Confidence

“How could I be such an idiot?”

That question began Jason Zweig’s fascinating book, Your Money and Your Brain. It’s for investors, and poker is a form of investing. That question was also the title of this series’ first column.

This book proves that our brains make us think we are much smarter and in greater control than we really are. Let’s discuss its “Confidence” chapter.

Confidence Is Essential.

Without it you’d be indecisive, and indecisive people can’t be good investors or poker players. Zweig nearly ignores that obvious fact. His chapter should have been titled, “Over-confidence,” because it focuses on the causes and effects of over-confidence: “The road to investing hell is paved with overconfidence.” The same pavement leads to poker hell.

Over-Confidence Is Everywhere

Fifty drivers over-rated their skill during their most recent drive. “Just under two-thirds of the drivers said they were at least as competent as usual. They were interviewed in “the hospital … 68 percent of these drivers were directly responsible for their crashes… 44 percent would ultimately face criminal charges.”

Research proves: “One of the most fundamental characteristics of human nature is to think we’re better than we really are… If you ask a group of 100 people, ‘Compared with the other 99 people here, who’s above average at x?’ roughly 75 will stick up their hands, regardless of whether x is driving a car, playing basketball, telling jokes, or scoring well on an intelligence test— and despite the fact that, by definition, half the people must be below average within the group…

“To evaluate ourselves is to lie to ourselves… Inside each of us, there lurks a con artist who is forever cajoling us into an inflated sense of our own powers.”

I’m In Charge Here

That con artist also makes us think we can control uncontrollable events. Even if the results are random, “We believe our own decisions are inherently better than the choices other people make for us.”

Two groups bought lottery tickets for $1. “Before the winning ticket was drawn, people were asked if they would sell their ticket. Those who had gotten to pick their own demanded a selling price four times higher, on average, than those who had not chosen the tickets themselves. The simple magic of making their own choice made them feel that they could somehow beat the odds— even though everyone had been told that the winning ticket would be drawn randomly.”

“Study after study has asked people how confident they are of winning both before and after they place a bet. The mere act of putting money down makes people more certain they will win… Commitment raises our confidence, even when the odds of winning don’t budge…’
“Imagining you are in control of a situation— even when it is entirely out of your hands— can reduce the neural activity in areas of your brain that process pain, anxiety, and conflict. By helping to dampen your brain’s distress network, the illusion of control can create actual comfort…

The illusion of control is stronger when an activity:

• Appears at least partly random
• Offers multiple choices
• Involves competition against
other people
• Can be practiced over time
• Requires effort
• Feels familiar

Because poker has those condition, we often believe that con artist when he tells us that we play better than we actually do. We remember our good plays, but forget or minimize our mistakes. We bore each other with bad beat stories to protect our egos and preserve our illusions.

I’m On A Roll

“A streak of gains makes you feel that you are ‘playing with the house money.’ …gamblers … mentally divide their bucks into … the cash they started out with (… their “own money”) and any winnings … (“the house money”). … you may shrug off any losses as a reduction of the house money— rather than a depletion of your own. Somehow, losing the house money hurts less than losing your ‘own’— even though, strictly speaking, all the dollars are the same…

“a streak makes the future feel more predictable. Like many kinds of repeating patterns, a financial hot streak can make your brain automatically expect more of the same… a hot streak makes you feel as if luck, not just random chance, is on your side… An early run of success makes people feel they suddenly have power over a purely random process.

Instead of attributing the results to an abstract force like ‘chance,’ they now believe in ‘luck,’ a personal force that watches over them … people feel compelled to make the most of it— and that can lead investors to take reckless amounts of risk… When hot poker players take stupid risks, it’s been called, “happy tilt.”

“When investors think ‘they’re on a roll,’ when they’re filled with that sensation that they can see into the future and nothing can stop them, they can end up making the same kinds of mistakes that chronically manic patients make.”

Hindsight Bias

“Despite the common cliché, hindsight is not 20/ 20. Without corrective lenses, hindsight is close to legally blind. Once we learn what did happen, we look back and believe that we knew it was going to happen all along— even if we were utterly in the dark at the time…

“Hindsight bias is another cruel trick your inner con man plays on you. By making you believe that the past was more predictable than it really was, hindsight bias fools you into thinking that the future is more predictable than it can ever be. That keeps you from feeling like an idiot as you look back— but it can make you act like an idiot as you go forward.”

Your Greatest Challenge

You may think it’s mastering some skill such as game theory, reading hands, or understanding tells, but: “The single greatest challenge you face … is handling the truth about yourself.” Fight the ego-driven desire to lie to yourself and other people.

Handcuff Your Inner Con Man

Since he’s very powerful, you need strong handcuffs. The best ones are accurate, detailed records. Don’t just record your results. Look hard at why you won and lost, and don’t kid yourself about the causes. We naturally think skill causes our wins, and bad luck causes our losses, but that’s just another trick that our brains play on us.

Roy Cooke called it the “self-serving bias.” It means “denying responsibility for your successes, [believing] that your superior abilities lead to your wins, but denying responsibility for your failures, thinking that bad luck is the only reason for your losses. Thinking this way never allows you to learn from your mistakes, leaving you at the same intellectual level forever.

Zweig agrees. He encouraged readers to “embrace the mistake,” to record and analyze all their mistakes. “By embracing your mistakes instead of burying them, you can transform them from liabilities into assets.”

In simplest terms, stop kidding yourself. If you believe that inner con man, you can’t improve. Conversely, if you analyze, accept, and work on your weaknesses, you will slowly improve your skills and results. ♠

“Dr. Al” ([email protected]) coaches only on psychology issues. For information about seminars and webinars, go to propokerseminars.com. He is David Sklansky’s co-author of DUCY? and the sole author of four poker psychology books.