Some thoughts on loss aversion, psychology and SSNL (long post)

[kslghost]

Some thoughts about loss aversion
<font color="blue"> I expect some tl; dr's... [img]/images/graemlins/wink.gif[/img] Is this even interesting? [img]/images/graemlins/smile.gif[/img] Any thoughts or comments or dicussion would be great. Thanks for reading my incredibly too long post. </font>

DISCLAIMER
While this is probably a psychology post, I really only like to whore here, and I'll relate it to SSNL and the advice that we give people on a very common basis. Also, the psychology forum is mostly full of "I hate my life" stories and doesn't relate that well to game theory (from what I've seen).

As another note, I haven't read any of the Poker Psychology books, so if this is common knowledge for some people, I apologize. And as a final excuse for myself, if there have been posts about this, I missed them and apologize.

Quick Introduction
For those who do not know, loss aversion is an extremely common psychological theme that relates heavily to poker and especially no limit games. Loss aversion is the idea that a human being is more averse to losses than agreeable to winnings. There is also loss-neutral as well as the risk-takers. But by and far the most common people are loss averse. In fact, when given a 50/50 gamble to win $105 and lose $100 dollars, the majority of people will refuse this loss. This is a simple example of a +EV situation that people refuse to take.

This is a simple logical idea. While a poker player might think of this as -EV, the majority of people look at this as a risk with little reward. In fact, you might have to offer a person 200 dollars when they win to take this risk. If you want to know how to calculate this, you can do it simply by dividing utility functions two ways.

Let's say that a general person enjoys a win with the equation:

*** u = x, where x is the amount of money when x &gt; 0

But they enjoy a loss as:

*** u = 1.5x where x is the amount of money when x &lt; 0.

For the example given, the utility is u = 0.5(100) + 0.5(1.5*100) = -25. We would have to offer this person 150 dollars for a win to gamble with us.

On the contrary, if you give someone $100 dollars, and then ask them, the majority will take this same gamble.

The reason for this is called reference dependence. This is similar to what one person called "winning tilt," In fact, some people are willing to take -EV gambles because of their reference dependence. This is similar to when a person wins a hundred some dollars, then calls an all in from another person in a space he wouldn't normally (say with a marginal hand like JJ preflop against a full stack).

How they relate to SSNL (I think)
What's particularly important about these topics in relation to SSNL is to be aware of them when making decisions. By understanding our particular biases, we are able to make smarter monetary decisions. At the same time, be aware the making a horrible emotional choice is almost as -EV as making a poor monetary choice. If you are a person who is very loss averse (while you probably shouldn't be playing poker), you should generally avoid very marginal situations. While you may be ok in a situation where you are either a 50% favorite or a 64% favorite, you may find it detrimental to call when you are in a 50% situation or a 35% situation (let's say getting 1.2-1 odds) and find out that you are wrong. And even if you are right, you may kick yourself when you lose anyways. That's bad for your mental state and may cause you to steam or play poorly trying to make it up. In general, people advise people on this board advise people to take risks when they are as little as a 1 or 2% favorite. Other people should read this and understand if this advise makes *sense* for them, as it doesn't always for everyone. One of the great things about SSNL is that situations come up often where we are a big favorite.

In regards to reference dependence, this is probably an even more important factor. We've all heard of it before in relation to poker. People always talk about playing stuck or playing ahead or trying to break even. But some people don't realize just how strong that break-even point is psychologically. When people weight losses as much as two times as much as profit, it is easy to see why this game causes so many people to steam and go on tilt, yet regard winning with ho-hum shrugs. If people got as happy and for as long as they got mad, then poker tables would be half jumping for joy and half down in the dumps. The point again is to be self-aware and analyze if you're making a decision because you're up or you're down - or if you're afraid of going down even more. We need to eliminate these tendencies of reference dependence, while understanding and being sensitive to how loss aversion effects us. It's especially powerful in NL, since big decisions are for a whole stack.

Pathetic Sappy Conclusion
So be aware and understand and analyze your own psyche. It'd be interesting to find out how many poker players are risk averse or risk neutral or risk loving. Maybe we'll poll SSNL one day.

[kolotoure]

tl;dr. Cliff notes please

[carnivalhobo]

good post, i like the high variance moves, perhaps thats just the gamble in me but i can certainly see why the psychological effects of someone pushing a 1% edge may not be worth it to them.

[bent96]

So you're saying I should fold AA preflop? Good I needed some reassurance.

[terp]

i enjoyed this, but it sounds like it applies more to people who don't post here than those who do.

i have friend who is a terrible poker player and a serial reloader on party and UB (no, i will not give his SN) and he tends to think like this. if he happens to be up on his buyin, he'll make terrible OOP loose calls preflop and stack off with Q10o on a Qxx board, etc.

if we can spot players like this, this theory can be extremely useful.

[kslghost]

[ QUOTE ]
i enjoyed this, but it sounds like it applies more to people who don't post here than those who do.

[/ QUOTE ]

I agree that in general, people here have quite a bit more knowledge than perhaps typical SSNL fish. However, there are always influxes of new people who can learn about some of these ideas that they won't learn typically.

[ QUOTE ]
if he happens to be up on his buyin, he'll make terrible OOP loose calls preflop and stack off with Q10o on a Qxx board, etc.

if we can spot players like this, this theory can be extremely useful.

[/ QUOTE ]

A lot of people already do spot players that do this. Just find any big stack and analyze the way they play. If you can, see how they play different from when they are a normal or short stack. Check yourself too!

[kslghost]

[ QUOTE ]
tl;dr. Cliff notes please

[/ QUOTE ]

Cliff Notes: Two concepts here, loss aversion and reference dependence.

Loss aversion says that people don't like taking close to even risks, and that some should even avoid them because of the emotional impact it has on them, even if it was +EV. SSNL readers should understand that almost all the advice here is loss neutral and doesn't factor in some of the psychological factors on oneself.

Reference dependence basically says that people play looser ahead (pretty well known) and arguably play more optimally because loss aversion takes less effect, but I barely touch on why. I could post the mathematical/economical idea, but it's pretty useless beyond the idea.

The moral of the story is be self-aware of your being influenced of these ideas and how it effects your perception of EV, both monetary and psychological.

[kslghost]

[ QUOTE ]
So you're saying I should fold AA preflop? Good I needed some reassurance.

[/ QUOTE ]

If you were so loss averse as this, you'd be the ideal candidate for a NON-poker player. And believe me, there are TONS of people who are this loss averse (but they WOULD take this deal since its the best possible... another reference dependence example).