Poker, Personal Finance, and Life
If you’re from Boston, you may be aware that after much ado and $2+ billion of investment, the Encore (nee, Wynn) casino just opened on a riverfront just outside Boston. Its many excesses include one of the largest poker rooms in the US.
Poker is a nasty, aggressive, and hyper-competitive game; it’s also fun and challenging. It tests your mental acuity and forces you to make fast-paced judgments under emotional duress. Believe it or not, poker can help develop personal finance and other life 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 is better to be lucky than good, but in the long run, you’d rather have skill on your side. This is one reason that online poker players prefer to play many hands at once. They’re trying to minimize the random variance and get to their long run results more quickly.
Life and poker are not always fair but you must manage the inevitable unlucky streaks and take a long-term perspective. You live in the short run but you need to focus on 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. This is easy to say but harder to do. You’re faced with making judgments with incomplete information, uncertainty about possible outcomes, and assessing the intent of other players who are purposefully trying to confuse you.
Many meaningful life decisions are like this — e.g., what job to take, apartment to rent, car to buy, or whom to marry — you’re making decisions without having all the facts sorted out or complete clarity about the motivations of others.
3. Don’t fall in love with your hand.
You may have been dealt the best hand but everything changes once the play of the hand unfolds. 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 both nimble in your thinking and untethered 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 be making 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 may be another.
5. Embrace game theory.
You cannot be too predictable and you need to constantly reassess your opponents’ strategy. You have to judge whether they’re bluffing and recognize they’re trying to make the same assessments of you. And, to complicate things more, they know that you’re assessing them and they’ll respond in a manner to confound you as much as possible, as you should do also. This can iterate into many layers of gamesmanship.
At the poker table, everyone is trying to be someone they’re not — the sharks act like guppies and the actual guppies are desperately pretending not to be. No one tells the whole truth.
Much of life — buying a car, applying for a job, using Tinder, hearing a financial advisor’s pitch — may not be much different.
6. Manage your stack.
If you run out of chips, the game is over. If the first rule of poker is to only make positive expectation bets, then the second rule is to not lose all your money. To avoid this, calibrate the stakes you play with the size of your bankroll. Don’t get in too deep.
This is similar to buying more of a house or car than you can afford or not having enough emergency savings to get you over those inevitable setbacks.
7. There’s always a bully.
If you show weakness, you’ll get trampled. When dealing with a bully, you must respond deftly by avoiding him when you can and finding the right moment to respond — either when you know you have the winning cards or a well-timed bluff will succeed.
We occasionally run into bullies at work, in school, and sometimes as Our Leader Of The Free World. We should respond similarly.
8. Be honest with yourself.
Track your wins and loses so you can objectively self-assess your poker ability. If you’re attributing your winning days to skill and your losing days to bad luck, you’re already in trouble.
Instead, be self-critical — when you win, assume you were lucky and determine if there is a good reason to convince yourself otherwise. When you lose, assume your play was sub-par and see if there is any way to convince yourself it was merely bad luck.
This approach is true for any important decisions — an investment you make, a new business you start, and the choices you make in partners. Retroactively and honestly, self-assess how capable you’ve been so you can factor that 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. And, everyone else at the poker table will be sipping seltzer knowing exactly how many vodka tonics you’ve had. Misjudgments and regret are the result when we’re disinhibited.
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 entirely. There’s an old poker saying that if after 15 minutes you don’t know who the fish is at the table, then it is you.
Hope and prayer are not winning strategies in poker or anywhere else.
You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run