Thinking in Bets Notes

When I was younger my buddies and I would play poker. We would leave our houses at 10pm and drive down the Atlantic City Expressway and play poker in the hotels until the sun came up. We were young and had lots of energy. 

You can learn a lot about life when you play the game of poker in a smoke-filled Atlantic City casino at 2 am. 

Decision-making plays a key role in poker. There are rules about when to bet and how much to bet both from the formal structure of the game and from the informal, unwritten rules.

Poker is not gambling it is a skill game and like any skill, it can be improved upon.  

The people who hone this skill can do two things. Keep their emotions in check and make really good decisions, consistently over long periods of time. 

Professional poker player and author Annie Duke writes about this in Thinking in Bets.  Human beings are programmed for decision bias and the trick is to bring what is in the subconscious to the conscious and make ourselves aware of those biases so we can make clear decisions.

Anyone who has played poker understands this concept very clear whether they are intentional about it or not.

In any given hand of poker, anyone can lose to anyone who is the worse decision-maker. However,  over the long run, those who make high-quality decisions will win out more often than they lose. 

This is also true in life. You can lose any single investment but over the long run if you make good quality decisions you will gain financially in the market. 

Duke says you need to see every decision that you make as a bet. 

If the bet has a positive expected value then this is a good bet. The trick is understanding the odds and calculating the expected value. 

You have to determine 3 things to calculate the expected value for decisions in your life 

1. What is the expected reward? 
2. What is the likelihood I will get this reward - use a degree of certainty like a person is betting against you 
3. How much of my limited resources do I need to commit to winning this reward? 

Expected Value = Potential Reward X Likelihood 

To improve your expected value assumptions you must fix past inaccuracies in previous decisions. 

Let's say you have a 40% chance of winning... and the call is $50 into a pot of $150 so now the pot is $200 and the expected value is $80... $80 is greater than the cost of $50 to enter so you should make this bet. 

If you will win 40% of the time even if you lose this hand over the course of say 10 hands you would net a large amount of money. 

10 hands = lose 6 win 4 (40% win rate) 

6 loses = $50 lost x 6 = $300 

4 wins total pot of $200 x 4 = $800 

Even if your odds of winning were 15% this would still be the right decision... 15% chance of winning (or expected value) is the break-even point.

A good poker player not only finds the mistakes in the hands they lost but also analyzes the mistakes in the hands they won. This why good athletes watch game films to review performance. Or comedians record their sets to work on timing with the audience laughs. 

Make it a habit to always analyze your decisions despite the outcome of the performance. Especially if the outcome was a favorable one. This will cement the practice as a standard operating procedure.  

Learning occurs under conditions where you have lots of feedback tied closely in time to decisions and actions - poker is the ultimate example. You are operating under a situation of constant uncertainty and getting instant feedback in the form of bets, calls, and raises each time a new set of cards is presented.  

 

Sources: 

Summary - Thinking in Bets

Google Talks - Thinking in Bets 

Three Lessons from Stoicism

1. It cost what it costs. 

Costs are everywhere. We sometimes pay them directly and nominally like the price of a cup of coffee. 

Often we incur costs indirectly. Like the cost of health complications as a consequence of making poor eating and exercise habits over the course of a lifetime. 

Regardless we pay the cost. 

It cost what it cost. The concept is outlined brilliantly by one of my favorite authors Ryan Holiday here.

We must think of the inconveniences, the annoyances we experience in our daily lives as the tax we must pay for the life we have built. 

For example, having baggage claim lose your luggage is merely the price we must pay for the ability to have disposal income to be able to travel. 

Traffic that makes us late for work is merely the tax (or cost) we owe for the privilege of being employed. 

These are reminders that the inconveniences we experience, the slights, the annoyances we face are minor and they are nothing more than a by-product of the things we should be grateful for in the first place. 

2. Think of the Cup As Already Broken 

 Buddhist teacher Ajahn Chah once said of a lovely cup:

To me this cup is already broken. Because I know its fate, I can enjoy it fully here and now. And when it’s gone, it’s gone.

This is one of the more practical applications of Stoicism I try to practice. It teaches us the impermanence of all things. 

Epictetus in the Discourses says: 

As to something brittle as glass or earthenware; that, when it happens to be broken, you may not lose your self-command. So here, too; when you embrace your child, or your brother, or your friend, never yield yourself wholly to the fair semblance, nor let the passion pass into excess; but curb it, restrain it, — like those who stand behind triumphant victors, and remind them that they are men. Do you likewise remind yourself that you love what is mortal; that you love what is not your own. It is allowed you for the present, not irrevocably, nor forever; but as a fig, or a bunch of grapes, in the appointed season.

While this may seem cold or harsh what he is saying here is all things are temporary even the things and more importantly the people we love and enjoy. That the breaking of these items like the brittle glass is inevitable and so when it comes to pass you should not be upset or lose your temper. 

It is also a good reminder of the brief moment we have here during this time and we should enjoy and embrace the things and people we love for the short time we have them and if we think of them as already broken or gone then when the inevitable occurs we will not be upset by their destruction.

3. Memento Mori 

This concept is hand in hand with the idea of the broken cup and impermanence. Memento Mori means "Remember death". 

One day die. This is true for all of us. This is a useful tool to remind ourselves of the meaningless of everything we do especially the embarrassing or unflattering moments in our life that we think will be remembered forever are merely temporary. 

Even the greatest minds and generals and empires are nothing more than dust in the annals of time and you too will one day join them. 

Not be bleak or depressing but this is an important perspective to understand. This is not to say nothing matters and everything is meaningless it is quite the opposite. It is the reminder that what you are doing now matters and to live for the present.