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I have had my copy of Quit marked up and ready to review for a couple of months – since the day it arrived from Amazon shortly after it was published last fall. I have waited until now to write this review to fully absorb the insights that Annie Duke has provided in the latest and best of her books on making decisions under uncertainty.
Duke is not an actuary. But her thinking and approach to risk mitigation and management will be entirely familiar to those of us who look at such questions through the lens of actuarial science. This book is a follow-up to her bestselling books, Thinking in Bets and How to Decide. Unlike those two books, which discuss the general problem of choice under uncertainty, Quit addresses a single and extremely important aspect of risk assessment that is often in the background of our struggles with the choices that we face in life.
This book can tell you when to answer “none of the above” to a multiple-choice question.
I am biased when it comes to Quit and Duke’s writing. She was kind enough to write the foreword to my recent book, Money Mountaineering. But that doesn’t mean I am wrong. Like all information you get, consider the perspective of the individual who is providing it. In this case, my bias helps because I have worked with Duke, know her work well and have concluded that her work deserves to be widely read and appreciated.
This is a great book, technically sophisticated to satisfy most actuaries, and easy and entertaining to read. Even better, Quit provides practical advice for those who struggle with important life choices. This book will help people get better at making decisions including “knowing when to hold ‘em and when to fold ‘em.”
The many gambling metaphors that Duke employs throughout the book will not surprise anyone familiar with her life story, which includes 20 years as a professional poker player. Duke is one of the most successful female poker players in history, having collected over $4 million in winnings while playing against some of the best (and mostly male) players in the world.
While much of what she writes is based on her solid understanding of probability, statistics and the theory of interest to evaluate the present value of alternative scenarios, what sets this book apart is Duke’s acumen as a cognitive psychologist. She earned a master’s degree in that field from the University of Pennsylvania, but quit just short of becoming a Ph.D. She tells that story in Quit and provides another illustration of how and when to decide to stop what you are doing and find another plan. Duke’s personal story was one the highlights of the book, as it provides a rare opportunity for the reader to get to know the author and how she thinks when focusing on her own life choices. It is much more impactful when an expert tells me not what they recommend I do, but what they themselves have done when facing decisions that are similar to my own.
The best reason to read this book is to hear Duke’s understanding and practical advice regarding the cognitive errors and biases that we are prone to as human beings. For example, in one of the extremely helpful summaries she includes at the end of each chapter, Duke noted that, “Thinking in expected value helps you figure out if the path you are on is worth sticking to… …if you feel like the choice between persevering and walking away is a close call, it is likely that quitting is the better choice.”
As actuaries, we have our techniques for addressing the “noise” that arises in the data we analyze and our and our clients’ minds, which stems from the cognitive errors and emotional bias we face. To our profession’s credit, we are beginning to study bias itself as a subject of actuarial analysis. But books like Duke’s provide a provisional path through the confusion and lack of quantifiability that often attends our attempts to help our clients navigate through the “financial wilderness” that comprises the world of time, risk and money. It is a world in which we as actuaries are trained to live comfortably, but where many people find themselves lost and uncertain about which path to follow at a decision point.
Beyond the pointers she provides at the end of each chapter, Duke discusses deep and largely unsolved problems related to quitting that actuaries and mathematicians have struggled with for centuries – e.g. the “gambler’s ruin” problem (a gambler with a finite bankroll who never quits will eventually go broke), determining “kill criteria” (the triggers that will cause you to stop a project), and the very important “explore versus exploit” question.
To understand that last question, Duke provided a brilliant real-life example of using ants. Ants find and collect food to sustain their entire colony – with the majority forming a long line of “exploiters” walking to the identified food source, each carrying its load back to the nest, where it is stored and consumed to nourish the community. A minority of the ants, however, serve as “explorers,” wandering and searching for other sources of food that can feed the colony when the first source is exhausted or becomes unavailable.
How many ants are designated as explorers and exploiters is situation-dependent, but Duke’s key insight was that the exploit-explore problem is not just a search or resource allocation-optimization problem. Rather, the ants also have to make difficult decisions regarding when to stop exploiting and devote more resources to exploration. They must recognize that waiting until the food runs out could doom the colony to starvation if alternative sources of food are not found in time. But quitting too soon risks creating “stranded surplus” – a concept pension actuaries painfully understand. Duke doesn’t attempt to describe the problem mathematically, but rather describes her observations regarding what has proven successful and what has not – for ants and humans in situations more familiar to all of us.
In addition to illustrating how practice, using trial and error, is often a better way to find practical (approximate) solutions to problems that can’t be solved directly with mathematics, her ant colony example also illustrates that many decision and risk management problems are best approached collaboratively from many different angles simultaneously.
Duke’s perspective on problems that investors and advisors face is well worth considering. Her book provides a wealth of important lessons, even for those without an actuarial background.
Peter J. Neuwirth FSA, FCA, is an actuary specializing in retirement plan issues. He is a 1979 graduate from Harvard College with a BA in mathematics and linguistics. After leaving Harvard, he went to work at Connecticut General Life Insurance, now CIGNA, and for the next 38 years he worked continuously as an actuary holding significant leadership positions at a variety of firms around the country including most of the major consulting firms (Aon, Hewitt Associates, Watson Wyatt, Towers Perrin and finally Towers Watson).
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.