I have had my copy of “Quit: The Power of Knowing When to Walk Away” marked up and ready to review for a couple of months now — almost since the day it arrived from Amazon shortly after it was published last fall. I have waited until now to write this review in order to fully absorb all the insights that Annie Duke has provided in the latest, and to my mind, best of her books on making decisions under uncertainty.
Ms. 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 essentially provides guidance on when to answer “none of the above” to multiple-choice questions that appear to have only a few specific alternative answers to choose from.
Before I continue, I need to disclose that I am biased regarding all I say about “Quit” and Annie Duke’s writing.
Annie was kind enough to write the foreword to my recent book “Money Mountaineering.” But just because I am biased doesn’t mean that what I am saying is wrong. It does mean, however, that, like all information you get from virtually anywhere, you should consider the perspective of the individual providing it. In this case, I think my bias helps because I have worked with Annie, know her work well, and have come to the conclusion that it is work that deserves to be widely read and appreciated.
While technically sophisticated enough to satisfy most actuaries, “Quit” is also both easy to read and entertaining. Even better, it provides a great deal of practical advice for almost anyone who struggles with important life choices. “Quit” will help people get better at making all kinds of decisions, including “knowing when to hold ‘em and when to fold ‘em.”
This gambling metaphor and many others that Annie employs throughout the book will not surprise anyone familiar with her life story that includes 20 years as a professional poker player. Annie, one of the most successful women poker players in history, collected over $4 million in winnings while playing against some of the best players in the world.
Probability, statistics and psychology
While much of what Annie writes is based on her very solid understanding of probability, statistics and the theory of interest to evaluate the present value of alternative scenarios, what sets this book apart is her acumen as a cognitive psychologist.
Annie earned a Master’s degree in that field from the University of Pennsylvania but decided to quit just short of becoming a PhD. She tells this story in “Quit,” providing yet another illustration of how and when to decide to stop doing what you are doing and find another plan.
I found Annie’s personal story to be one of 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. I, for one, find it much more impactful when an expert tells me not what they recommend I do but rather what they themselves have done when facing decisions that are similar to my own.
“I, for one, find it much more impactful when an expert tells me not what they recommend I do but rather what they themselves have done when facing decisions that are similar to my own.”
We all make mistakes
Perhaps the best reason to read this book, however, is to hear Annie’s understanding and practical advice regarding the cognitive errors and biases that we are all prone to making as human beings. For example, in one of the extremely helpful summaries she includes at the end of each chapter, she notes, “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 own techniques for addressing the “noise” that arises in the data we analyze and from the cognitive errors and emotional bias that we and our clients are all prone to. It is to our profession’s credit that we are beginning to study bias itself as a subject of actuarial analysis.
In my opinion, books like Annie’s can provide a provisional path through the confusion and lack of quantifiability that often attends our attempts to help our clients navigate through what I think of as 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 it is also a world where many people find themselves lost and uncertain about which path to follow each time they come to a fork in the road.
What ants, actuaries and financial advisors have in common
Beyond the pointers she provides at the end of each chapter, Annie also discusses deep and largely unsolved problems related to quitting which actuaries and mathematicians have struggled with for centuries (e.g. “the gambler’s ruin problem,” determining “kill criteria” and the very important “explore vs. exploit” question.
In addressing this last question, Annie provides a brilliant real-life example of how a particular non-human species (ants) successfully attacks this issue. Here she describes how ants find and collect food to sustain their entire colony:
The majority of ants form a long line of “exploiters” that walk to the identified food source and carry their loads back to the nest, where it is stored and consumed to nourish the community. A minority of the ants, however, continue to serve as “explorers,” wandering around the vicinity searching for other sources of food that can feed the colony when the first source is exhausted or suddenly becomes unavailable.
How many ants are designated as explorers and how many as exploiters is situation-dependent, but Annie’s key insight is 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 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 that quitting too soon risks creating “stranded surplus.” Most pension actuaries are painfully familiar with this concept.
Annie doesn’t attempt to describe the problem mathematically. Instead, she describes her observations regarding what has proven successful and what has not — for ants and for 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, Annie’s ant-colony example also illustrates that many decision and risk-management problems are best approached collaboratively from many different angles simultaneously.
In short, I believe that Annie Duke’s perspective on problems that our profession faces and continues to deal with is well worth considering. Her book provides a wealth of important lessons for actuaries and non-actuaries alike.
Peter Neuwirth, FSA, FCA, has held actuary leadership positions at a number of consulting firms. Currently a fellow of the Society of Actuaries and the Conference of Consulting Actuaries, Pete regularly consults with the largest corporations in the world about their retirement plans with a focus on time risk and money. He is the author of “What’s Your Future Worth?” and “Money Mountaineering” Pete is also a senior consulting actuary for CapAcuity, a member of the University of Illinois Academy for Home Equity in Financial Planning and the outside director at Rael & Letson. He is a longtime resident of Santa Rosa, Calif.