Author and poker champion Annie Duke says we should all be better at knowing when to fold ’em. Her new book explores how.
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Annie Duke: Here's the thing, I'm not just asking people to say, "I'm not going to think about quitting in a negative light." I'm saying you have to start thinking about quitting in a positive light, because it's a really important decision skill that we need to develop.
Stephanie Kelton: Welcome to the Best New Ideas in Money, a podcast for MarketWatch. I'm Stephanie Kelton. I'm an economist and a Professor of Economics and Public Policy at Stony Brook University.
Charles Passy: And I'm Charles Passy, a reporter at MarketWatch.
Stephanie Kelton: Each week, we explore innovations in economics, finance, technology and policy that rethink the way we live, work, spend, save and invest.
Charles Passy: Today's episode is starting at the top of a ski slope in Sweden.
Speaker 4: American Lindsey Vonn, the final Super-G of her career, a discipline where she's won five season titles and a record 28 victories on the World Cup.
Charles Passy: That's the sound of Lindsay Vonn, one of the most successful professional alpine ski racers in the US. In this clip, she's going down the mountain at incredible speed, but she's about to crash.
Speaker 4: And she goes down hard. And a hard fall right there, that terrain, awfully flat and Vonn's ski just hooked up…
Charles Passy: It sounds pretty bad, but as Vonn noted afterwards, this was actually one of her less devastating crashes. And Vonn would know what a bad crash is, she had a career full of them. It's the price she paid to become the all-time leader in women's alpine skiing World Cup wins. But soon there would be no more slopes and no more crashing. A few days before the race, Vonn had announced that she was retiring from professional skiing.
Annie Duke: As she announces this, she's talking about the injuries that she's been through, which are storied and legendary, including a huge injury where two days later she got up and skied again against doctor's advice, but just her body was broken, as she said, and it was screaming at her to stop, and stop was actually in capital letters in this announcement, stop, meaning quit. But then she follows it with, "To all my fans and the people out there who look up to me, just so you know, I'm not quitting. I'm moving on to a new chapter."
Stephanie Kelton: That's Annie Duke. She has a new book out called Quit: the Power of Knowing When to Walk Away.
Annie Duke: By the way, this just happened with Serena Williams also who during her last dance at the US Open, everybody was talking about how she was quitting and she said, "No, I'm not quitting, I'm evolving." So what's going on here? The idea of quitting is so loathsome to us that we have to wrap it up in a euphemism.
Stephanie Kelton: Annie Duke is a decision strategist and consultant who has written several books about decision making. In her most recent book, she explains why quitting is often a superior solution even though we as a society tend to celebrate resilience and perseverance over, well giving up.
Charles Passy: By the way, Stephanie, Duke is also a retired professional poker player. So if anyone would know when to fold them, it's her. But we'll get back to that.
Stephanie Kelton: Yep. But first, what's wrong with our current approach to calling it quits? Here's Duke.
Annie Duke: So here's one of the problems that we have is that the way we think about quitting is very negative and the way we think about grit and perseverance is really positive, to the point where really we view grit as a virtue and quit as a vice. Grit builds character, whereas quitting is an act of cowardice, or I mean if I call you a quitter, I'm obviously not complimenting you, I'm saying, "You're a loser."
Stephanie Kelton: Duke says that you only have to look at the English language to understand how we view quitting. Start by going to a thesaurus and check the synonyms for grit or gritty.
Annie Duke: You're going to see all these really positive words for it, like perseverance, sticktuitiveness, character, by the way, and if you look at the thesaurus for quitter, you're going to see a whole bunch of negative things like lily-livered, weak willed, capricious, and I think the most striking example of that is that a synonym for grit is heroism, like the people who stick to it are the heroes of the story and a synonym for a quitter is coward. In fact, there's an old word that was the same as quitter, which was poltroon. So there was somebody who actually called Andrew Jackson a poltroon. Andrew Jackson challenged him to a duel, killed him and then went on to become president of the United States. It was like, "Of course, if you call me a poltroon, I can clearly kill you and everybody's going to agree that this was completely justified because you called me a quitter." Now, obviously there are some words for grit that are negative, things like rigid or obstinate or stubborn, inflexible, and there are words for quitting that are positive, like flexible, agile. But if you actually look at it, there's just a humongous imbalance. In general, what you see is we just do not view quitting in any way positively and it's reflected in the language.
