Keeping a “poker face” can win you lots of money in business, as well as in the casino.
Making smart decisions in high-stakes environments has a lot to do with not giving away your own information while learning as much as possible about your opponent, a study released this week by University of California-Davis found.
The findings are timely: thousands of poker players are descending this month on Las Vegas for the World Series of Poker.
The study, “Cognitive information encryption in the expert management of strategic uncertainty,” examined how more than 35,000 people interacted during poker games online over a three-week period. Researchers found the most successful players based their plays on a combination of information gleaned from the cards they were holding as well as how their opponent behaved.
Successful poker players are constantly negotiating how much information to give up about themselves as well as how much they can gather about opponents, according to Seth Frey, a co-author of the study and assistant professor of communication at the University of California-Davis.
(The study was co-authored by Frey, Dominic Albino, a former professional poker player and currently professor of economics at the University of Connecticut, and Paul Williams, visiting assistant professor at the Cognitive Science Program at Indiana University.)
The study examined the no-limit Texas Hold’em variant of poker because it features bluffing, or strategically misinforming one another about what cards they hold, as a central aspect of play. A player with a good hand of cards may purposely throw off opponents by betting small amounts, for example, while one with a bad hand may bet large amounts to signal a strong hand.
“People think poker players have a sixth sense or innate ability to detect people’s bluffs, but really it is just a combination of processing information to make better decisions,” said Greg Dinkin, author of “The Poker MBA.”
Only 10% to 15% of poker players are profitable, according to the study. Still, the results of this study can be applied to a number of situations beyond the poker table, and offer “a detailed account of how experts extract, process, and conceal valuable information in high-uncertainty, high-stakes competitive environments,” the report said.
Here are other financial lessons poker has to offer:
Don’t be afraid of uncertainty
The main reason star poker players succeed, on and off the table, is because they accept not knowing the other player’s hand, according to Annie Duke, a former professional poker player and author of “Thinking In Bets: Making Smarter Decisions When You Don’t Have All the Facts.”
Duke was once the leading woman poker winner in history and won $2 million at the World Series of Poker Tournament of Champions in 2004. (She was also runner-up in Donald Trump’s “The Celebrity Apprentice” on NBC in 2009, losing to Joan Rivers, even though she raised more money than her rival.)
See also: This champion poker player says a ‘premortem’ can make you a better investor
“Embracing uncertainty and thinking like a poker player can get you very far in business,” she said “Really good poker players recognize much more than amateurs that their opponents’ cards are unknowable.”
Even if an opponent is betting large amounts of money, presumably to show they have a strong hand, the smart poker player doesn’t necessarily act based on that alone.
Take in as much information as possible
Good poker players must become more process-oriented than outcome-oriented, Duke said. That means not determining bets based on the hand they are dealt or letting the pressure get to them.
“Outcomes and decisions are very loosely linked,” she said. “You don’t want to overreact to one particular outcome.” The same could be said for stock market investors.
That advice applies to careers as well, she said. Humans aren’t good at standing back and aggregating a sequence of events before judging the outcome. A good poker player can play a good hand perfectly well and still lose, or play a poor hand poorly and still win.
Similarly, successful people have to understand where more rational components come into play — especially in high-pressure situations.
Avoid making decisions under pressure
To win big in poker, players need to create boundaries for themselves to avoid making decisions in the heat of the moment, Duke said. That means setting a “loss limit” of how much money you’re willing to part with before you walk away, she said.
People often make poor decisions when tired, she said, so it’s important to follow time limits, like only playing for a few hours at once.
In business, people can mirror such plans by setting evaluation points at certain intervals, and creating a limited number of exceptions. For example, if the market moves a certain number of percentage points in a week you can reevaluate your investments, but otherwise don’t touch them.
Put yourself in your opponent’s shoes
Imagine yourself in the shoes of your opponents, and remember that they don’t know what your cards are, Duke added. Signaling you have a strong hand by being over-confident is predictable, she said. She suggested a more subdued approach to be more believable.
Similarly in business, people trying to signal strength in negotiations by being aggressive may lose out in the long run.
“One of the reasons expert poker players are very good bluffers is that their bluffs ring true,” she said. “You have to imagine, if this were true how would I behave? And those stories have to match up.”
Unlike poker, in life you can ask for help
One advantage people have in business that they don’t in poker is that they can get outside opinions, Duke noted — something she highly recommends.
“You need to think about how someone else will be thinking about you, which is hard to do from inside your own skull,” she said. “Having someone whose viewpoint is different than yours allows you to refine your decision-making going forward.”
That can come from a financial planner, trading partner or friend not involved in the business decision. It’s also important to look over decisions you made in business and in poker and think about what to do differently next time.
“There is never one right answer,” she said. “Poker players are always trying to become more certain — but certainty is an impossible goal.”
