. What was the kind of genesis of that decision and how did it affect your identity?
So let me just say, I think that one of the rules of thumb for quitting is that by the time you decide to quit, it’s usually going to be later than you should have. And so that’s a good rule of thumb. And you know this, there’s the management heuristic from Jeff Smart. When you think about firing an employee, it’s probably already passed the time that you should have. So we know that, and that’s true for our own quitting decisions as well. So I probably should have quit poker earlier, but I think that I did a pretty good job quitting at the time that I did. I think that I got to it faster than most, I think partly because I have a lot of experience with quitting. So I think I have a less negative view of the term, partly because I was forced to quit. And I think this is one of the interesting things.
So when I was in graduate school, I was forced to walk away from graduate school for a while simply because I got sick. And you see this a lot with people who are forced to quit, that it puts them into a mode where you’re automatically now exploring other opportunities. And what you start to see is the opportunity costs. We talk about opportunity costs of capital or opportunity costs of time, or opportunity costs of attention. That anything that you’re doing, those are resources that you cannot put into other things. So there are opportunity costs associated with anything that you’re doing. And there were opportunity costs associated with me being in graduate school. And when I had to walk away, I had to go explore the other opportunities that were available to me. And that was actually, I think, productive for me to be able to do that.
I think I kind of took that lesson to heart and just became much more exploratory, much more willing to try things out without big commitments to them, to sort of see what would come of them. So another example of that is in 2002, I got asked to give a talk to a hedge fund to speak to their traders about how poker might inform risk. That was the moment that I really sort of circled back to cognitive psychology and started to think about risk attitudes and the way that winning and losing affect our risk attitudes and actually our ability to walk away from things. So I was thinking about this a long time ago, two decades ago. I gave that talk and I really liked it. But that didn’t mean that I quit poker. It meant that I sort of kept exploring this idea of what if I start to keep giving these talks and think about the conversation, this very interesting conversation that cognitive psychology and poker could have with each other.
At the beginning of Quit, you talk about the way that we as human beings in society sort of perceive the quit versus grit issue. We perceive grit as being something of value and quit as being something that we want to teach people to avoid. How would you change either what we teach people to value, or how we think about, as society, the way we value things, in order to address this challenge where grit is probably something we overvalue and we undervalue quitting?
Yeah, I think that this is part of the problem, is that the people who stick to it are the heroes of the story. And I don’t know, I feel like it’s a chicken and the egg problem for me. When we think about, this was one of the discoveries for me when I was exploring this problem of quitting, was that there are so many different cognitive biases that line up to make stopping things hard. From sure loss aversion, which is really, we don’t like to quit things in the losses, to sunk cost, to endowment, to status quo bias, to omission commission bias, over-optimism bias. These issues of identity, cognitive dissonance, desire for consistency. The way that goals set a finish line that we now can get in the losses in comparison to. So once we have a goal, until we’ve achieved the goal, we’re cognitively in the losses.
So all these things really are stacked up against us ever stopping anything. And then you also look at just the way that people think about quitting as this negative thing to do, this failure, this character flaw to walk away from things. Whereas grit is a way that you build character. It’s the hero of the story. To the point where I tell a story of Sioban O’Keefe who was a marathon runner. And she was running the 2019 London Marathon, and then on mile eight she broke her leg. I mean, her fibula bone snapped. So the medical personnel obviously advised her that she ought to stop running. She’s only on mile eight of the marathon. But we can see this idea of being in the losses, because while we can look at it as she ran eight miles, so technically in the gain, from her perspective, she’s 18.2 miles short.
So if you walk away, it is now a failure. Or I guess in her case, if you sort of limp away because she’s broken her leg. So anyway, she kept running and she finished the race. So that seems bizarre, except three other people in the same race did the same thing. And in every single marathon people do this. They break things, whether it’s their ankle or their leg, or they pull something horrible or they tear something and they keep running until they get to the finish line. And this is the problem with this idea of being in the losses because I think that we can see that this is a cognitive problem. She’s in the gains eight miles technically. But if that were a half marathon, she would’ve stopped at 13.2 miles. So it’s the fact that there’s this marker here that keeps her running.
