Annie Duke is a top poker player and also has a PhD in language. In an interview with the magazine Nautilus, she talked about a common fallacy that few of us realize exist but which interferes with our ability to learn from our actions: the resulting fallacy.
According to Dr. Duke, the resulting fallacy occurs where we create “too tight a relationship between the quality of the outcome and the quality of the decision.” There is often a combination of skill and luck that create results in most situations, and we too often attribute skill where luck may have had a bigger role. “Knowing the outcome infects us” and causes us to judge a decision or process based mainly just on outcome.
In areas where skill is the primary determinant of outcome, results are tightly connected to decisions. However, in areas where luck plays a role, decisions and outcomes are much looser connected. “In chess, if I lose a game, it’s pretty certain that I made a bad decision somewhere and I can go look for it. That’s a totally reasonable strategy. But it is a very unreasonable strategy in poker. If I lose a hand, I may have played the hand literally perfectly and still lost because there’s this luck element to it. The problem is that we’re all resulters at heart.”
What can we do? First and foremost, recognize that the world is filled with randomness and luck. Most results have a component of luck to them. Next, Dr. Duke recommends separating decisions from results when results have a component of luck to them. In such a case, it is necessary to evaluate results over more data points to determine whether a decision or process is good or bad. The below chart is one we use with clients when educating on investment theory (investing has a very big luck component). Over the short term, results can occur in any of the four boxes. Over the longer-term, with enough data points, results tend to be found in the green boxes. Only with enough data points can we begin to evaluate our decisions and processes where luck is involved.
Related IFOD on skill and luck: The Paradox of Skill
Nautilus interview with Annie Duke: The Resulting Fallacy is Ruining Your Decisions
Her book “thinking in bets” is not only insightful but entertaining. Highly recommend it.