Poker and investing are both about decisions amidst risk and uncertainty, played out in real time. The core of both poker and investing is the maximization of average profit based upon probability. In both activities, intuition is a dangerous guide. Quantitative reasoning, instead, is key to exploiting counter-parties. Both rely on the branch of economics known as utility theory. Utility theorists quantify preference orders such that a utility maximizer can determine how to make rational decisions. Making the most money requires that participants maximize the expected value (EV) of decisions. To the end of maximizing EV, we use probability distributions in which we study and quantify all possible outcomes as well as their probabilities. The EV of a probability distribution is based upon the numerical value of every possible outcome.
What is my takeaway from poker math? My major concern is this: if I could see everyone's cards, what would I do? I judge myself based upon my proximity to that behavior. There will still be losses and there certainly will always be bad cards. Who cares? The key is to have one's decisions approximate expectancy maximization as closely as possible. One should aim for perfect optimization minus only unavoidable constraints. For the investor, the analogous question is this: if you had perfect information, what would you do? Stocks will go up and down and subsequent events will hurt business, but what should your decision be today, assuming perfect information? Make those decisions as best as you can with the information available...
What is my takeaway from poker math? My major concern is this: if I could see everyone's cards, what would I do? I judge myself based upon my proximity to that behavior. There will still be losses and there certainly will always be bad cards. Who cares? The key is to have one's decisions approximate expectancy maximization as closely as possible. One should aim for perfect optimization minus only unavoidable constraints. For the investor, the analogous question is this: if you had perfect information, what would you do? Stocks will go up and down and subsequent events will hurt business, but what should your decision be today, assuming perfect information? Make those decisions as best as you can with the information available...