Living with Uncertainty

We all make decisions everyday with varying amounts of uncertainty. Whether that be visiting some friends during a pandemic or executing a new product plan for a start-up, these decisions all have varying degrees of success and implications. As we navigate through our day-to-day lives while making these decisions, we need to build up some mental framework to effectively process this information and rationalize our decisions.

Making the Right Play

We can begin with a sterile probabilistic playground that is the game of poker. What’s nice about this playground is that, the probabilities can be largely explicitly calculated. Even better, the ultimate goal of the game is given to us: we want to make as much money as possible.

Suppose you are dealt pocket aces and all your opponents all go all-in. These are not your normal poker players either; they are a bunch of gambling goons that would play with any hand they are dealt! With 5 other people at the table, that puts the probability of winning the round at roughly 49.2%, so we will not even win the majority of the time. Is it worthwhile to risk our entire stack when the chances of winning are so low?

Hopefully the ridiculousness of the entire ordeal makes the answer incredibly obvious. We should call and join the cacophony! There is no better hand to call than with Aces.

This analysis may seem obvious, but I would like present a different telling of the story. Today was not your day. The first goon hit three-of-a-kind, the second goon ended with the nut flush, and the third has a full-house. Your single pair is no match, but at least you beat the fifth goon with JKo. It’s natural to think about of that night with regret. Maybe you shouldn’t have called after all…

However, when dealing with these probabilistic decisions, being results-oriented is never the correct outlook. The math worked out in your favor, even if the other goons don’t know.
If this scenanario were to occur 100 times, we should call every. single. time.
Instead of regretting the past, be happy that you got it in when you could.
You’re the smartest goon in the room, and you made the right play.

It’s just Expectation!

Those attuned to the underlying mechanisms of poker may remark: “Of course you call with pocket aces, it’s the option that maximizes your expectation”. For contrived games like poker, this is correct, but for many real-life decisions, this is too simplistic. Besides expectation, real-world examples may need to account for other probalistic qualities such as variance. A game of poker may allow you to buy-back in multiple times if you get wiped, but the real world may not be so friendly.

As I mentioned before, poker presents to us more than just probabilites. It presents to us the money-making goal of the game. Life is not as simple. We may want just money in the short-term, but life goals also tend to take on other shapes and forms. It may even be a moving target, so be wary before assigning probabilites and plugging numbers into formulas. The paths to self-actualization are numerous, and I’ll leave it up to the individual to decide how to procede.

Final Notes

There are many takeaways from this simple thought experiment, but nothing here is exhaustive. Poker is not a great metaphor for decision making, but for the analytical minds, these contrived sandboxes are great for testing out new ideas to see how they fare. For instance, I’ve been using these ideas to justify involving/not involving myself in the excessive market exuberance that is all of 2020. These ideas have been critical to allow me to avoid much of the demons known as FOMO. Thinking probabilistic is just another way to grapple with our own uncertainty and ignorance.