As a kid, a long time before I learned about probability and randomness, I had my own philosophy on “luck”. I was convinced that some people would be more affected by good and bad luck, while others were simply overlooked by Fortuna.
For me, my younger brother was the perfect example for the first type of person. He could find a dime on the floor of a Scandinavian ferry ship and put it into a slot machine to instantly strike a jackpot. However, he was equally able to lose a good chunk of his small fortune before I could run to get my dad.
I, on the other hand, belong to the second group. I never got picked in a lucky draw, and at every tombola would win at best one of the condolence prices. If I lost my keys, however, I could always rely on being lucky enough for someone to drop them off at lost-and-found.
Over the years my view on randomness and probability matured. While I learned basic probability concepts earning my master’s in economics, it was my experience playing poker between 2005 and 2012 that really sparked my interest in randomness.
Poker as a Learning Experience
I started playing poker (mainly No-Limit Texas Hold’em) in 2005, my graduation year from university. Chris Moneymaker’s legendary win of the World Series of Poker Main Event in 2003, after entering the tournament through an $86 satellite tournament at Pokerstars.com, kicked off a global poker boom. Two years later this wave had reached Germany. Poker shows were dominating the nightly TV programs, and online poker providers had nearly limitless advertising budgets.
I fell in love with the game and brought this passion to Hong Kong when I moved here in 2007. While working long hours as general manager in an e-business company, I played most evenings and weekends online, mainly microstakes cash games, Sit N Gos and multi-table tournaments. In mid-2007 I also began to play live in a Hong Kong pub tournament series and occasionally in live cash games. Later I added regular trips to Macau to play in the smaller denominated cash games at the Wynn and the Venetian Casino.
While in poker there is always the fantasy in the back of a player’s head to strike gold, I was fairly realistic about my abilities and chances as a part-time recreational player.
I did not play to make money (of course, I tried to be profitable and was most of the years a small winner), I primarily played for the thrill of it, the competitive challenge, and the learning effects.
Playing live poker in the Hong Kong scene and in Macau was an especially intense learning experience. Not only was I often outclassed, I also faced opponents with much deeper pockets, many with day jobs at the trading desks of banks or investment funds. They had a seemingly natural coolness about them that I wanted to acquire too.
Besides improving my poker face and my ability to play less with scared money, playing poker taught me some valuable life lessons.
If I distill my poker wisdom down into a few bullet points, I end up with the following short list:
Poker, just like life, is a game of skill in an environment of incomplete information.
Randomness (variance) is an integral part of the games of poker and life. The cards that are dealt are random, your skill is what you make out of them.
You (in life and in poker) control your exposure to randomness at least to some extent.
Making (mathematically) right decisions often goes against deep rooted instincts.
The value of a decision cannot be judged my its outcome. Winning a hand does not make the decision right.
Poker and Life: Games of Incomplete Information
All common variances of poker are games of incomplete information. Usually you just know your own cards (draw games) and some but not all cards of your opponents (Stud Poker variants), or you get to know an increasing number of community cards every round (Hold’em, Omaha). The rest of the card deck remains hidden, and all of your game decisions are based on educated guesses, based on the little information that you have at hand and the observed play patterns of your opponents.
Poker players are constantly aware of the incomplete information they are working with. A true “soul read”, calling the exact hand of an opponent, is rare. Usually poker players work with ranges of cards that their opponent might hold in the specific situation.
The game of life is played with a much larger deck than 52 cards. We constantly make decisions based on very rudimentary information. Even in science there are almost no certainties. At best there is a theory that has not yet been falsified.
Different from a poker game, we tend to forget about the imperfection of our real-world knowledge almost constantly. A whole set of cognitive biases fools us to believe that we have it all figured out.
Understanding the limits of our own knowledge and reminding yourself on a regular basis that even your strongest beliefs are potentially based on flawed assumptions is an extremely valuable asset. Instead of overcommitting to a single truth, we should more often think in “ranges”.
Luck vs Skill – The Eternal Argument
The argument of whether poker is a game of skill or chance is likely as old as the game itself and at least as old as casino regulations and gambling ordinances. Obviously poker is both; it is a game of skill with elements of chance.
To see a monkey beating a grand master in a match of tournament chess, you would need the proverbial infinite money cage. At the roulette table you could swap me for a monkey any day. He would have an equal chance of winning and likely would even have more fun than me.
In a poker heads-up match (a game between just two players) a monkey would play with a huge disadvantage against a skilled player, but it would not be impossible for him to win. Chances of winning two all-ins in a row as a 30:70 underdog are still 9%. So about one in ten monkeys could easily win a round.
