I’m an amateur player trying to improve and while I have I hit a huge downswing this summer. So recently at a small tournament I opted for some technically incorrect plays- going the min cash vs the win. I needed a cash. My brain and confidence would have suffered without and that could have had negative impacts on future play. Interestingly, I did get the min cash, yet also went on to place 4th for my biggest career cash (tiny compared to your stakes but still). In my case there was an emotionally positive +ev play and that’s what I did. Sometimes real life has to differ from gto- thanks for acknowledging that
What you described are basically boundary conditions in physics. While something may be true mathematically, ie the EV approach is correct, you don't live in a pure mathematics world. You live in a physical world, math just helps describe it. And in Physics, boundary conditions are "constraints that must be met by a quantity that varies across a space or enclosure at every point on its boundary." Clearly these situations can arise in the larger context of your life and your bank account. So the "rational" move is not always the correct move, if it can affect you in a larger sense (you go broke, etc...) Nothing irrational there, you have to place the bet inside the larger context of your life.
The problem with traditional economic thinking is that it treats *Dollars* as being identical to utility, instead of just being a useful proxy for utility.
And earning/losing money, like all activities, provides diminishing marginal utility. Each additional dollar gained is less valuable than the last, but also each dollar lost (or taken) is more costly than the previous, in terms of utility. This is why humans tend to be risk averse when dealing with monetary gains but risk seekers when dealing with monetary losses.
People don't make decisions PURELY based on the dollars. There are also many non-monetary forms of utility such as fear, regret, peace of mind, societal acceptance, and confidence.
The Monty Hall problem is a good example. People (assuming they don't understand the true probabilities) tend to keep their original door because they expect their future self to feel a lot of regret if they had first chosen the winning door and "lost" it by switching. The experience of loss and the feeling of regret gives them negative utility beyond just the value of the prize. Whereas, if they switch and win, that's perceived as "just getting lucky" and provides positive little additional utility beyond the value of the prize. Hence, most people choose to stick with their original choice.
I was thinking similarly. I think that two individuals in different economic situations, faced with the same risky +EV (in purely monetary terms) gamble might rationally take opposite sides of the gamble, even setting aside emotions. If you are already in a precarious economic situation, the marginal utility decline from a loss could be larger than the marginal utility increase from the gain, while presumably someone who was wealthy would take as many of the +EV gambles as possible.
Words to live by: "And if you always go for broke, well…you’ll probably end up broke."
Not a gambler myself (in the traditional sense), but me and my entrepreneurial peeps were born with equally broken risk meters as anybody who's bluffing with an ace-jack in their hands. 😅 Had to learn the hard way that 10% of net-worth is about all I should reasonably "gamble" on anything. If it's bigger than an amount I can comfortably cover for a group dinner or simply light on fire once a year, I need to go ask my wife if it's a good idea. (The answer is usually HELL NO.) Yeah, there have been dinners and hobbies and "gambles" with too many zeroes on the end… 😬
Hi there its your hopefully not too obnoxious non gambling reader. BTW I don't gamble because my father got all the luck at the table and in war. He broke the bank at the Salon Prive in Deauville at Chemin de Fer in 1959 when it was real money. Any way my point is that reading this as a math exercise is interesting to me, but it is so removed from standing in a door way in the middle of a coup wondering whether you should rum across the street. Believe me there's no time for math, maybe you think about checking your gut, but rarely. Generally you let the limbic flow and go. I am assuming that you don't lose your discipline ever, but have you been tempted to go with the limbic, at the table I mean.
Doesn't the Kelly Criterion provide a mathematical basis for bankroll sizing (or alternatively, telling you which +EV bets you should turn down based on your bankroll)?
For your $20,000 vs 25%-chance-of-$200,000 choice, the Kelly Criterion says you should only take the 25% option if your bankroll - what you can afford to lose - is at least $100,000.
As a new (tournament) poker player I've opted for the bubble every time. Starting this next 'poker season' I'm changing to 'going for it.' The card room I play in is fairly intimidating and when I get far enough to cash I'm usually the one with lowest stack. They take for granted I'm going to chop. No más. I must start leveling up. I'm not confidant enough to play the larger tournaments, yet.
Your friend Nate had some interesting things to say about Sam Bankman-Fried (and, to a lesser extent, some Silicon Valley types generally) falling into the category of the Iowa Gambling Problem subjects--lacking any intrinsic or emotional appreciation of the non-numeric consequence of enormous, potentially existential, loss. There was an example of a decision whether to push the button, if the "loss" consequence was that the universe ceases to exist, but in utilitarian terms, it was a positive-EV bet (e.g., the "win" is that life gets at least X times better, however you measure that, for every individual in the universe). Those close to SBF indicated his belief that such a choice is a no-brainer, you go with the EV (with perhaps the only debate being how high the X has to be). Truly frightening, when you consider the amount of ever-increasing concentrated power that the super-rich and the controllers of AI and government (heavily overlapping Venn circles) wield over the rest of the planet's population who have no control over such centralized high-stakes decision making.
Great article, Maria! This reminds me of ICM in poker, which states that a chip’s value goes up the fewer chips you have, as the prize structure of tournaments do not pay players based on chip count or purely the probability of winning first place. The value of money in real life is also variable depending on one’s situation. Coincidentally I was just listening to a Planet Money podcast about money and happiness, and the original Kahneman research on money and happiness, in which he found more money does not buy more happiness once income is higher than a certain point. I am only 7 minutes into the 21 minute long podcast, and it hints that there are e some updates to that original finding. Fascinating topic overall
Thank you for writing this.
