What a Poker game taught us about decision making

A couple of weeks ago, our team spent half a day of group training/team building which was hosted by our friends at Ember Associates, an innovative training consultancy. We didn’t go for the typical treasure hunt or team building games. Instead, we learnt about the art of decision making through poker games. It’s Texas Hold’em Poker time, y’all!

Raise, call, and fold

Some of us played the game before but the rest are complete beginners. So for a start, we had a quick intro to the type and ranking of poker hands (a set of 5 cards), and the rounds of betting. I won’t go into details but what’s important to know is that in Texas Hold’em there are several rounds of betting. At each round, you have a chance to call (accept the last bet and follow), to raise (increase the stake), or fold your hand (give up and lose whatever you have put in the pot). Things get really interesting when you need to decide when and how much to raise.

Pay to play

In the early stage, players around the table will put a small bet into the pot. Except for the two blinds, you will know whether you have a good or a bad hand. At this point, normally the novice players will just call and follow. But our first lesson is that even at this early stage, the fight has already begun.

Weed out the competition

You want to eliminate as many players as possible at this early stage, to increase your chance of winning. The probability of winning a round of poker falls dramatically with each additional player left on the table. So the first objective you need to do is to weed out the poor hands, by raising the stakes. The rational players would just concede and lose the blind bets.

Know your odds

The second lesson is to know the good hands from the bad. A pair of aces is the best hand you can get while a 2-5 combination is probably not as good. A basic knowledge of what is high value and low value is vital in any investment decision. One must not leave things to chance. As much as you can, you should always try to improve your odds of winning.

A good decision does not lead to a good outcome

I have mentioned that a 2-5 combination is not a great combination. So in our session, yours truly folded when presented with this hand. As it turns out, had I stayed in the game, I would have got a full house and won that round. But in hindsight, we learned that it is a good decision to fold the 2-5 hand. There’s only 2.6% chance in Poker to get a full house, so it is a long shot that this hand would win the pot. And here is the lesson. A good decision does not lead to a good outcome. It increases the chances of winning or reduces the risk of losing it all. However, the outside chance can still win, despite all the good decisions we made.

In the corporate world, people always focus on the result. Phrases like goal oriented and target focused are often thrown around. It is easy to forget that one should really focus on consistently making good decisions, and let the cards unfold. We should spend more time reflecting on today, last week, and last month, whether we made good decisions.

Risk and rewards

In another example, we had a situation where we had two players left on the table. The first player is winning and has quite some chips. The other player is low on chips but has been raising the stakes steadily. This signals some degree of confidence. After the last card was revealed, it is time for a showdown. The first player raised, as expected. However, the other player went all-in. Now the first player has to decide whether to fold or to call.

In this situation, the logical move would be to call, because the risk is acceptable, but the reward could be huge. The first player would still have the most chips even if he loses. But if it goes well, this player has the opportunity to win a big pot and remove a player from the table.

What happened next was quite interesting. The second player ended up winning because this player managed to get a four-of-a-kind. There is only a 0.17% chance of getting a four-of-a-kind in Texas Hold’em, so as per the previous point, a good decision does not lead to a good outcome.

The main lesson here is that the reward must be significantly higher compared to the risk that you are taking. Of course, having a good hand is necessary as you have a higher probability of winning. If the probabilistic value of the reward, minus the value of your bet, is still positive then you should take your chances, all else being equal.

Imperfect information

In conclusion, Texas Hold’em poker is a game with imperfect information, time pressure, and high stakes. You get some information from the visible cards on the table. Then you need to read the actions of other players. If you know their personality, then you have a little bit more. But all in all, you will never have all the information, just like in business.

You are always under a time pressure to act, either to raise, call or fold. If you decide to stay, then the stakes are going to keep on increasing. If you can’t take the heat, you better get out or risk losing it all.

To make good decisions, you need to know the odds and keep a cool head. If one can consistently make good decisions, we believe that in the long run lady luck will smile at you.

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Thanks for reading The Low Down, insight and inside knowledge from the team at Momentum Works. If you’d like to get in touch with us about any issues discussed on our blog, please drop us an email at [email protected] and let us know how we can help.