Poker, Personal Finance, and Life

Poker is a nasty, aggressive, and hyper-competitive game. It’s also fun and challenging as it tests your mental acuity and decision-making while under emotional duress. Believe it or not, poker has a lot in common with life and can help develop your personal finance skills.

If that sounds like a stretch, consider these ten poker lessons:

1. It’s a mix of skill and luck.

In the short run, it’s better to be lucky than good, but in the long run, the luck balances out and you must manage the ups and downs.

Life is not always fair but you must be ready for the inevitable unlucky streaks and take a long-term perspective. You live in the day-to-day but need to plan for the long run. We’re all influenced by this short-term bias so we have to force ourselves to save for retirement and the inevitable rainy days.

2. Everything is probabilistic.

A simple poker strategy is to accept positive expectation bets and avoid negative ones. Easy to say. You’re faced with making judgments with incomplete information and assessing the intent of other players who are purposefully trying to deceive you.

Many life decisions are like this — e.g., what job to take, apartment to rent, car to buy, or whom to marry — you have to weigh the probabilities and make decisions before having all the facts or complete clarity about the motivations of others. If you wait for certainty before deciding, you probably waited too long.

3. Don’t fall in love with your hand.

You may have been dealt pocket aces but everything changes once the flop comes. You need to constantly process new information and re-assess your situation. Because your hand may have been the best one moments ago, doesn’t make it necessarily so anymore.

Circumstances change and you need to be nimble in your thinking and unanchored from your prior beliefs. For you math nerds, this is an application of Bayes Theorem.

4. Everybody goes on tilt.

If you feel yourself steaming at the table due to a bad beat, get up and walk away as you’ll surely make bad decisions if you stay.

This is always good advice — don’t make important decisions when you’re emotionally unhinged. A classic example is selling your stocks after the market has crashed. Starting a serious new relationship right after you’ve been dumped or refusing a temperature check at Disney World may be other examples.

5. Embrace game theory.

Don’t be too predictable and constantly reassess your opponents’ strategy. You have to judge whether they’re bluffing and recognize they’re making the same assessments of you. Everyone is trying to be someone they’re not — the sharks act like guppies and the actual guppies are desperately pretending not to be — and no one tells the whole truth.

Much of life — buying a house or car, applying for a job, using Tinder, hearing a financial advisor’s pitch — may not be much different.

6. Manage your bankroll.

When you run out of chips, the game is over. If the first rule of poker is to make positive expectation bets, then the second rule is to not lose all your money. To avoid this, only play with the stakes you can afford to lose. Don’t get in too deep.

Similarly, DON’T buy more of a house or car than you can afford, DON’T invest your life savings in undiversified and risky assets, DO have enough emergency savings to get you over those inevitable setbacks, and DO calibrate your living expenses to your income.

7. There’s always a bully.

If you show weakness, you’ll be trampled. When dealing with a bully, act deftly by avoiding him when you can and finding the right moment to respond — either when you know you have the nuts or a well-timed bluff will succeed.

We occasionally run into bullies at work, in school, and in life. We should respond similarly.

8. Be honest with yourself.

Objectively self-assess your poker ability. If you attribute your winning sessions to skill and your losing days to bad luck, you’re in trouble. Instead, be self-critical — when you win, assume you were lucky and try to convince yourself otherwise. When you lose, find constructive lessons to apply for next time, rather than bemoaning your bad luck.

This approach is helpful for any important decisions — an investment you make, a new business you start, a relationship that went bad, or your monthly spending. Self-assess and incorporate what you learn into future judgments.

9. Don’t drink and play.

Just as we all know not to drink and drive, don’t drink and play poker. In a casino, the free drinks can turn out to be very costly. Everyone else at the poker table will be sipping seltzer or Red Bull knowing exactly how many vodka tonics you’ve had.

Nothing good happens after midnight or when we’re dis-inhibited. Regret usually follows.

10. Lastly, know when to hold them and when to fold them.

When your cards are a lost cause, you should fold. Or, if you find yourself in over your head, you need to walk away. There’s an old poker saying that if after 15 minutes at the table, you don’t know who the fish is, then it’s you.

Sunk costs are called that for a reason. Hope and prayer are not winning strategies in poker or anywhere else.

Kenny Rogers sang the classic song,

You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run

Good luck at the table and in life.