Poker and Stock Trading Psychology

Parts one and two recommended studying the stock-trading and investing literature because it is far more advanced than the books and articles about poker psychology. Trading and investing psychology is based on well-controlled research and millions of publicly recorded transactions, while almost everything written about poker psychology is based upon anecdotes and opinions, not scientifically acceptable data.

James Montier’s Behavioral Investing: Insights into Irrational Minds and Markets was the earlier articles’ primary source. This one repeatedly quotes from the first five pages of Montier’s The Little Book of Behavioral Investing: How Not to Be Your Own Worst Enemy. That title resembles my own Your Worst Poker Enemy. Both books describe how and why we hurt ourselves and recommend ways to become less self-destructive.

Please note that I said “less self-destructive” because we will always make mistakes. All we can do is make fewer and less destructive ones.

Emotions Are Our Primary Problem.

Because emotions cause so many errors, controlling them is among the most important differences between winning and losing players, traders, and investors. That statement directly conflicts with most writers’ emphasis. Because they generally assume that their readers are rational, most writers ignore emotions and tell us how we should make decisions. They emphasize logical analysis of information such as pot odds, price-to-earnings (P/E) ratios, semibluffing, and market trends.

If they discuss emotions, cognitive biases, and other irrational factors, they usually concentrate on other people’s weaknesses, not our own. Their priorities are wrong. “The single most important lesson… is that the biases and mistakes we are talking about in this book are likely to affect every one of us.”

For example, nearly every poker player knows that we shouldn’t play too many hands or chase too much, but virtually all of us make both mistakes. Since the cause can’t be lack of knowledge, it must be emotions and other irrational factors.

Emotions Frequently Dominate Logic.

People generally believe that their rational brains dominate their emotions, but Montier cites solid research that proves emotions react first and affect everything we think or do. Evolution, the survival of the fittest, hardwired us to run or fight very quickly. If our primitive ancestors didn’t react almost immediately to threats from animals or people, they were killed.

Neurological research clearly proves that “the parts of the brain associated with X-system [emotions] are much older evolutionarily than the parts associated with the C-system [logic]… we evolved the need for emotion before we evolved the need for logic.”

“The X-system is actually the default option, so all information goes first to the X-system for processing. It is automatic and effortless…

“The C-system … attempts to follow a deductive logical approach to problem solving… However, it can handle only one step at a time (like any logical process), so it is a slow and serial way of dealing with information.”

“Our brains have been refined by the process of evolution, just like any feature of our existence. But remember that evolution occurs at a glacial pace, so our brains are well designed for the environment we faced 150,000 years ago (the African savannah), but poorly suited for the industrial age of 300 years ago, and perhaps even more ill-suited for the information age in which we currently live.”

Poker and investing decisions don’t require that quick flight-or-fight response. Instead, those responses interfere with the logical analysis we should make. The bottom line is: We can’t be logical without deliberately and intelligently fighting our emotions’ natural dominance.

How Can We Win That Fight?

Since hundreds of books have been written about controlling emotions, this short article can just scratch the surface. Five steps (and many others I can’t discuss) will increase emotional control:

1. Accept reality about our brains
2. Accept that we really are our own worst enemy
3. Slow down
4. Frequently analyze our decisions
5. Consult a professional

Accept Reality About Our Brains: We must not pretend that we’re so rational that we’re immune from emotional reactions. Denying reality reduces control over our emotions and increases their destructive effects.

Accept That We Really Are Our Own Worst Enemy: This reality is even harder to accept. We may reluctantly concede that our emotions are powerful, but we hate accepting our self-destructiveness. Until we do, we will remain victims of our own self-destructive tendencies.

Montier and I tried to create acceptance by quoting famous authorities. Montier wrote:
“Ben Graham (the father of value investing)…[said] ‘The investor’s chief problem – and even his worst enemy — is likely to be himself.’”

I quoted Stu Ungar, history’s greatest no-limit hold’em tournament champion: “At the table, your worst enemy is yourself.” Of course, he had drug and gambling addictions and other severe problems, but that statement referred only to hurting ourselves at the table.

Unfortunately, our positions and quotations offended some readers. A few angrily attacked my book, and Montier reported that he has been criticized frequently. Many people simply can’t accept that they are their own worst enemy.

Slow Down: Research proves that our logical brains need time to process information. If we react quickly, our emotions have too much impact. If you doubt me, just think of all the times you reacted quickly, realized you made a mistake, and asked yourself, “How could I be so stupid?”

However, if you slow down only when you have a difficult decision, you will give your opponents information that they can use against you. So get in the habit of slowing down frequently.

Frequently Analyze Your Own Decisions: Don’t wait until after you make stupid mistakes. Improve your decision-making process by repeatedly asking yourself:

• How well am I playing?
• Why am I playing well or poorly?
• Am I angry, overconfident, or in any other emotional state?
• Why did I make that play? If you can’t give a logical explanation, you were probably reacting emotionally.

Consult a Professional: It’s impossible to be completely objective about ourselves. Our ego has many defenses to protect it. To a very substantial extent, we believe what we want to believe, and we do all sorts of mental gymnastics to preserve our illusions.

Even if we could become completely objective, we probably can’t solve emotional problems without professional help. Let’s take a medical example, being overweight. We don’t need a doctor to tell us we’ve got a problem. All we have to do is step on a scale or look at a mirror.

Tens of millions of Americans know we are overweight. Our doctors have repeatedly told us that losing weight will help us to live longer, healthier lives. We agree and say we’ll try, but usually don’t implement the doctor’s recommendation. Since we don’t follow our doctor’s advice on life and death matters, don’t expect to a quick solution to the emotional factors that damage your poker. Find a professional who will help you to control the emotions that cost you lots of money. ♠

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