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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

#91
post #70
post #34

I attended a talk by Richard Garfield, the game designer behind Magic: The Gathering. He made a point that adding randomness to a game can be a way to give it that property of "easy to learn, hard to master", and in turn make it easier for a community to grow around the game. When you add randomness, it becomes possible for novices to sometimes beat more experienced players through sheer luck. Contrast that with e.g.…

This is an interesting comment, and I'd add one other element to this, which is that randomness is way more realistic, if we think of games as something intended to represent the real world in some way. In real life the best marksman can get wiped out on the first day of a war, the best business strategist can get done in by a once in a generation disaster, and a hapless idiot in business can get an early big break.…

Note that this is also why some people prefer games that don't have chance -- to experience what that is like.

Re: How to make decisions like a poker player

#92

I think life is way more complex than the poker. Yes the mindset could be useful, but mindset without proper data is not going to help a lot. Here is what I'm thinking: How about we go up a level, and accept that life is basically random and a lot is decided by luck (your gene is luck, your childhood education is also luck, these two pretty much decide a lot of things), as indicated in the article, but maintain a (me…

Probability is incredibly useful in real life. But it takes deliberate practise. You can improve your "sense of uncertainty" and assign fairly accurate probabilities to things. This process is known as calibration.

It also helps to know some probabilistic identities to derive the same probability multiple ways and see if there's consistency in your assessment.

Re: How to make decisions like a poker player

#93

I think life is way more complex than the poker. Yes the mindset could be useful, but mindset without proper data is not going to help a lot. Here is what I'm thinking: How about we go up a level, and accept that life is basically random and a lot is decided by luck (your gene is luck, your childhood education is also luck, these two pretty much decide a lot of things), as indicated in the article, but maintain a (me…

> Realize that probability is useful in poker but not that useful in life, thus it is impossible to calculate mathematical expectation.

That's very backwards. Sure, "exact" expectation no. But you can add errors bars to all your estimates, that's the basis of statistics. Being able to correctly estimate things and adjust for uncertainty is incredibly useful in life. Unlike poker, you have time to actually punch things into a calculator and consider different scenarios if you want to be super diligent but most things can be intuited if you have a solid grasp of probability/statistics. To be super pragmatic, the whole thing with fake news and misinformation wouldn't exist if people just applied Bayes theorem. For instance, people will say something like P(vaccine is dangerous | bad pharma company) = 1 but then P(bad pharma) = 0 in the sense that Pfizer doesn't want to kill people.

Re: How to make decisions like a poker player

#94
post #30

Earlier quoted context omitted.

> 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?

I don't think that would make a difference for me if someone offers more money when my life situation is kind of nice.

What would make a difference would be my life situation - if it would be worse or totally shitty I could take even 25% for a billion.

That was kind of theme of "Squid Games".

Re: How to make decisions like a poker player

#95

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.

I find that fascinating. I'm not even a millionaire, yet money is rarely a constraint for me and life is great.

The only reason I can fathom desiring a billion dollars is the leverage it would give me to influence the world in what I think is a positive direction. But when it comes to money for my own sake, $10M is about the most I can imagine having use for.

Re: How to make decisions like a poker player

#96
post #30

Earlier quoted context omitted.

> 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?

I would guess the uptake will fall sharply somewhere around 10 million, which is still a life-changing amount of money for 99% of the population.

Re: How to make decisions like a poker player

#97
post #34

I attended a talk by Richard Garfield, the game designer behind Magic: The Gathering. He made a point that adding randomness to a game can be a way to give it that property of "easy to learn, hard to master", and in turn make it easier for a community to grow around the game. When you add randomness, it becomes possible for novices to sometimes beat more experienced players through sheer luck. Contrast that with e.g.…

Thank you for this comment. See [1] for a video of Richard Garfield talking about this topic.

[1] https://www.youtube.com/watch?v=dSg408i-eKw

Re: How to make decisions like a poker player

#98

Earlier quoted context omitted.

That's a good point, betting on the world is a more viable strategy. That is at least, if the world is growing in an economic sense. With that said, since the world population will grow, I'd be willing to make that bet. In this case, I'd say the example holds up.

