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