I’m an amateur player trying to improve and while I have I hit a huge downswing this summer. So recently at a small tournament I opted for some technically incorrect plays- going the min cash vs the win. I needed a cash. My brain and confidence would have suffered without and that could have had negative impacts on future play. Interestingly, I did get the min cash, yet also went on to place 4th for my biggest career cash (tiny compared to your stakes but still). In my case there was an emotionally positive +ev play and that’s what I did. Sometimes real life has to differ from gto- thanks for acknowledging that
What you described are basically boundary conditions in physics. While something may be true mathematically, ie the EV approach is correct, you don't live in a pure mathematics world. You live in a physical world, math just helps describe it. And in Physics, boundary conditions are "constraints that must be met by a quantity that varies across a space or enclosure at every point on its boundary." Clearly these situations can arise in the larger context of your life and your bank account. So the "rational" move is not always the correct move, if it can affect you in a larger sense (you go broke, etc...) Nothing irrational there, you have to place the bet inside the larger context of your life.
Great article Maria.
The problem with traditional economic thinking is that it treats *Dollars* as being identical to utility, instead of just being a useful proxy for utility.
And earning/losing money, like all activities, provides diminishing marginal utility. Each additional dollar gained is less valuable than the last, but also each dollar lost (or taken) is more costly than the previous, in terms of utility. This is why humans tend to be risk averse when dealing with monetary gains but risk seekers when dealing with monetary losses.
People don't make decisions PURELY based on the dollars. There are also many non-monetary forms of utility such as fear, regret, peace of mind, societal acceptance, and confidence.
The Monty Hall problem is a good example. People (assuming they don't understand the true probabilities) tend to keep their original door because they expect their future self to feel a lot of regret if they had first chosen the winning door and "lost" it by switching. The experience of loss and the feeling of regret gives them negative utility beyond just the value of the prize. Whereas, if they switch and win, that's perceived as "just getting lucky" and provides positive little additional utility beyond the value of the prize. Hence, most people choose to stick with their original choice.
I was thinking similarly. I think that two individuals in different economic situations, faced with the same risky +EV (in purely monetary terms) gamble might rationally take opposite sides of the gamble, even setting aside emotions. If you are already in a precarious economic situation, the marginal utility decline from a loss could be larger than the marginal utility increase from the gain, while presumably someone who was wealthy would take as many of the +EV gambles as possible.
Words to live by: "And if you always go for broke, well…you’ll probably end up broke."
Not a gambler myself (in the traditional sense), but me and my entrepreneurial peeps were born with equally broken risk meters as anybody who's bluffing with an ace-jack in their hands. 😅 Had to learn the hard way that 10% of net-worth is about all I should reasonably "gamble" on anything. If it's bigger than an amount I can comfortably cover for a group dinner or simply light on fire once a year, I need to go ask my wife if it's a good idea. (The answer is usually HELL NO.) Yeah, there have been dinners and hobbies and "gambles" with too many zeroes on the end… 😬
Hi there its your hopefully not too obnoxious non gambling reader. BTW I don't gamble because my father got all the luck at the table and in war. He broke the bank at the Salon Prive in Deauville at Chemin de Fer in 1959 when it was real money. Any way my point is that reading this as a math exercise is interesting to me, but it is so removed from standing in a door way in the middle of a coup wondering whether you should rum across the street. Believe me there's no time for math, maybe you think about checking your gut, but rarely. Generally you let the limbic flow and go. I am assuming that you don't lose your discipline ever, but have you been tempted to go with the limbic, at the table I mean.
Doesn't the Kelly Criterion provide a mathematical basis for bankroll sizing (or alternatively, telling you which +EV bets you should turn down based on your bankroll)?
For your $20,000 vs 25%-chance-of-$200,000 choice, the Kelly Criterion says you should only take the 25% option if your bankroll - what you can afford to lose - is at least $100,000.
As a new (tournament) poker player I've opted for the bubble every time. Starting this next 'poker season' I'm changing to 'going for it.' The card room I play in is fairly intimidating and when I get far enough to cash I'm usually the one with lowest stack. They take for granted I'm going to chop. No más. I must start leveling up. I'm not confidant enough to play the larger tournaments, yet.
Your friend Nate had some interesting things to say about Sam Bankman-Fried (and, to a lesser extent, some Silicon Valley types generally) falling into the category of the Iowa Gambling Problem subjects--lacking any intrinsic or emotional appreciation of the non-numeric consequence of enormous, potentially existential, loss. There was an example of a decision whether to push the button, if the "loss" consequence was that the universe ceases to exist, but in utilitarian terms, it was a positive-EV bet (e.g., the "win" is that life gets at least X times better, however you measure that, for every individual in the universe). Those close to SBF indicated his belief that such a choice is a no-brainer, you go with the EV (with perhaps the only debate being how high the X has to be). Truly frightening, when you consider the amount of ever-increasing concentrated power that the super-rich and the controllers of AI and government (heavily overlapping Venn circles) wield over the rest of the planet's population who have no control over such centralized high-stakes decision making.
Great article, Maria! This reminds me of ICM in poker, which states that a chip’s value goes up the fewer chips you have, as the prize structure of tournaments do not pay players based on chip count or purely the probability of winning first place. The value of money in real life is also variable depending on one’s situation. Coincidentally I was just listening to a Planet Money podcast about money and happiness, and the original Kahneman research on money and happiness, in which he found more money does not buy more happiness once income is higher than a certain point. I am only 7 minutes into the 21 minute long podcast, and it hints that there are e some updates to that original finding. Fascinating topic overall