Charles Passy: Duke wants to, you could say, rehabilitate the idea of quitting. In her view, it's a powerful and important decision making tool.
Annie Duke: I'm not just asking people to say, "I'm not going to think about quitting in a negative light." I'm saying you have to start thinking about quitting in a positive light because it's a really important decision skill that we need to develop.
Charles Passy: Let's get into why that is. One thing to understand first is that a new decision is usually surrounded by some amount of uncertainty. People can't, after all, predict the future or control the actions of others.
Annie Duke: So what that means is that you start something when you're very uncertain and then after you start it, you're going to learn new information. Some of that information is going to be negative signals that are going to tell you like when we've had that feeling of, "Oh, if I knew then what I know now I would make a different choice," and here's what kind of saves you from this bind, that when you start things you don't know very much, you're going to find out a lot of stuff afterwards, is that you then do have the option to quit.
Stephanie Kelton: In other words, if you know you're able to quit, you're more likely to take risks and venture into new opportunities.
Annie Duke: So this allows us to operate and make decisions under uncertainty, is this option to then change our mind, to change course.
Stephanie Kelton: It's important to say that everyone can't just quit. Some people might not have the money or the resources. We'll get into that a little later. Duke says that our cultural bias against quitting is impacting our decision making in all kinds of areas, whether it be our personal relationships or workplace decisions or investing choices, anything from small to major life decisions.
Annie Duke: So if there's any doubt that this is an important skill to develop, I'd love to just tell you the story about Stewart Butterfield.
Stephanie Kelton: Stewart Butterfield is an American businessman and entrepreneur who Annie Duke interviewed for her book. The story begins 10 years ago in the fall of 2012. Butterfield had started a company called Tiny Speck, which had developed a game called Glitch.
Annie Duke: A massive online multiplayer cooperative world building game.
Stephanie Kelton: Duke says the game had backers like Andreessen Horowitz and Excel and was a critic's darling.
Annie Duke: They described it as Dr. Seuss meets Monte Python, so it was very beautiful and he is actually getting some pretty diehard users, and by diehard, I mean they're using the game, they're playing the game over 20 hours a week and they're generating revenue for the game.
Charles Passy: Duke says there were around 5,000 of these diehard users. This all sounds great, right? But there was a problem.
Annie Duke: For every one person that they got to come and play the game for over 20 hours, about 95 to 99 people would come and play for seven minutes and leave. So clearly this is a little bit of a customer acquisition problem because you have to get the game in front of so many eyeballs in order to get one person who's really going to play this game and generate income. So at this point in the story, they've got $6 million in the bank still, so they're still very well funded, and everybody decides, "All right, we've got to do something about this problem."
Charles Passy: They switched to a new strategy, six weeks of paid marketing, and it worked. Duke says the game saw a growth in users of six to 7% week over week. In their final week of the marketing push, Duke says they had their biggest weekend of customer acquisition ever.
Annie Duke: And Stewart Butterfield goes to sleep, but not really. He gets in bed and he can't really sleep. He's very, very restless and he wakes up the next morning and he sends a note to his co-founders and his investors saying, "I woke up this morning with a dead certainty that Glitch was over." So his co-founders were shocked, his investors were shocked, as you can imagine, because things looked pretty rosy. So the question is why? What was it that he saw?
Charles Passy: It would take at least 31 weeks for the game to breakeven, and probably longer than that, and Butterfield realized it would become harder and more expensive to acquire new users. In other words, continued growth would simply be too expensive.
Annie Duke: At which point he realized it just wasn't a venture scale business, which is why he decided to shut it down. He also felt like once he realized it wasn't a venture scale business, meaning that the equity wasn't worth it, he felt an obligation, like a moral obligation, to shut it down for his employees. Because what he realized was his employees were working for very little cash comp, but in exchange for equity and he had now determined that that equity wasn't worth their time and so he felt an obligation to allow them to go and take their brilliant selves somewhere else where their equity would be worth their time.
Charles Passy: Butterfield had devoted four years to the game Glitch, staked his reputation on it, and still he chose to quit. But the story doesn't end there.
Annie Duke: Basically the minute he quit, this was like within two days of sending that email and shutting Glitch down, he said, "You know what? There's this internal communication tool that we use around here that people seem to really, really like." It was basically for teams to be able to communicate with each other and it sort of combined the best things of email and texting and you could share documents and so and so forth. So he decided, "You know what? I think this should be our next product," and he gave it a name.