But here’s the interesting thing. As much as we can say, oh, that’s so ridiculous, she was sacrificing her ability to run other marathons in the future. Of course I would walk away in that situation. I’m betting there’s also part of you that’s saying, I wish I were that tough. I wish I had that kind of grit, that I could finish a marathon under those circumstances. Because we do admire it. And the question for me has always been, is that admiration for the people who stick to it? Sort of what causes all of these biases against stopping? Or is it that we have all these biases against stopping and then we create a narrative around grit being the hero of this story? So I’m not sure. I suspect it’s the latter. I suspect that the way that our brains are wired towards sticking to things is actually what causes us to create a narrative where it’s the hero of the story. But I think that what we have to do in order to get over this is start to really recognize the value of walking away from things. Because here’s the main problem.
What we’re trying to do in our lives is to gain the most ground toward our goals. We’re trying to achieve these great things over our life. We’re trying to make progress toward where it is that we want to go overall. So that’s what we’re trying to do in our lives. Now, it’s true that grit will get you to stick to things that are worthwhile that are also hard. It is a very good quality to have. I’m not dissing grit here. I think that Angela Duckworth, her work is brilliant. I think people should read that book because when things are hard, you still have to have a view of whether it’s worthwhile and be willing to stick to it, even though it’s tough. I agree with that. But the problem with grit is that that turns us into Sioban O’Keefe, which is it gets us to stick to hard things that are not worthwhile, that are actually going to cost us in the long run.
That’s the issue. And that’s where quit comes in. Because what we want to do is when we discover, say a monkey that we can’t tackle, when we discover that something isn’t worthwhile, then it behooves us to quit that so we can switch to something that is worthwhile. We have this intuition that quitting is going to stop our progress. It’s going to slow us down. And that’s true. It’s going to stop your progress toward achieving whatever some interim milestone might be, but it’s actually going to speed you up toward what the broad goals that you have in life are. Because if you’re sticking to something that is no longer worthwhile, that’s what’s stopping your progress, that’s slowing you down. And quitting it and switching to something that is worthwhile is actually going to speed you up towards your goal.
If you are pursuing… let’s take a product. If you’ve got the wrong go-to-market motion and you’ve got all the information you need to know that that’s not the right way to go to market, you are going to slow yourself down by sticking to it. Whereas if you switch and you go to a different go-to-market motion, you’re going to now speed yourself up toward your goal, because that’s actually going to get you to where you want to go more quickly. And I think that that’s the thing that we have to realize, is that life is mostly quitting. In the sense that we explore a lot of stuff, the stuff that isn’t working, we quit. And then occasionally we find something that’s working great and we stick to that. And I think that if we could change our mindset around that, that quitting is not failure, it’s a success. It’s successfully identifying that the thing you’re doing is not working and successfully switching to something new. Overcoming, by the way, a lot of cognitive biases, which is really hard. Often quitting to walk into the unknown, which is really, really scary, and quitting in a situation where you understand that other people might call you a failure. And I think that we need to flip the script and understand that it’s not grit that’s courageous. Because when you stick to things, people are going to admire you, like Sioban O’Keefe. Even in situations where, when you step back and think about it, it’s clearly not correct to stick to it.
People are going to admire you. They’re going to write newspaper articles about how gritty you are and how amazing you are. In that sense, it’s the easy choice because everybody’s going to give you a pat on the back for trying so hard. When you quit in those situations, that actually takes courage, because now you’re going to have to walk away from your identity. You’re going to have to abandon what you already put into it, or at least that’s the way it’s going to feel to us. You’re going to have to walk into the unknown, and you may take a lot of flack for it. And so the ability to do that is actually the courageous act. And I think that’s where we need to start to get into that mindset of understanding that the road to success is actually paved with a lot of quitting.
Annie, we’re out of time unfortunately. What a great conversation. I think that conversation is guaranteed to make, well, it’s made me think and I’m sure it’s made Steve think. Cognitive biases by way of monkeys, pedestals, resulting. I can’t recommend Annie’s books more. Quit: The Power of Knowing When To Walk Away and Thinking In Bets. Amazingly practical, amazingly inspiring, and guaranteed to make everyone think again. Annie, thank you very much. Really appreciate your time and your many insights.
Thank you so much, Annie.
Thank you for having me. This is a really fun conversation.,
This podcast is part of an ongoing series of interviews with executives. The executives’ participation in this podcast are solely for educational purposes based on their knowledge of the subject and the views expressed by them are solely their own. This podcast should not be deemed or construed to be for the purpose of soliciting business for any of the companies mentioned, nor does Deloitte advocate or endorse the services or products provided by these companies.