Prospect Theory
by PokerAnon ~ April 13th, 2009. Filed under: Gambling, Philosophy and approach.
A while back I wrote a post wondering about how I seem to be willing to win less rather than risk losing more. This was a relatively new awareness for me, at least consciously, though it ties into such things as my preferred Islewars game settings.
Now I’ve learned that this is not only common, but it has a name. It’s called Prospect Theory, developed by Amos Tversky and Daniel Kahneman back in 1979. I haven’t found a single best internet reference for this, so just search if you want more specific information.
“We have an irrational tendency to be less willing to gamble with profits than with losses. This means selling quickly when we earn profits but not selling if we are running losses” This quote is attributed to Mich Tvede, a Danish economist discussing Prospect Theory, though again I can’t find a direct link to it’s source. It applies obviously to investments like buying/selling stocks in particular, which is where the theory is usually discussed, but it applies elsewhere as well.
When I think that I’m marginally ahead in a hand and we come to the river, I’m likely to check/call or just check rather than bet or raise for fear of opening up an opportunity to lose more if it turns out that I’m going to lose. I also do this because I’m happier winning even a small amount than losing a big amount. So I think but am not sure that I’m ahead, I’ll play for the smaller pot. The marginal happiness gained by winning a bigger pot is less than the marginal happiness lost by losing a bigger pot. In other words, the unhappiness level grows faster with larger pots than the happiness grows with larger wins. As Tvede says, I’m less willing to gamble with the likely winnings; for me it’s because of the fear of the larger potential loss. Sometimes though, attitudes will swing the other way. For example, if a player gets to the point of having more than they sat down with, they sometimes view the winnings as “free money” and become more willing to take risks with it because it’s not “their” money. You see this sometimes with blackjack players who will pull their original stack off the table and then gamble with their winnings only. Poker sites have rules against this, prohibiting players from leaving a table and then rejoining it right away with less than what they had when they left the table. Short stack players will “rathole” in this manner by leaving the table and looking for another once they double up, but in their situation they need to do so because the in-between stack size is awkward to play with.
A similar thing happens within a larger framework, like sessions rather than individual hands. If I’m having a good session, I’m likely to call it quits earlier rather than later. Conversely, if I’m having a bad session, I’m likely to stay longer. Am I afraid of becoming careless and losing my winnings? Am I chasing my loses, or trying to prove that I’m tough enough to handle loses and keep playing? I should be doing exactly the opposite, staying when I’m winning and leaving when I’m not. Not because I believe that a run of good or bad cards is likely to continue, or the opposite, that the run will reverse itself soon (the gambler’s fallacy), but because I believe that there are aspects such as table dynamics and personal attitude and focus, things that I may not be able to pinpoint, but which are having an affect on the outcome. In other words, there are aspects of some of my tablemate’s playing styles or of my own attitude and focus right now that I may not be conscious of that are giving me more of an advantage than during a losing session. On the other hand, it’s pretty sad when I work up to 180 bbs, then lose the winnings when a TP hand check-raises me and I shove my overpair, and he rivers trips. And it gets interesting when you have more than the max buyin and get involved in a hand with someone else who also has more than the max, pushing up the potential implied odds for both players.