Stephanie Kelton: That product was Slack. If you haven't heard of it, Slack is an almost ubiquitous office messaging software. The company, Slack Technology, was acquired by Salesforce last year for a value of nearly $28 billion, one of the priciest deals in tech history at the time.
Annie Duke: And I think this brings up a really incredibly important lesson about quitting, is that one of the things that we don't realize when we don't quit is what we're giving up in exchange. If we're developing Glitch, we're by definition not developing other stuff, or we're not thinking about developing other stuff. If we're in a full-time job, then the time that we're in that job is time that we can't be in another job. So any path that we're on, if we're taking a particular route to work, that means we're basically not taking all other routes to work and there's an opportunity cost to that. We talk about opportunity cost of capital, capital can be time, money, attention, so and so forth. When you determine something isn't worthwhile and you quit it, it lets you move on and turn your attention to other things that are really worthwhile, which boils down to this. We think that when we quit, it's going to stop our progress or slow us down, but when we quit things that aren't worthwhile, it actually speeds us up, it gets us to where we want to go faster.
Stephanie Kelton: So why are we so bad at quitting? One reason is our cultural bias. As Duke mentioned earlier in the episode, it's bad to quit and good to persevere.
Annie Duke: And then there's also the way that we might judge ourselves because that moment that you quit is the moment you can't recover the cause. So when you quit Glitch, that's when you're saying, "It's never going to be a unicorn anymore," but as long as you keep the bet on, as long as you keep doing what you're doing, there's always some possibility that you could turn it around. And what ends up happening is that that makes it so that we don't like to stop unless we're certain that we have to because we want to avoid that moment where we go from failing to having failed. What that makes us do is go on and on and on in the endeavor that we're working on or that we're engaged in until basically we don't have a choice but to quit. So most people in Stewart Butterfield's position would keep going until there was no money in the bank.
Stephanie Kelton: Duke says that boils down to how averse people are to taking a loss on paper and turning it into a sure loss. It's called sure loss aversion. Here's an example from the investing world.
Annie Duke: If you buy a stock at 50 and it's now trading at 40, you will be much less likely to sell it because you've already got a $10 loss on the books as compared to somebody who just bought it today. So you can kind of think about it this way, if you were looking at a stock that was priced at 40 and you determine that it wasn't worth buying, then clearly you shouldn't hold it, because holding and buying are the same thing, but what happens to us is that if we already have a history with the stock where we've already lost money in it, we're just less likely to actually sell it even if we wouldn't buy the stock today.
Stephanie Kelton: Duke mentions another related cost called the sunk cost effect. That's a famous theory associated with behavioral scientist Richard Thaler. It's basically that people have a tendency to continue an endeavor if they've already sunk money, time, or effort into it, even if it's not the most rational decision to keep going.
Annie Duke: And you can see how this is a really big problem in the investment world because it doesn't matter what you've already lost in something, what matters is should you put the next dollar into the thing? That's literally all we should care about if we're rational people, but there's decades of science that shows us that that's just not the way we behave.
Charles Passy: Now, Annie Duke has unique experience in the art of knowing when to quit. As a former professional poker player, she not only took home more than $4 million, she won the World Series of Poker Tournament of Champions, the only woman to do so, by the way. And even though she retired in 2012, Duke still thinks like a poker player.
Annie Duke: One of the things that really distinguishes great players from amateurs is that great players quit a lot more.
Charles Passy: Duke says in a game like Texas Holdem where you get dealt two cards on a starting hand, amateurs will play over 50% of those hands as opposed to folding from the get-go. Professionals will play less than half from 15 to 20%.
Annie Duke: Not only that, but once they get involved in a hand, they're much more likely to fold it than an amateur. An amateur is going to have a much greater tendency of sticking it out until the end.
Charles Passy: This is because of that sunk cost effect we mentioned earlier.
