Sunday, July 31, 2005

Poker, Investing, and Specialized Brain Damage

A paper came out last month in Psychological Science that detailed the study of emotions and how they affected investment related decision-making. The paper can be found by clicking here (gotta love Google's document cache). The study produced fairly strong evidence that even perfectly rational people that know a good investment (having a positive expectation) are likely adjust their investment decisions based on emotions.

The study basically involved normal people and two types of brain-damaged people, those whose brains were incapable of feeling fear and anxiety and those whose brains were able to harbor such feelings. All the participants were given many betting opportunities which were quite obviously in the participants' favor. All those who could feel fear would often base their future investments on previous outcomes, while those with the specialized brain damage would invest fairly regularly throughout the study. Because the investments had a positive expectation, over the long run, those who continued to invest would perform better than those who didn't. This irrational behavior can be seen in the younger people who choose to invest in safe things such as bonds and money market funds. By ignoring much higher return investments, they are acting irrationally, in a sense. Anyway, the paper details the entire research study.

I did not do a great job summarizing, so I urge you to read the paper. I found it interesting, as it can be related to investing in stocks as well as investing in poker skills. There are quite a few good players that are sufficiently bankrolled to play much higher stake games. In the long run, these players would be much better off playing them. However, there is often the sense of fear that holds them back. I personally believe that I could play a little bit higher, but I don't... precisely because of fear. This particular problem obviously does not afflict all of us... my friend, PetDander, would be a great example of someone who continues to move higher and higher up the poker food chain. Now, if only I could hit my head just right to produce the kind of brain damage that would allow me to be tilt-free.

1 comment:

Spud said...

Human emotions are a big part of the big game man. We know that first hand don’t we? Haha. Them chart studies sure don’t take human emotion into consideration.

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