The internet and even bookstores are littered with analogies between business and poker. I’m getting sick of seeing them so I’d like to discuss why 99% of these analogies are wrong.
The ultimate goal of a business is to earn a profit. This is true in poker but you need to understand how this happens. In poker, the theory of reciprocity is what allows players to make money. Basically, it states that over time, a player will see every hand in every position. If you make the same decision as your opponent in a given situation, neither player will earn a profit. IMHO, this is a better way to state the Fundamental Theorem of Poker. This type of reciprocity does not exist in business. Over time, market participants will not see the same opportunities in the same situations. Businesses earn profits differently than a play would in poker.
Poker is a struggle for the blinds. Whether it is an ante game or small blind/big blind game, players are competing to win that money. A game without blinds would be boring. There would be no action because each player would wait until they were dealt the best starting hand and move “all in.” Business is similar to poker in the sense that you are committing inputs to earn money. Let’s simplify and discuss the capital input. Competitors are not trying to “win” the money a business spends. Instead they are competing for market share.
The concepts presented above bring us to the most popular poker analogies: bluffing and folding. In business you can’t bluff. If you have bad cards you have to fold. A lot of people will argue that a company with poor cards can restructure and change markets. That’s true and I will talk more about this point later on in this post. But this doesn’t change the fact that you can’t win if you don’t have a hand. A company can only be successful if they are playing the top of their hand range. In poker, a player needs to play a wide range of hands in order to be successful. There are many times where bluffing (especially when you are unsuccessful) can increase your statistical expectancy. Good luck finding an example of this in business.
Although just about every analogy fails, the three most important things a poker player can control holds true in business. In poker, I get to choose which game I play, for how long, and what psychological state I am in for that period. If I choose a game with players who are better than me, I am going to be a long run loser. If a positive expected value game’s player balance changes in a fashion that causes me to become a loser, I can leave that game. I can also control my morale which will affect how well I play. The same is true for business. You get to pick which market you enter and at what time, how long you are in that market, and the morale within the company. All of these factors need to be periodically reevaluated if you want to have a long run positive statistical expectancy.
The way poker players earn a profit and use inputs fundamentally changes the way they operate compared to businesses. It is these two concepts that cause almost every analogy between business and poker to fail.
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My manager saw me drinking backstage and he said “Mitch, don’t use liquor as a crutch.” I can’t use liquor as a crutch, because a crutch helps me walk. Liquor severely fucks up the way I walk. It ain’t like a crutch, it’s like a step I didn’t see.
— Mitch Hedberg
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Twitter Lists launched last week and I don’t understand the hype.
Twitter clients such as TweetDeck have allowed users to create their own lists (groups) for quite some time. The only group that I have found useful is the one that separate my close friends from the rest of my stream.
Lists generally don’t aid discovery. That’s because there is no structure to the data. I am on a stock market list but only a small percentage of my tweets are market related. You would merely be following me, the person, not the investor. I mostly contribute noise to that list and if anything, it detracts from the user experience.
The best lists will come from data washing services such as StockTwits (disclosure: I’m a StockTwits employee). A large percentage of content within our lists are title relevant. However, the noise problem still exists. It’s not a perfect system.
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While I’m in the dressing room five minutes before I come out, I’m breaking my gloves down, I’m pushing the leather to the back of my gloves, so my knuckle could pierce through. When I come out I have supreme confidence. I’m scared to death. I’m afraid. I’m afraid of everything. I’m afraid of losing. I’m afraid of being humiliated. But I’m confident. The closer I get to the ring the more confident I get. The closer, the more confident. The closer the more confident I get. All during training I’ve been afraid of this man. I think this man might be capable of beating me. I’ve dreamed of him beating me. For that I’ve always stayed afraid of him. The closer I get to the ring the more confident I get. Once I’m in the ring I’m a god. No one could beat me. I walk around the ring but I never take my eyes off my opponent. Even if he’s ready and pumping, and cant wait to get his hands on me. I keep my eyes on him. I keep my eyes on him. Then once I see a chink in his armor, boom, one of his eyes may move, and then I know I have him. Then once he comes to the center of the ring he looks at me with his piercing look as if he’s not afraid. But he already made that mistake when he looked down for that one tenth of a second. I know I have him. He’ll fight hard for the first two or three rounds, but I know I broke his spirit. During the fight I’m supremely confident. I’m making him miss and I’m countering. I’m hitting him to the body; I’m punching him real hard. And I’m punching him, and I’m punching him, and I know he’s gonna take my punches. He goes down, he’s out. I’m victorious. Mike Tyson, greatest fighter that ever lived.
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Mike Tyson
Fascinating. I don’t think I’ve ever heard a world class athlete say, “I’ve dreamed of him beating me.”
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And then we went… of course we got to go through this court bullshit. And then I received what 10… well no… what was it $20 million? I received some small amount of money from them. Probably, I don’t know if it was $20 million, $30 million. I don’t know what it was. It was a small amount of money. It doesn’t really even matter. It just destroyed everything. It was really just a bad time in life.
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Mike Tyson on Don King.
I wonder if he is talking about the settlement as a % of total. Either way, I hope I never see the day when I think $10-20m is a small amount of money.
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My sister wanted to be an actress… she never made it, but she does live in a trailer. She got half-way. It’s like she’s an actress, she’s just never called to the set.
— Mitch Hedberg
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