A framework for making better decisions | Annie Duke (Partner at First Round Capital, Former Poker Pro)

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Annie Duke is a former professional poker player, a decision-making expert, and a special partner at First Round Capital. She is the author of Thinking in Bets (a national bestseller) and Quit: The Power of Knowing When to Walk Away and the co-founder of the Alliance for Decision Education, a nonprofit whose mission is to improve lives by empowering students through decision skills education. In our conversation, we cover:

• What Annie learned from the late Daniel Kahneman

• The power of pre-mortems and “kill criteria”

• The relationship between money and happiness

• The power of “mental time travel”

• The nominal group technique for better decision quality

• How First Round Capital improved their decision-making process

• Many tactical decision-making frameworks

Some takeaways:

1. Use the “3Ds” framework to make better decisions for your org:

   1. Discover: Collect individual opinions independently before group discussion and then share these with everybody prior to the meeting.

   2. Discuss: Compare perspectives within the group, focusing on understanding points of disagreement rather than building consensus.

   3. Decide: Make decisions independently post-discussion to minimize group influence.

2. Incorporate the word “nevertheless” into discussions, especially when making decisions or addressing disagreements. It acknowledges the other person’s perspective while affirming your decision or stance.

3. Replace confrontational language like “I disagree” or “you’re wrong” with phrases like “I don’t understand” so everyone feels heard and valued. If people feel heard, they are more likely to feel like they contributed to the decision, even when they disagree.

4. Use pre-mortems to set kill criteria. Before starting a project, imagine failure and what early warning signs might have predicted it. Commit in advance to reassess or pivot if you notice those red flags later on. This makes it easier to walk away when sunk costs and overconfidence bias loom large.

5. Know that if you’re considering quitting, it’s likely overdue. Uncertainty, sunk costs, identity, and ownership effects conspire to make us persist with failing efforts longer than we should. We wait for incontrovertible proof to quit. If quitting crosses your mind, examine if you’d start the project today given what you now know.

Listen now on Apple, Spotify, Overcast, and YouTube.

Where to find Annie Duke:

• X: https://twitter.com/AnnieDuke

• LinkedIn: https://www.linkedin.com/in/annie-duke/

• Website: https://www.annieduke.com/

• Substack: https://www.annieduke.com/substack/

In this episode, we cover:

(00:00) Annie’s background

(03:53) Lessons from Daniel Kahneman: humility, curiosity, and open-mindedness

(09:15) The importance of unconditional love in parenting

(15:15) Mental time travel and “nevertheless”

(20:06) The extent of improvement possible in decision-making 

(24:54) Independent brainstorming for better decisions

(35:36) Making sure people feel heard

(42:41) The “3Ds” framework to make better decisions

(44:49) Decision quality

(55:46) Improving decision-making at First Round Capital

(01:05:05) Using pre-mortems and kill criteria

(01:10:15) Making explicit what’s implicit

(01:10:55) The challenges of quitting and knowing when to walk away

(01:19:23) Where to find Annie

Referenced:

• Daniel Kahneman, Who Plumbed the Psychology of Economics, Dies at 90: https://www.nytimes.com/2024/03/27/business/daniel-kahneman-dead.html

• Adversarial collaboration: https://en.wikipedia.org/wiki/Adversarial_collaboration

• Does more money correlate with greater happiness?: https://penntoday.upenn.edu/news/does-more-money-correlate-greater-happiness-Penn-Princeton-research#

• Income and emotional well-being: A conflict resolved: https://pubmed.ncbi.nlm.nih.gov/36857342/

• Strategic decisions: When can you trust your gut?: https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/strategic-decisions-when-can-you-trust-your-gut

• Cass Sunstein on X: https://twitter.com/CassSunstein

• Dr. Becky on Instagram: https://www.instagram.com/drbeckyatgoodinside

• A framework for finding product-market fit | Todd Jackson (First Round Capital): https://www.lennysnewsletter.com/p/a-framework-for-finding-product-market

• First Round Capital: https://firstround.com/

• Brett Berson on X: https://twitter.com/brettberson

• Renegade Partners: https://www.renegadepartners.com/

• Renata Quintini on X: https://twitter.com/rquintini

• Roseanne Wincek on X: https://twitter.com/imthemusic

• Josh Kopelman on X: https://twitter.com/joshk

• Bill Trenchard on X: https://twitter.com/btrenchard

• Linnea Gandhi on X: https://twitter.com/linneagandhi

• Maurice Schweitzer on X: https://twitter.com/me_schweitzer

• Problems with premortems: https://sjdm.org/presentations/2021-Poster-Gandhi-Linnea-debiasing-premortem-selfserving~.pdf

• Create a Solid Plan on How to Fail Big This Year: https://www.forbes.com/sites/forbesfinancecouncil/2020/02/07/create-a-solid-plan-on-how-to-fail-big-this-year/

• Quit: The Power of Knowing When to Walk Away: https://www.amazon.com/Quit-Power-Knowing-When-Walk/dp/0593422996/

• Richard Thaler on X: https://twitter.com/R_Thaler

• Stewart Butterfield on X: https://twitter.com/stewart

• Glitch: https://en.wikipedia.org/wiki/Glitch_(video_game)

• How the Founder of Slack & Flickr Turned Colossal Failures into Billion-Dollar Companies: https://medium.com/swlh/how-the-founder-of-slack-flickr-turned-failures-into-million-and-billion-dollar-companies-7bcaf0d35d66

• The Most Fascinating Profile You’ll Ever Read About a Guy and His Boring Startup: https://www.wired.com/2014/08/the-most-fascinating-profile-youll-ever-read-about-a-guy-and-his-boring-startup/

• The Alliance for Decision Education: https://alliancefordecisioneducation.org/

• Make Better Decisions course on Maven: https://maven.com/annie-duke/make-better-decisions

Production and marketing by https://penname.co/. For inquiries about sponsoring the podcast, email podcast@lennyrachitsky.com.

Lenny may be an investor in the companies discussed.