Life, just like poker, is a game of skill with elements of chance. How big the influence of chance actually is hard to determine. In general, I am a person with a strong locus of control. That is surely part of my self-motivated personality. The longer I think about it, however, the more I see the game of life somewhere between poker and roulette on the luck vs. skill scale. After all, our very own life starts with a virtual gene lottery.
Randomness continues to play an undeniable role after we are born. Meeting a mentor at an early age, reading a book that shapes our young mind, enduring a sickness, or worse, becoming a victim of abuse or violence, coincidental events in our childhood have a lasting influence on who we become as an adult.
At the same time there is surely a skill element in life. Like in poker, the cards that you are dealt in life are random. The skill is playing the cards as well as possible. Good poker players win over the long run because they avoid going broke in critical situations and squeeze a few extra percent out of a beneficial situation. Playing poker is an endless chain of decisions, and a skilled player will be right more often than wrong and therefore profit over time, independently of variance created through randomness.
In similar fashion to poker, life also consists of an endless sequence of decisions. A key difference between poker and life is, though, that in poker, a single random event (granted reasonable bank role management) will not end a career. In life, a single random event could have potentially fatal consequences. All life-hacking skills in the world are not helping, if you are hit by a car on your way to work.
Randomness as a Choice – Let’s get Loose
I described my childhood philosophy on luck in the first paragraph of this article, and while I have to smile at my innocent superstitiousness, the underlying observation was not completely unfounded.
Today benefiting from a much broader knowledge, I would explain the seemingly different exposure to luck of different individuals mainly with their different appetites for risk.
To some extent, randomness is a choice. By knowingly or unknowingly taking chances, we expose ourselves to randomness and therefore to variance. It’s simple: if you tend to go to a casino and play big, your chances to either win or lose large amounts are much higher than if you spend your spare time birdwatching. Or let’s look at dating: the more aggressive you are in your dating approach, the higher is your chance to either find a mate for the night or get slapped or splashed with a drink.
In poker you can play tight or aggressive. An aggressive player plays a wider range of starting hands and bluffs more frequently than a conservative, tight player. An aggressive style usually goes hand in hand with a larger variance and, if done skillfully, with the potential of huge wins.
With my personality, playing aggressive enough to not become predictable, was a constant challenge. Only gradually and towards the end of my poker “career” was I able to tolerate more variance. My fairly tight style led to a lot of small tournament cashes and a high percentage of slightly positive sessions without any breakthrough wins.
The same I can say about my life. I am much more a grinder than a gambler, avoiding randomness whenever I can and therefore reducing variance in my life. I never really meditated about this issue, but when I wrote this blog, I was starting to wonder if I am not playing too tight at the life game too.
You can’t trust your feelings – doing the right thing can feel incredibly wrong
Cognitive biases have a strong grip on the human mind. Even knowing a specific play in poker is GTO, Game Theory Optimal; following through with it can be immensely painful.
For me making the mathematical correct play in poker was often a fight with myself. I never played above my pay grade, so the amounts I played for were not exactly life-changing. Nevertheless, the knot in my stomach during an all-in with a favorite hand was feeling nauseating.
On multiple occasions I was tempted to throw away premium starting hands like Queen/Queen or Jack/Jack, just because a tournament was close to the bubble (the point in a tournament where all remaining players are guaranteed a prize) or I was up a certain amount in a cash game.
Knowledge and emotions only coincidentally go hand in hand. Often they can be completely contrary, in life maybe even more than in poker. That’s why contrarian stock investments are so difficult to execute, and that’s why we continue to invest in broken relationships or cars. Not because we do not know what would be the right action, just because it feels so bad doing the right thing.
Not every Winner is a Hero
Poker is a game of skill with a large component of randomness. Winning a hand in poker does not mean that I played it correctly; having a winning session, does not mean I played more skillfully than my opponents. I might have simply gotten lucky, running much better than I should have.
Success in poker and life should be measured by the correctness of the decisions, based on the information available at the point of the decision, not by result. Winning a lottery does not make the decision to buy a lot right.
Nassim Nicholas Taleb writes in Fooled by Randomness extensively about the omnipresent survivorship bias in our hero worship. No matter if we talk about generals, politicians, or entrepreneurs, our heroes are almost entirely chosen based on their success, not based on the quality of their decision making.
This is dangerous, as by ignoring the influence of randomness on the outcome of a decision, we measure ourselves with unrealistic expectations.