The Life Theorem

11 Feb

I was all ready to sit down and write this blog about EV, utility and life – but  I checked twitter right beforehand- and saw that Phil Galfond had just written a blog. Now, Phil Galfond has no idea who I am but I’m a big fan of his.  For those of you that aren’t online poker players, Phil is one of the best poker players in the world and also one of the most authentically honest and humble.  That humility really endears him to a lot of poker players.  I, like 99% of poker players, think I’m awesome.  When I’m self-effacing or humble its usually veiled in bravado and/or false modesty . I think the twitterites like to call it #humblebrag. I am ok with that, it’s a disease of all poker players –  we can’t help it.   Like my wife Katie says, I always think I’m right.  And I always tell her that I do think I”m right, why would I say something that I didn’t think was right?  A logical point I think – but it never satisfactory nor endearing.  Anyway, Phil Galfond is actually awesome, and doesn’t always think he’s always right – thats why people love him.  I became a fan of his, when he first wrote the post entitled “G-bucks” on 2+2, a play on Sklansky bucks (Expected Value), where he was the first person to discuss pitting your actual hand against an opponents entire range in a highly quantitative way.  Lately in my Phil Galfond stalking he always seems to be one step ahead of me. I started a workout/diet plan found at last December which I really like and has worked really well.  I was really proud of myself for cracking the code on diet.  I had found my secret little website.  Turns out Phil Galfond has been a celebrity member for over a year.  And now, no shock, he steals my blog idea hours before me.  Pretty soon he’s gonna be stealing rental properties from me.  Apparently you have to wake up earlier than 10 am to get one by Phil Galfond.

Anyway, back to my blog.

Terrance Chan, mma fighter, poker expert, and admitted math nerd recently got this tattoo:Image

It’s a normal distribution curve – very important in probability math.  His friend called it the “nerdiest, meatheadiest thing ever,” and I think that’s an accurate description.  I’m not cool enough to pull off a tattoo and be taken seriously, but if I was it would definitely be a page out of Terrance’s playbook = the expected value function. Image

The term expected value (EV) originates in math (specifically probability mathematics) and is used to describe the long-term average outcome of a given scenario.  This equation states that the EV is just the summation of the weighted probabilities of an event.   When you first start to learn poker, expected value is the first concept you learn.  It becomes the basis for every decision you make.  It doesn’t take long then before it is so ingrained that you begin to make life decisions in terms of EV.  Pretty soon, you are deciding whether or not you should pay the parking meter by weighing your chances of a parking ticket versus the extra quarter – (a battle I always seem to miscalculate).  And while some poker players feel hampered by this knowledge, I don’t see how it as anything but a blessing.   It gives you a method to make good decisions for situations the average person doesn’t handle very well.  Should you play the lotto?  Run the chances of winning, divided by the prize pool – if its higher than your investment in a ticket – play, if not don’t.  It’s pretty simple when it comes to monetary decisions – expected value analysis is the answer.

But expected value doesn’t tell the whole life tale.  You might play a negative expectation game like roulette if the enjoyment you have playing is worth more to you than the amount you expect to lose.   Money is not what’s important, what’s important is happiness.   So to solved life problems, you have to couple the expected value of an event with your personal utility curve (aka happiness curve).  I think when you do that you have a construct to theoretically solve ALL of life’s problems.  You can decide whether or not to take a flu shot, drink expired milk, or get drunk on a work night.  For the latter,  you’d have to weigh the probability of your expected level of fun (happiness) at the Thirsty Thursday party with the expected level of pain (negative happiness) the next morning.  If you’re in the plus, party your heart out, if not stay home.  Maybe your analysis would tell you that 2am tequila shot won’t increase your utility enough to offset the extra intensity of the headache.   You’ll have to grind the math on that one.

Now most people do this intuitively, and the idea is mostly tongue in cheek.  Coming up with a remotely accurate utility curve is obviously impossible.  But, I think if you break down some of your daily decisions, you’d find that you might see some problems in a new light.  If you want an example of that just read that dirty dog Phil Galfond’s latest blog  he decides whether to take a break or continue to play poker during a downswing by using probability and happiness to come to an interesting decision – one that most poker players don’t make correctly.

Next blog will be about the edges I think I have in real estate.  Thanks for reading.

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