Season Investments


Why We Scapegoat

Posted on September 11, 2018

“Let the hindsight of your future self become the foresight of today’s self.” – Shane Parrish

2018-09-11_Scapegoat.jpgI recently listened to podcast in which Shane Parrish, author and founder of Farnam Street blog and The Knowledge Project podcast, interviewed former professional poker player Annie Duke about her new book entitled Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts. I have yet to read the book, but will tell you that the 2-hour podcast is a wealth of information on its own. Of the many excellent takeaways from the interview, the overarching theme was how we as humans tend to be sub-optimal in our decision making process and what we can do to get better (which just so happens to be my field of graduate study). In today’s post, I’ll summarize Annie Duke’s thoughts on decision making and what we can do to improve.

The human brain is inherently lazy. What I mean by that is that we are constantly looking for ways to make things easier and short-cuts to save time and effort. This leads to the adoption of rules of thumb and gut-feel decision making based on mental models we make about the world. The problem with this type of decision making is that it is ripe with behavioral/cognitive biases that lead to sub-optimal decisions.

In Annie Duke’s case, she learned this lesson quicker than most for two reasons: 1) she was already studying psychology as a graduate student when she started playing poker and was familiar with cognitive biases, and 2) she was fortunate enough to have several titans of poker as her mentors including her brother Howard Lederer and his friend Eric Seidel. What Annie noticed when she first started playing is that poker players continued to make the same mental mistakes over and over, but failed to change their behavior.

Human beings are hard wired to avoid pain and loss. Failure evokes a very real emotional reaction and feels like a personal attack on our identity. As such, we are more prone to defer the blame or make excuses for our failures than to look introspectively to see if there was anything we could have done better. In the case of a poker game, the most obvious deferment is simply attributing a mistake to bad luck. When we do this, we deflect the pain and therefore have no need to update our belief system. This may feel good in the moment, but it is devastating for our long-term learning.


Annie quickly learned that this natural human reaction of minimizing near-term pain was not helping her become a better poker player. She was fortunate enough to have a peer group who were not interested in hearing her latest “bad beat story” about how she got unlucky and were much more interested in dissecting her play to see what she could have potentially done better. In other words, her peer group was less interested in hearing about a particular outcome and was more interested in learning about the process which led up to the outcome. As such, she became instantly accountable for her actions and received reflective feedback from her peer group. Because she was able to accept this feedback as constructive criticism rather than an assault on her identity, she was able to update her belief systems and learn from her mistakes which made her a much better player over time.

It is very difficult for us to identify our own cognitive biases, but it is fairly easy for others to see them in us. It isn’t natural for us to be introspective and seek out peer groups who challenge our beliefs. Annie was able to do this because she learned to hold her beliefs lightly and take the criticism and feedback as constructive reflection rather than an attack on her identity. Her thinking switched from deferring blame in defense of her identity to asking the question “why am I wrong?” Whenever we do this, we add uncertainty to our beliefs which feels uncomfortable to our certainty craving brain.

If this sounds familiar, it’s because we’ve written about the idea of embracing uncertainty, admitting that we don’t know the future, and trying to learn from mistakes multiple times on this blog (here’s a good index of multiple posts). We all have plenty of bad beat stories we can share about investing, but the only way to become a better investor is to try to learn from these mistakes and take some amount of responsibility for our mistakes in order to make us better investors going forward. Or as Annie Duke put it in her interview:

It’s getting the future version of you to get involved in the decisions of the present version of you… I’m going to take some short term pain right now. I’m going to admit that I had some part in the way that this outcome turned out. Or maybe I’m going to explore the possibility that this great thing that happened was because I got lucky. That is a painful thing to do. I don’t get to celebrate and have a party for myself. But I can only do that if future Annie is involved in the conversation. Future Annie has to be saying, “Hey, I know it doesn’t feel good now, but this is really good for me later.”

Everyone is familiar with the idiom “short-term pain for long-term gain” but this is easier said than done. In order to maximize our long-term potential, we have to flip the switch in our brain that turns off our natural default mechanism of finding a scapegoat every time something unpleasant happens to us. We all need to try to think about having a conversation with our future selves and then picture what that self would tell us about our present circumstances as Shane Parrish so eloquently stated in the opening quote. If we can make this switch in how we process information, we will all become much better decision makers and our collective future selves will thank us!

elliott_headshot_bw.jpgAuthor Elliott Orsillo, CFA is a founding member of Season Investments and serves on the investment committee overseeing the management of client assets. He spent nearly ten years as a financial analyst and portfolio manager working primarily with institutional clients prior to co-founding Season Investments. Elliott earned a bachelor's degree in Engineering from Oral Roberts University and a master's degree from Stanford University in Management Science & Engineering with an emphasis in Finance. Elliott and his wife Gigi have three children and like to spend their time outdoors enjoying everything the great state of Colorado has to offer.

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