How to Make Winning Decisions like a Poker Pro
To succeed online you need to make the right decisions.
At least most of the time.
There will always be failures — and you should embrace that — but the ability to make correct decisions is a critical one to master.
In this article you will learn how poker professionals have mastered this skill at the tables. You will then see how you can adopt the same mindset to improve your own decision making.
Why professional poker players are superb decision makers (at the tables)
Years ago I played quite a bit of online poker. Not the glamorous high stakes poker or big tournaments though.
I was a micro-stakes grinder. And not even a good one at that.
In the end I came out about $100 up or so. But while I didn’t profit much, I learned something from the experience.
And I believe you can learn something from the poker world too.
If you haven’t played a hand of poker before, here’s roughly what you need to know to learn from this article:
Poker is a card game with several rounds of betting. There are many variants, but I’ll stick to the fundamentals of the Cadillac of poker, No limit Texas Holdem.
There’s a preflop, flop, turn and river (betting rounds) where players can bet any amount. Other players still in the current game will have to match any bet or fold (give up the hand).
At the end of each of these rounds, one or more community cards are revealed on the table. When the final round of betting is over, all players still in the game show their hand and the best one wins.
Don’t worry if you still haven’t got a clue how to play poker. The important point is this:
A poker player can become a winner in the long run by making more correct decisions than his opponents.
Each betting round there’s a decision to be made.
A player has three options: Call the bet, raise the amount, or fold the hand, giving up any chances of winning.
If a player could see all the other players’ cards and the cards to come out on the table, this decision would be straightforward and there would be no game.
But as players are working with limited information they need to use whatever knowledge they have to make the right decision.
If a player can make more good decisions than bad ones, he will become a winning player in the long run.
How poker pros make decisions
One of the tools poker pros use to make correct decisions is expected value (EV).
Expected value is a term from probability theory. But don’t worry, we’ll just speak loosely about fundamentals. This is no course is statistics and probability. It’s a course in practical decision making.
Here’s the formula for expected value:
EV = probability of outcome * value of outcome.
In poker, a player may be able to compute the expected value of a bet and see if it is the right decision.
Say there are three cards in the deck that will make my hand the best one on the next card reveal. I can now compute the probability of getting this hand. If I also take into account the value of my move, i.e how much I will win, I can calculate the expected value of my decision.
Expected value allows you to objectively calculate the value of a decision.
In the end, I may not win the hand even if my decision had a positive expected value. It is only expected value after all, and we are working with probabilities.
Even if I go all in with the best hand at the beginning of a poker game, I’m not guaranteed to win in the end.
Luck plays a huge role in a single hand of poker. A much bigger role than skill. But in the long run, if I continue to go all in with the best hand, I will come out on top.
Now let’s see what you can learn from the idea of expected value and how to apply it to your life and online journey.
Expected value allows you to objectively evaluate your decisions
Most of us make decisions in an unstructured way.
Often with lots of emotion involved. If you want to make more winning decisions, this has to change.
Expected value is one of the tools that can help with this. It is an objective way of looking at the expected outcome of a decision.
Let me give you an example.
Say you are pondering over whether to improve a sales page or send more traffic to it with a new traffic campaign.
Your copywriting skills aren’t perfect so you expect that the new sales page will outperform the old one about 50% of the time. And your goal is to take it from a 2% to a 3% conversion.
On the other hand, generating traffic is something you are quite experienced at. You expect to get an additional 30% visitors with a success chance of 80%.
Your product is currently making $100 a day from 500 visitors at $10 per sale.
Expected value of sales page improvement
A successful improvement of the sales page will lead to 1% more buyers. At 500 visitors that is 5 new buyers a day. The probability of the outcome is 50% and the value of the outcome is 5 * $10 = $50. The expected value can be computed as follows:
EV of new sales page: 50% * $50 = $25 per day
Expected value of traffic campaign
The traffic campaign will bring 30% more traffic, which is 150 new visitors a day. The probability is 80% and the value of the outcome is 150 * 2% * $10 = $30. The expected value can be computed as follows:
EV of traffic campaign: 80% * $30 = $24 per day
Making the right decision
The sales page improvement has the highest expected value and so your decision should be to initiate this project first.
Sidenote: doing both of the projects has an expected value of $55. This is more than the combined value of the two individual projects which is $25 + $24 = $49. This is an important lesson for another time. See the compounding effect in this post.
Using expected value decisions in practice
This was a very simple example. Real-life decisions are rarely as clear-cut as the one above.
However, the framework still works in messier situations.
Most of the time you may not be able to give precise probabilities of success or estimate the true value of the outcomes. Instead, you can compute expected values for worst and best case scenarios and compare these.
For less important, or more abstract, projects, you can also just use the EV way of thinking for your decision making.
Which of these two activities has a better expected value: watching another hour of TV or editing an article for your website?
I bet you don’t need a calculator to make the right EV decision in that case.
Remember second and third order consequences
The EV mindset can help you develop better thoughts about making the right decision in all areas of life.
When using it you should remember to include second and third order consequences in your computations.
These consequences are often more important than first order ones.
Second order consequences are the consequences that happen because of the first order consequences of an action. I assume you can figure out what third order consequences mean.
Another business example could be that you expect increasing the price of your front-end product will produce more revenue without lowering conversion rate too much.
First order consequences of this will be increased profits on the front-end product, but fewer customers as you do expect a minor decrease in conversion.
A second order consequence of this is that your back-end will produce less revenue as your inflow of new customers decreases. A decision to increase front-end pricing should consider these factors to improve the strength of your decision making.
An example from everyday life could be staying up an hour later to watch another TV series. The first order consequence would be entertainment, but a second order consequence may be that you have just reduced your productivity for several days due to a lack of sleep.
Second and third order consequences are often more important that first order.
Succesful people live for the these, while mediocrity lives for what is right in front of it. Consider this when you are making EV decisions.
Even if you make the right decision, you may not win every time
This is one of the fundamental truths you need to learn as a poker player.
And as a human being.
You can make all the right decision and still lose short term. This applies to poker, business, and life in general.
There are so many elements we have no control over that the outcome of any decision is largely a game of chance.
For every decision you make, life is going to roll a dice and throw random things your way.
This is how life works. The best you can do is to accept it. And you should.
This means knowing that the outcome of any single decision is largely based on chance. But in the long run, if you make the correct decisions more often than not, luck will come around an reward you.
You simply need to maximize the expected value of any decision.
But this principle does not just apply to when you are about to make a decision. It is also relevant when you are evaluating your actions.
When you have an unsatisfying result, consider if this was due to a bad decision or just random events you had no control over?
Did you go all in with the best hand and caught a bad beat?
Or did you call with a hand that had very little chance of winning?
Evaluating a decision solely based on the results is the easiest way to do an evaluation. Unfortunately, it is also a relatively useless evaluation.
You need to factor in the knowledge you had at the time and objectively look at how you came to make the decision. How you calculated your expected value.
Become a pro at life
Poker pros study the art of logical decision making for a living.
We can all learn from this.
Take a moment to think about expected value next time you are about to make a decision.
Make better decisions in life and business
– If you do not make the decisions, life will do it for you. And it may not be what you want.
– To make the correct decisions, you need to see the world clearly. These 9 bad thought patterns may be distorting your view.
– Discover the best decision I made last year.