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Poker and Stock Trading Psychology Part V

by Alan Schoonmaker |  Published: Nov 13, 2013


Alan SchoonmakerStudying the literature on stock trading psychology can improve your poker because it’s based on better research than poker psychology. That research can help us to recognize and correct our psychological mistakes. These mistakes often combine, intensifying their destructive effects. For example, optimism, ADHD, and the illusion of control can be a devastating combination.


Montier’s Behavioral Finance stated: “Perhaps the best documented of all psychological errors is the tendency to be over-optimistic. People tend to exaggerate their own abilities.” Optimism causes serious mistakes such as joining tough games and playing weak cards.


Montier’s Little Book of Behavioral Investing contains a chapter titled, “The Perils of ADHD Investing.” It says that some investors seem to have Attention Deficit Hyperactivity Disorder, “an overt focus on the short term… … Not only do we desire quick results, but we love to be seen as doing something.”

The Illusion of Control

Many investors, poker players, and other gamblers have this illusion. In his ADHD chapter Montier wrote, “This tendency to overrate our abilities is amplified by the illusion of control – we think we can influence an outcome…people will pay four times as much for a lottery ticket if they can pick the numbers… as if … picking the numbers makes them more likely to occur.”

Of course, choosing the numbers doesn’t affect their results. Every lottery ticket has exactly the same chance of winning. Lotteries and poker hands are random and can’t be controlled, but many poker players try to control their cards. They change seats or games, ask for set ups, have favorite cards, overplay hands because they are “hot” or “overdue,” and fold good cards because they are “cold” or an opponent is “hot.”

They take these foolish actions to feel good. Instead of being passive victims of randomness, they feel they’re DOING SOMETHING to “change their luck.”

It’s human, but foolish. To overcome this mistake, we must recognize and fight our natural tendency to overrate our abilities, accept that cards are random, stop looking for patterns that don’t exist, stop trying to change the cards we’re dealt, and concentrate on the only thing we can control, our own decisions.

This bias “is our habit of attributing good outcomes to our skill as investors, while blaming bad outcomes on something or someone else.” (Montier’s Little Book, p. 147)

The first page of my book, The Psychology of Poker, related this bias to poker: “Other games emphasize self-criticism and objective analysis. Football and basketball teams review game films to learn how they and other teams play, then revise their game plan for the next opponent. Bridge players conduct endless ‘post mortems,’ replaying hands to improve their skills. But most poker players never even try to analyze their game.

“Instead, we whine about our luck and tell ‘bad beat’ stories. Most stories essentially say: ‘I played my hand well, but this idiot’s stupidity and my terrible luck cost me the pot.’ It’s as if a football coach played the films of a losing game, not to learn how to win next time, but to prove they were unlucky to lose.”

Montier recommended a way to fight this bias: “To combat this pervasive problem of self-attribution we really need to keep a written record of the decisions we take and the reasons behind those decisions.” (Little Book, pages 148-149)

I wholeheartedly agree. While playing, I frequently take notes about my own play, rating decisions from excellent to idiotic. I dislike admitting it, but I’ve made my share of idiotic plays, and so have you.

After rating my play, I analyze why I played well or poorly, and I focus mostly on my mistakes. Perhaps I’m more or less focused than usual. Perhaps I’m tired or distracted. Perhaps I misread a player’s style. Perhaps I’m on tilt. By analyzing the reasons for my good or, especially, my bad play, I slowly improve my game, making more good moves and fewer bad ones.

The Hindsight Bias

Montier made a closely related point, “One of the reasons I suggest people keep a written record of their decisions and the reasons behind their decisions is that, if they don’t, they risk suffering from… hindsight bias… once we know the outcome, we think we knew it all the time.” (Little Book, p. 150)

Countless poker players have that bias. After seeing an opponent’s winning hand, they claim, “I knew you had that.” Whenever someone makes that silly claim, I’m tempted to ask, “Then why did you call him?” But I keep quiet because it’s foolish to educate opponents.

How Do You Make Decisions?

That’s the critical question, and most poker players can’t answer it correctly. They either don’t analyze how they make decisions, or they lie to themselves and others. They emphasize their results, not their own decision-making process.

The Little Book’s final chapter related that question to the illusion of control: “We obsess about outcomes over which we have no direct control. However, we can and do control the process by which we invest…

“People often judge a past decision on its ultimate outcome rather than basing it on the quality of the decision at the time it was made, given what was known at the time…

“Focusing on process… frees us from worrying about aspects of investments that we really can’t control…
“The key lesson… is that we must focus on process… the set of rules that govern how we go about investing… some of the world’s greatest investors… have integrated measures into the way in which they approach investing to act as a guard against mindless investing… they know that, unless they force themselves to behave in this fashion, they will slip back into their old habits…

Roy Cooke, Card Player senior columnist, frequently makes the same point. His columns emphasize how he made decisions, not whether he won or lost the hand. He (and most other smart players) knows that bad decisions can produce good results and vice versa. So he ruthlessly analyzes his decisions and admits and criticizes his mistakes.

For example, after describing how he misplayed a hand, he wrote, “The good news is that I recognized my error and learned from it. It will be awhile before I get ‘ahead of myself’ again, though I’m sure I will. Many players deny their errors and therefore never learn from them. Their games languish in mediocrity. Don’t be one of them. Diagnose and learn from your errors.” (“Shut them out or let them in,” Card Player, 5/15/2013)

That’s what you should do. Thoroughly analyze how and why you made your decisions, and stop worrying about how much you’re winning and losing tonight. If you don’t carefully analyze your decision-making process, you’ll keep making the same old mistakes. Conversely, if you emphasize the long term and carefully analyze your decisions (preferably with someone who will criticize your thinking), your results will steadily improve. ♠

Do you often wonder, “Why are my results so disappointing?” Ask Dr. Al, He has published five books about poker psychology, five on other psychological subjects, and is David Sklansky’s co-author for DUCY?