How Could I Be Such An Idiot?

How could I be such an idiot?

A remarkable book, Your Money & Your Brain, begins with that question. It continues: “If you’ve never yelled that sentence at yourself in a fury, you’re not an investor. There may be nothing across the entire spectrum of human endeavor that makes so many smart people feel so stupid as investing does.”

I agree with everything except the statement that nothing makes people feel so stupid. Serious poker players often feel very stupid.

Of course, we’re not idiots. We’re intelligent, analytic people. We’ve studied strategy and psychology, analyzed our mistakes, and sworn to do better, but then repeated the same silly mistakes. What’s wrong with us?

The answer is surprisingly simple: Millions of years of evolution created brains which are primarily emotional, not logical.

All players – including you, me and the top pros – are occasionally illogical. My writing, especially Your Worst Poker Enemy, analyzed our self-destructive tendencies. But, before reading this book, I didn’t understand why we’re so irrational. I still don’t understand the brain that well, but this book will dramatically improve the way I think, write, and play poker. It can do the same for you.

Because my specialty is industrial psychology, I never seriously studied how the brain operates. In fact, before high-tech tools were invented, neuroscientists didn’t clearly know which parts of the brain control various mental activities and how these parts process information. Because neuroscience is a new and rapidly developing field, we’ve gained insights into how the brain operates, but future discoveries will certainly modify those insights.

Here are two fairly recent discoveries:

“The neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine.”

“Financial losses are processed in the same areas of the brain that respond to mortal danger.” (p. 6)

These two discoveries partly explain why short-term rewards and punishments have immensely more impact on our actions than delayed, but much greater, long-term rewards and punishments. Thousands of psychological studies supported that conclusion, but we didn’t know why short-term effects were so powerful.

Why Should You Care

You may think, “So what? I don’t care how my brain operates. I just want to play better and win more money.”

You should care because that book’s subtitle was: How the New Science of Neuroeconomics Can Help Make You Rich. It’s for investors who want to make more money. Since serious poker is a form of investing, learning how your brain operates can put chips in your stack and money in your pocket. When you understand why you make mistakes, you’re less likely to repeat them.

Superior Knowledge Doesn’t Guarantee Success

We naturally expect the most knowledgeable players to get the best results. Knowledge and results are correlated, but that correlation is far from perfect. Knowing a great deal about poker doesn’t guarantee that you’ll apply your knowledge well. We all know players who talk smart and play dumb, and a few poker authors are broke.

This book gives a great example of a smart author, but dumb player: “Markowitz shared the Nobel Prize in economics, largely for the mathematical breakthrough that he had been incapable of applying to his own portfolio.” (p. 4)

If a Nobel Laureate can’t apply his own theory to his investments, don’t think that merely learning anything about poker will automatically help you. If you don’t understand how you think and feel, you’re unlikely to apply your knowledge well.

Unfortunately, the same principle applies to neuroscience. Learning how your brain operates won’t automatically improve your decisions. You’ll have to train your brain to overcome the irrational forces inside it.

Brain training is a new science, and an ancient art. My friend, Preston Oade, emailed me that Buddhist monks can control or modulate some brain reactions. Some poker players have found that brain training improves their emotional and intellectual control.

Poker Players Are Not Rational Profit-Maximizers

It’s the first and most important principle, but it may be very hard to accept. For centuries classical economists and many others accepted a mythical creature, “The Economic Man,” a.k.a. “The Rational Man.”. His primary or only motive is to maximize his utility. He carefully investigates all his alternatives and always selects the one that will produce the best results. Since childhood you’ve been brainwashed that this is how normal people think and act.

They don’t think or act that way, and – through neuroscience – we’re slowly learning why they don’t. Insisting that people are rational is extraordinarily irrational. It denies the overwhelming evidence that all humans make self-destructive decisions. How can anyone watch the evening news, see all the violence and stupidity, and claim that people are rational?

The research described earlier helps us to understand why people are often irrational. The pleasure and pain associated with drug addiction and mortal danger overwhelm our rationality. Drug addicts and terrified people don’t look around for alternatives, nor do they consider long-term consequences. They desperately want immediate pleasure or relief.

Poker authorities have generally ignored (or misunderstood) the difference between “utility” and “profits.” Economists have often discussed this difference. Many poker authorities just borrowed the maximizing principle and assumed that players wanted to win as much money as possible.

Nonsense!

It isn’t true for investors, and it’s much less true for poker players. Because the stock market, real estate, and many other investments have long-term upward trends, even unskilled investors can be long-term winners. Because the house charges so much, experts estimate that only 10-15 percent of poker players are long-term winners. Believing that losers are profit-maximizers is ridiculous.

In addition, all players, even the top pros, have many other motives, including relaxing, socializing, competing, and expressing feelings. Emotions, denial of reality and other irrational factors affect everyone.

Poker pros are more rational than amateurs, but even the best sometimes act irrationally. They show off with fancy plays, express their machismo, soft play friends or pretty girls, attack their “enemies,” blow off steam, relieve boredom, and so on. Anyone who claims that he’s always rational is committing the supremely irrational action of denying an obvious reality.

An essential step toward playing better is understanding how, when, and why you and other people are irrational. It’s much more important to understand yourself than other people, but most of us focus on our opponents, not ourselves. We recognize their irrational thoughts, feelings, and actions much better than our own. Note that I said, “we,” not, “you,” because I’m irrational far more often than I’d like. So are you.

All Emotions Cause Mistakes

Before reading this book, I generally focused on negative emotions and reactions such as anger, fear, and tilt. This book has chapters on many emotions and reactions including greed, fear, regret, confidence, and even happiness. Future columns will discuss how they cause costly mistakes and how you can reduce their destructive effects. ♠

After publishing five long, expensive poker books, Dr. Al, [email protected], writes short, inexpensive, eBooks. Stay Young; Play Poker, How to Beat Small Poker Games, and How to Beat Killed Hold’em Games, and Business Is A Poker Game cost $2.99 at Amazon.com.