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How to make decisions like a poker player

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Re: How to make decisions like a poker player

#21

Post by mettamage »

suzzer99 wrote: post #13
mettamage wrote: post #8

Earlier quoted context omitted.

> Not investing in ETFs after being burned by past downturns Helloooo Japan! ETFs are great, it will never happen to the US economy :) In other words, based on market behavior from multiple countries, it is definitely a possibility that ETFs won't return much in a period of 30 to 40 years.

And what's your alternative? Cash under the mattress gets killed by inflation. Gold has its runs but usually underperforms. Bonds also get killed in a downturn.

There might not be an alternative.

However, the example is simply wrong (IMO) since it assumes that within a 30 year timeframe you'll have gained 8% on average (adjusted for inflation). If this would be true, thne yes it would be a decision-making trap. I think that's what morley is getting at.

I'm arguing it's a tough sell that the S&P 500 works like that. If one would agree that the S&P 500 might not continue to give 8% ROI on average over a 30 year time frame, then one might consider doing something else with their money. For example, maybe it's more fruitful to invest in yourself to upskill even more rather than putting your money into the markets. I don't know I haven't researched it, I myself try to beat the market, it's a fun endeavour. The jury is still out.

Re: How to make decisions like a poker player

#22

Post by adwi »

dkjaudyeqooe wrote: post #9

I've found that frequently bluffing in life pays off. Generally you don't get caught very often and the cost of getting caught generally isn't very high, even if the stakes are. You have to be prepared to take your way out of sticky situations though.

Yes, lying is often convenient.

Re: How to make decisions like a poker player

#23

Post by jdmoreira »

calahad wrote: post #17
Raidion wrote: post #11

I'm a serious but hobbyist player with ~15k hands last month. The thinking like a poker player is mostly about being upfront about your risk tolerances and then having a culture supporting people who make the best risk adjusted decision, even if it doesn't work out. Expected Value is complicated because a 50% chance for $100 is the same as a 10% chance at $1000. It's the variance, not the EV that makes a lot of decis…

"Expected Value is complicated because a 50% chance for $100 is the same as a 10% chance at $1000" Is it though?

The payout is exactly the same but what op means is that you need less "50% of 100%" bets than "10% chance at $1000" to reach the same payout.

1 in 2 for the first one will pay out. and 1 in 10 for the second one will pay out.

Variance is higher for second than for first.

Re: How to make decisions like a poker player

#25

Post by mettamage »

bbarn wrote: post #19
mettamage wrote: post #3

Earlier quoted context omitted.

I think like a poker player, I skimmed the article. What they seem to fail to mention is that variance is important as well. In poker you need to play at least 10000 hands in order for variance to average down a bit. 10000 hands is still very little. So, if you have a 95% chance of going 10x that's great, but the question is: can you handle a 5% chance of having being potentially ruined for at least a decade? If not,…

> How about the following? I offer you an unfair coin flip advantage of 51% versus 49% Isn't that just baccarat without ties?

I wouldn't know, I don't know many casino games.

Re: How to make decisions like a poker player

#26

Post by schmorptron »

Raidion wrote: post #4
mettamage wrote: post #3

Earlier quoted context omitted.

I think like a poker player, I skimmed the article. What they seem to fail to mention is that variance is important as well. In poker you need to play at least 10000 hands in order for variance to average down a bit. 10000 hands is still very little. So, if you have a 95% chance of going 10x that's great, but the question is: can you handle a 5% chance of having being potentially ruined for at least a decade? If not,…

Congrats, that's also thinking like a poker player. https://en.m.wikipedia.org/wiki/Kelly_criterion

This is off-topic, but the mobile wikipedia link you posted is surprisingly nice to read on desktop. Seems a lot more pleasant than the wide lines on the desktop site.

Re: How to make decisions like a poker player

#27

Post by elliekelly »

dkjaudyeqooe wrote: post #9

I've found that frequently bluffing in life pays off. Generally you don't get caught very often and the cost of getting caught generally isn't very high, even if the stakes are. You have to be prepared to take your way out of sticky situations though.

I think people who tend to “bluff” often also tend to seriously underestimate how often they’re “caught”. Just because no one has called you on your bluff to your face doesn’t mean you haven’t been caught.

Re: How to make decisions like a poker player

#28

Post by lexapro »

mettamage wrote: post #21
suzzer99 wrote: post #13

Earlier quoted context omitted.

And what's your alternative? Cash under the mattress gets killed by inflation. Gold has its runs but usually underperforms. Bonds also get killed in a downturn.

There might not be an alternative. However, the example is simply wrong (IMO) since it assumes that within a 30 year timeframe you'll have gained 8% on average (adjusted for inflation). If this would be true, thne yes it would be a decision-making trap. I think that's what morley is getting at. I'm arguing it's a tough sell that the S&P 500 works like that. If one would agree that the S&P 500 might not continue to gi…

There are ETFs that invest in international stocks. VT for example. That way you're not betting it all on one country.

Re: How to make decisions like a poker player

#29

Post by nightpool »

calahad wrote: post #17
Raidion wrote: post #11

I'm a serious but hobbyist player with ~15k hands last month. The thinking like a poker player is mostly about being upfront about your risk tolerances and then having a culture supporting people who make the best risk adjusted decision, even if it doesn't work out. Expected Value is complicated because a 50% chance for $100 is the same as a 10% chance at $1000. It's the variance, not the EV that makes a lot of decis…

"Expected Value is complicated because a 50% chance for $100 is the same as a 10% chance at $1000" Is it though?

OP messed up their numbers—they probably meant 5% chance for $1000 ($50 EV to match .5*$100) or similar. But I think their point is still clear

Re: How to make decisions like a poker player

#30

Post by stavros »

bulbosaur123 wrote: post #12
mettamage wrote: post #3

Earlier quoted context omitted.

I think like a poker player, I skimmed the article. What they seem to fail to mention is that variance is important as well. In poker you need to play at least 10000 hands in order for variance to average down a bit. 10000 hands is still very little. So, if you have a 95% chance of going 10x that's great, but the question is: can you handle a 5% chance of having being potentially ruined for at least a decade? If not,…

> Put more extremely, if I offer you a 99% chance to take make one billion dollars (legally) and a 1% chance of being killed, would you take it? I definitely wouldn't. I would even if it offered 50+% of getting killed. The small chance you strike a billion is worth the risk.

How much money would the gain have to be for it to not be worth a 50% chance of getting killed?
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