Annie Duke: They'll say things out loud like, "Well, I can't fold my hand because I have too much money in the pot." So that's about the best statement of the sunk cost fallacy that I could hear. It's like it doesn't matter how much money you have in the pot, what matters is is the next dollar you bet on this hand worthwhile? And then the other thing you'll hear them do is they say something which is "any two cards can win," which is basically an expression of this, if I had to translate it, there was this one time when I had this very bad hand, say a seven and a deuce off suit, which are the two worst starting cards you could have, and I folded it, but then the rest of the cards came and I would've made a full house and that made me really sad. So now I don't want that to happen to me anymore so I just don't want to fold for fear that it turns out that once the other cards come, I could have won. But that's true of anything that you do. There's some possibility when you start things that they'll work out, but it that's sort of classic survivorship bias almost. We hear about the people who stuck to it until almost the brink of death and managed to succeed. What we don't hear about is all the people who stuck to it almost to the brink of death and then died. And so we need to recognize that those things work in retrospect, but not prospectively, like sticking to things until the bitter end in the middle of a snowstorm while you're climbing up a mountain is just not a good idea, despite the fact that one person may have survived it.
Charles Passy: Coming up, how do we get better at knowing exactly when the best time to quit is? Plus, what does Duke think about a recent item in the news, quiet quitting? That's after the break.
Stephanie Kelton: Welcome back to the Best New Ideas in Money. Before the break, we heard about why we're so reluctant to walk away, or quit, and why we should become better at it. And that leads to another big question, one of timing. When is the right time to quit. Slack Stewart Butterfield, who we talked about earlier, is a good example of someone who figured that out.
Annie Duke: Because he was looking ahead, and that's really what it is is that you have to be a good forecaster. That being said, not all of us can sort of look ahead and say, "Yeah, we had the best weekend ever of acquiring customers, but I'm looking 31 weeks ahead and I can see things look bad way in the future." That's actually quite hard for us to do. So what I suggest is kind of three strategies and all of them have to do with not making these decisions when you're in the moment. In other words, we shouldn't trust ourselves when we're actually seeing the negative signals that we're going to be rational about quitting.
Stephanie Kelton: Duke says that's in part because when we see negative signals like, "Oh, my relationship, business or investment isn't going well," we're more likely to double down on it. That's because we've already sunk costs into it, as we heard in the first half. That's why you want to think ahead.
Annie Duke: So when you start things, think about what you might see in the future that would cause you to stop and then write those things down with a plan for what you're going to do when you see them.
Charles Passy: Duke says one example of this is a stop loss on a stock. That's when you've decided ahead of time to sell when a stock falls below a certain point. Duke calls this a brute force example of a kill criteria, a way to think ahead of when you'd want to quit something.
Stephanie Kelton: A more complex example would be if an investor gets into trading Bitcoin because they believe it won't be correlated with inflation or market turbulence. In other words, if the market goes down, Bitcoin won't go down with it.
Annie Duke: So let's say that those are the two things that I believe to be true about Bitcoin and that's the reason why I'm buying it, then I can create more sophisticated kill criteria, which, say, if I see that correlation happening, if I see that Bitcoin is very clearly correlated with the market, or that it is not actually a hedge against inflation, which is what I was hoping for, then I can exit Bitcoin.
Charles Passy: The second strategy is to get someone to help you, a quitting coach. That can be a financial advisor, a therapist, a parent, a friend, mentor, anyone who has your best interest at heart.
Annie Duke: And that really simply is just working on the idea that we can very often see when other people should be quitting, but it's very hard for us to see that in ourselves, and so why don't we get somebody else who can probably see ourselves better than we can to help us with these decisions? And then the third strategy is to reduce sunk cost.
Charles Passy: Imagine you're in the business of training monkeys at a zoo, for example. In this thought experiment, you're trying to train a monkey to juggle flaming torches, and not only that, but to juggle flaming torches while standing on a pedestal. Of course, you shouldn't start with building the pedestal, Duke says you should start with training the monkey to juggle the flaming torches.
Annie Duke: So it really just boils down to this, do the hard thing first, beware of false progress. It's as simple as that, because if you do the hard thing first, you can get to that point where you realize that it's not going to work more quickly and that's going to help you to quit more quickly because you're going to reduce all of those sunk costs, all of that debris, the cognitive debris, that comes along with having started something.
Charles Passy: Stephanie, listening to Annie Duke made me think of something that's definitely been part of the cultural conversation lately, the idea of quiet quitting.
Speaker 5: The idea being keep the job but don't work very hard at it and focus on getting fulfillment outside of work.
Speaker 6: They call it quiet quitting. We've reported on the suddenly popular work trend. Doesn't actually involve quitting at all, just doing a lot less, like working overtime? No thanks. Late night emails? Ignore those. Pick up an extra project to get ahead? Hard pass.