The point of investing in an ETF is not exactly to bet that the economy will grow no matter what, but to minimize variance and regret with the money you had at the beginning (i.e. you may end up in the red, but in terms of expectations, your likelihood of being in the red was no worse than the average).

Exactly - for me, investment is less about "making it big" and "beating the market," and more about, "storing the value of the work I did to earn this $X."

Such that, if the "burn rate" for my household today is $60k/yr, and I store $60k in investments, then when I withdraw at some future date $X will still be enough to support my household for a year.

Re: How to make decisions like a poker player

#99
post #30

Earlier quoted context omitted.

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

I would guess the uptake will fall sharply somewhere around 10 million, which is still a life-changing amount of money for 99% of the population.

Huh, it's very odd to me that you'd take an even chance of dying to win $10m... My amount would be much, much higher, potentially infinite.

Re: How to make decisions like a poker player

#100
post #7

I've also heard this topic referred to as "results-oriented thinking," which is generally what you don't want: you shouldn't judge a decision based on its result, but on the information you had at the time. The key to this idea, which I don't see covered in the blog post, for making future decisions is that you shouldn't let past bad luck affect your future decisions. If you lose a positive EV bet, it shouldn't shy y…

Results-oriented thinking is just one of many human cognitive quirks that are often maladapted to the modern world.

A major one is how we tend estimate probability. We naturally do that by equating it with how easy it is to imagine or remember it happening. This worked well in a tribal situation where our world was very small...if Grog got attacked by a tiger, there's a good chance that tiger attacks are a serious danger that I should consider. But this breaks down in the face of a global society of billions of people and a media that profits from making people afraid. Rare events get magnified by media attention and feel, to us, like they're incredibly likely. Plane crashes are incredibly rare. Even in a plane as fundamentally broken as the 737 Max was, passengers were safer traveling that way than by car. But since every airplane crash is covered extensively on the news whereas car crashes rarely merit a mention, people's primitive cognitive quirks kick in and they're more afraid of flying. You see it with mass shootings too. Even if you get 1-2 per day in the US, that's still maybe a few hundred people per day who are directly affected. Over the course of a year, that's roughly 70k people out of 330 million, or %0.02 of the population. Which isn't to say that we shouldn't do everything we can to prevent it, but when you hear people saying that they don't feel safe, that's entirely on the media and how it's warping our perception of the danger rather than it being a real threat to our lives. We also saw it with the spate of Asian attacks that became a media favorite. There was a story of Asians in New York starting to contort their lives to avoid becoming victims. But when I looked up the actual statistics, there were 20 such attacks at the time in a city with 1.2 million Asians. Which, again, doesn't mean that we shouldn't be treating each of those attacks as terrible and be doing everything we can to stop them, but when you consider 20 victims out of 1.2 million, that's just not a risk that's worth going to considerable inconvenience to avoid.

There was an interesting TED talk many years ago from a guy who specialized in these kinds of cognitive quirks. And he discussed the findings of one particular study that always stuck with me. In it, participants were presented with one of two hypothetical situations. In the first, they were going to the theater to see a movie and they pre-purchased the ticket for $20, and also brought along a $20 bill. When they arrived at the theater, they found that the ticket had gone missing. Almost all participants in the study said they'd turn around and go home rather than using the other $20 to purchase another ticket. In the second case, they were going to the theater to see the same movie, but instead of having pre-purchased a ticket, they were intending to buy one when they got there. But they had, instead, brought two $20 bills with them and managed to lose one on their way to the theater. Almost all participants presented with this scenario chose to use their remaining $20 bill to buy a ticket. Despite the situation being basically identical, when you're presented with both scenarios, we have a cognitive quirk where we don't want to pay for something twice whereas we can rationalize the loss of money that we never spent. But what got to me about that study wasn't the results, but how intuitive both decisions felt to me. I could feel how unpleasant it would be to buy a second ticket and, yet, how easy a decision it would be to buy a ticket for the first time even after losing some of my money. The lesson, for me, was that while I've always thought of myself as a logical person and someone who would always let statistics or other scientific basis guide my thinking, it's still really hard to follow through with that.

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