tag:blogger.com,1999:blog-5465015914589377788.post5431395968779159939..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Financial Lessons from PokerMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-5465015914589377788.post-54302461312604605522020-10-30T11:01:26.657-04:002020-10-30T11:01:26.657-04:00The comment above is a response to Thicken My Wall...The comment above is a response to Thicken My Wallet's comment:<br /><br />I play poker with the boys and there is almost a direct parallel between poker playing styles and investing styles.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-7836082070964618322009-02-09T08:14:00.000-05:002009-02-09T08:14:00.000-05:00Nice parallel to poker, Michael. I actually just ...Nice parallel to poker, Michael. I actually just played a Texas hold 'em tournament for the first time last week. Nothing serious - just a buddy's birthday party where we threw in $10.<BR/><BR/>Like gambling, there are many addictive traits to personal finance, too. The connection between investing and poker styles has me replaying how (and how quickly!) I lost my $10, LOL!<BR/><BR/>I'll definitely keep that connection in mind when I become a more serious investor with discretionary income - and the next time I decide to give money away at another poker night with the buddies :O)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-75818117740148290662009-02-03T20:55:00.000-05:002009-02-03T20:55:00.000-05:00Anonymous: Thanks for the comment. It made me thi...Anonymous: Thanks for the comment. It made me think of expressing the main idea of my post in different terms. The utility function you are talking about could be called short-term pleasure utility or emotional utility. However, the long-term impact of wins and losses on your net worth has different utility (rational utility). As you point out, based on emotional utility, a $10 loss is about twice as bad as a $10 win is good. However, based on rational utility (the impact on net worth), the $10 gain and loss (nearly) offset each other. I say nearly because of the law of diminishing utility. However, this effect is very small for net worths in a normal range.<BR/><BR/>So, what makes some poker players play poorly is that they are optimizing their emotional utility at the expense of their rational utility. The same is true for many people in the way that they spend their money.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-31336758320459565632009-02-03T20:10:00.000-05:002009-02-03T20:10:00.000-05:00The value function is steeper for losses than for ...The value function is steeper for losses than for gains. <BR/><BR/>So, a gain of $10 is about 1.5x as pleasurable as a $5 gain (the 2nd $5 is worth 50% of the first $5). This is simple diminishing marginal utility.<BR/><BR/>However, it's steeper for losses. A $10 loss is about 2x worse than a $10 gain is good. <BR/><BR/>I both play poker professionally and do neuroeconomics.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-30657336029556463412009-02-03T14:19:00.000-05:002009-02-03T14:19:00.000-05:00Thicken: I don't tend to talk investing with poke...Thicken: I don't tend to talk investing with poker buddies, but your observation sounds right to me. One guy I play with likes to be in every pot and raise big. He also used to gamble with stock options until he lost enough money that he figured out he had to stop.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-1884471295899243012009-02-03T09:48:00.000-05:002009-02-03T09:48:00.000-05:00Good poker analogy.Good poker analogy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-75435171636079365102009-02-03T07:36:00.000-05:002009-02-03T07:36:00.000-05:00Gene: Sure. When you have a monster hand and eve...Gene: Sure. When you have a monster hand and everyone folds leaving you with a tiny pot.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-74375536034349717752009-02-03T01:54:00.000-05:002009-02-03T01:54:00.000-05:00Riddle me this:Can you think of an instance where ...Riddle me this:<BR/><BR/>Can you think of an instance where it is actually painful to win a poker pot?genehttps://www.blogger.com/profile/05608927986297939720noreply@blogger.com