Charles Passy: There's a lot of debate about what the practice means. Some see it as indicative of entitlement or loafing, while others view it as a way to avoid burnout from jobs that demand too much of their workers. Let's hear what Annie Duke thinks about it.
Annie Duke: I'm really sad that the word quitting is associated with it because I think it's just going to give quitting another bad rap. So here's the good part of quiet quitting. There are people who have clearly thought about what their values are and they've decided that the job that they're in does not align with their values. That is a conversation I think we should all be having with ourselves more often. The problem is that your reaction to that should be, in my opinion, the job doesn't align with my values, so therefore I will switch. Obviously the employment market is two sided and so whether you like it or not, your employer has entered into an agreement with you to do a certain job and you have reevaluated, which I think is fine, but you didn't let your boss know that you reevaluated. And so I think that those things need to be said out loud. And not only that, if you've decided to quiet quit and other people on your team have not quiet quit, they're having to pick up the slack and you haven't had that conversation with them either. So from my perspective, just quit out loud and proud and you're much more likely to go find a job that aligns with your values if you're not currently in a job.
Stephanie Kelton: As we touched upon earlier, not everyone has the same ability to quit because not everyone has the same resources.
Annie Duke: Now, I want to say very clearly that I understand that some people aren't in the financial circumstances to be able to quit and then look. Some people also are concerned about the cost of a resume gap, and in that case okay, but then you need to start looking right away. The minute you find yourself in a situation where you feel like you want to quiet, quit, make a quitting plan and start executing on that right away. The more opportunities you have, the easier it is to quit because you have other things that you could go switch from and go to. So there are lots of people who are opportunity wealthy, and by the way, if they're not taking advantage of that and quitting more, that's a real shame because they have the privilege to do so. But for people who don't have a lot of opportunities available to them, even creating one more could make a huge difference in your life. So that would be the idea, if you're in a job you don't feel like it's going anywhere, you're not happy with it, but you cannot afford to quit, think about how you could get training for something else, explore, while you're in that job, really try to explore and see if there's another position that you could get into while not, in this case, not quitting the job that you have because you can't afford to. Let's say that you're in a job that you don't like and you take some night classes and you get a new skill that opens up other opportunities for you, think about how incredibly valuable that is to you. So I'm not saying that everybody can do that, but if everybody's focused on that, is there one more opportunity I can create for myself? That will build up over time in making things turn out more positively for you on average.
Stephanie Kelton: And while being able to quit is sometimes a privilege, it's not always the reason why people stay in jobs they don't like, or quiet quit. It often has a lot to do with what Duke has mentioned a few times, not wanting to choose an unknown future over the status quo.
Annie Duke: What's on the other side? Am I going to find financial stability? What if I quit and the new job I don't like? Which I think is a really interesting one because you've already decided the job you're in you don't like. So you know that with a hundred percent certainty. The new job, you may like a lot or you may not like at all, but there's certainly a higher chance that you're going to like it compared to the thing you're already doing. So I think that what's happening is that there's a whole bunch of reasons why people are afraid to quit. We don't like to switch from the status quo, we're afraid of losses, of things not working out from something that we try anew or a little bit going and wandering into the wilderness, and honestly, that's scary. And so we find ways to stick with what we're doing, even when what we're doing is clearly not making us happy. So when you discover that the things that you want no longer align with the position that you're in, I think you should quit loud and proud and you should understand that that's an act of courage, because it's awfully scary to walk away from something when you don't know how the new thing is going to turn out.
Stephanie Kelton: Thanks for listening to the Best New Ideas in Money. You can subscribe to the show wherever you get your podcasts. If you like what you heard, please leave us a rating or review. And if you have ideas for future episodes, drop us a line at email@example.com. Thanks to Annie Duke. To learn more about decision strategies, head to marketwatch.com. I'm Stephanie Kelton.
Charles Passy: And I'm Charles Passy. The Best New Ideas in Money is a podcast from MarketWatch. The producers are Michael McDowell, (inaudible) and Katie Ferguson. This episode was mixed by Veronica Simonetti. Melissa Haggerty is the executive producer. Tim Roston was our newsroom editor on this episode. The Best New Ideas in Money theme was composed by Sam Retzer. Stephanie Kelton is an economist and a Professor of Economics and Public Policy at Stony Brook University and not part of the MarketWatch Newsroom. We'll be back next week with another new idea.
Author and poker champion Annie Duke says we should all be better at knowing when to fold ’em. Her new book explores how.