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Thinking in Bets [Decision Making
Posted on July 7, 2021 @ 02:38:00 PM by Paul Meagher

Anne Duke published a popular book called Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts (2018). Lately, I've been reflecting on the concept of "thinking in bets" as it seems pertinent to some business decisions I needed to make recently. Julia Galef, who hosts the Rationally Speaking podcast, had an excellent discussion with Anne on some of topics in the book.

The idea for Thinking in Bets was inspired by Anne's previous career as a successful poker player (won over 4 million). Poker playing is a game that involves strategy, uncertainty (i.e., what cards other players have and what cards are left in the deck), and luck (good and bad). Investing can be viewed through the lens of "thinking in bets" because it involves similar elements of strategy, uncertainty and luck.

Thinking in Bets can involve other types of outcomes than winning money. The decision to move to a new city, for example, can be viewed as a bet that the future will be better in that city than in other possible cities.

When making a bet we envision various possible future outcomes, weight their likelihood of happening, and assign some value to them. In situations where there are unavoidable elements of uncertainty and luck, then we might want to frame the decision in terms of betting on a future outcome.

Event Planning Bets

Me and my wife held an outdoor concert event at our (agritourism) farm property the last 2 years and this will be our third annual outdoor concert. Last year's 2nd annual event was a bet that worked out because we were able to host it (250 limit), we created a memorable event and a stronger event brand, and we eked out some profit. You can't expect large profits when your attendance is capped.

This year is another bet that we will be able to achieve a certain gathering size at a particular time of year. We made the bet in march that we would be able to host at least 250 attendees again this year on the third weekend of August and budgeted accordingly so that we might again eke out a profit.

We were easily able to sell out the tickets for this event. We used facebook primarily to generate awareness of the event. We decided to add another event the night before and that sold out quickly as well.

These bets have a good potential upside at this point if we are able to host a larger gathering size. One of the reasons we added a second event was because we could reduce costs on sound and portable toilets and generate more profit per event as a result.

There is still hidden information about the future that could derail our plans (e.g., delta variant), and of course, the weather might not cooperate and create a less than stellar event experience. The unavoidable uncertainty and role of luck, gives the decision to host an event a betting aspect.

Covid has created difficulties in hosting profitable events largely due to crowd size restrictions. It has also opened up an opportunity to create an event brand that is reliably offering high quality entertainment, while most events that traditionally ran at higher cost are no longer happening and are still being cancelled.

The payoff for these bets is really next year if everything goes well this year. If things open up further by August and we can host, say, 500 people, and do that for two days, that would make this event more profitable and set us up for hosting 2000 per event next year. Hosting 2000 people on a farm is not something you would necessarily want to do in your first year. Alot of infrastructure has to be built and tested and venue building is ongoing to reach that stage. Next monday, for example we will be upgrading power to the barn (installing a new service) as the 100 amp subfeed from the farm house is barely sufficient for the power requirements for speakers and other draws on the day of a concert.

Conclusion

In this blog I introduced the concept of thinking in bets. As an example of thinking in bets, I discussed how it seems relevant to the decision making involved in hosting an outdoor concert event. Thinking in bets is a very rich subject and we only skimmed the surface here to create awareness of this approach. Thinking in best has applications to investing and starting a business that are interesting to think about.

Tim O'Reilly's recent blog has some interesting discussion on "the betting economy".

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