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Irrationality
Jul. 17th, 2008 12:34 pmThe markets can remain irrational longer than you can remain solvent, said JMK, a man remembered mainly for Keynesian economics but who perhaps should be more remembered for his success in stopping the Truman administration causing starvation in the streets of London (through ignorance rather than maliciousness, btw).
This week the thought of LTCM (and Keynes) came to mind when I saw that it was now marginally more expensive to buy municipal bonds insured by MBIA or Ambac than it was to buy bonds with no insurance at all. Now, it doesn't matter how likely you think MBIA or Ambac are to fail, that likelihood, unless you are Patrick HanrahanOHanrahan, cannot exceed 100%. Therefore the insurance offered by MBIA and Ambac cannot have a negative value. Therefore the pricing is irrational and it will, eventually, come back into sync. This would be the kind of discrepancy that LTCM would have pissed on in the years before it went mad and stopped realizing that the medium-term is slightly further away than just after lunch.
The study of irrationality is hip. For so long a fundamental of economics has been that people act rationally, even though common sense tells us that this is not the case. Although I know that I should read more poker books, I am irresistibly drawn to books which I think tell me more about the meta-world of poker players and what makes them tick.
Sway looks to be the latest "must-have" in this field, following the fad of Nudge and Predictably Irrational.
In poker, it's a great strength to know how people's irrationality can be exaggerated. Why, for example, do we find ourselves playing more cautiously if we are near to level as the end of a long cash game approaches? If we are a long way up or a long way down, we are far more likely to make gambling plays. To what extent does that fact that telling someone that it's their looseness that helps them win (when in fact it's been their tight-aggressive play that has won them money) get them to play more loosely? (If you tell someone that they are a bit deaf then their subsequent score in a hearing test will probably drop.)
To what extent to skilled "chatty" live players (see Negreanu, Channing) exploit this kind of stuff?
If you pass a guy on the street looking up, how likely are you to look up?
++++++++++++
I've been five-tabling this week, partly because my energy level in the gym has convinced me that I'm in a bit of an up-phase of the good ol' bi-polarity. I've done this to stop my normal reaction, which is to shift rapidly up in stakes. This led me to consider other matters of meta-rules that matter far more, I think, than individual marginal decisions.
1) I can manage just about 70 minutes of five-tabling before my attention starts to wander. When my attention does start to wander, I have a habit of calling preflop with hands where I should really fold or raise. The important question I have to ask myself pre-flop (about 40 times an hour out of the 350 or so hands played per hour) is "what is my game-plan with this hand?" If the only answer is "well, let's see what happens on the flop", then a call is almost certainly wrong. Indeed, calls are very rarely right (for my style of play in the type of game I find myself). An implicit assumption in many poker books appears to be that there will be a drip-drip loss of funds (because you see speculative flops cheaplpy and then fold because you miss) compensated for by occasional big wins (where you hit your hand and get paid off by a serial non-believer). Perhaps there are many games like this, but if you find the big wins disappearing into the aether because you don't get paid off, what you see is a drip-drip loss that is NOT compensated for by occasional big wins.
I would say that the majority of tightish players (say, those with a 17%/4% range of stats) lose money gradually because they are not getting paid off. Their opponents have Pokertracker too. They can see the numbers. These guys' bet sizes are rather unimaginative, which makes reading their hand strength even easier. Only the (very few) absolute fish pay them off. Result, a gradual loss of cash which the player blames on poor cards.
Meanwhile there's another kind of player (say, 16%/16%) who also gets into trouble. Once again the opponents have Pokertracker, once again they can read the stats. This guy puts in his raise in the cut-off and can't figure out why either the button or one of the blinds always seems to "find a hand" with which to reraise. The net result here is again a gradual loss -- this time caused by folds preflop to a reraise.
The winners (and I emphasize here that I'm talking about these afternoon games where the majority of the players are multi-tablers of the grinding/nitty variety) have a wide-range of VPIP$, from as low as 9% to as high as 25%. But the proportion of raises remains roughly constant -- declining slightly as you reach the higher VPIP%. Say, from 9%/6% to 25%/17%.
++++++++++++++
I've slightly adapted my style in the past few weeks, playing marginally tighter and reducing my raise level to 3x from no matter where (4x with one limper). Occasionally I vary this depending on the stack size of people behind me and on how loose/tight aggressive/passive they are. I'm juggling with the idea of reducing my bet size on the flop with a view to taking it down on the turn more often. I've discovered that I make more when I get called pre-flop than I do when I am not called (yes, one would expect this, I know), so, quite possibly, I'll make more if I am called on the flop than if I elicit a fold from my continuation bet. One argument here is to widen my range (I know this one), but I like the style of making it look to opponent that he is getting implied odds when he is not — i.e., offering a cheaper price that is still too expensive).
In effect, I'm trying to get opponent to make the mistake I find myself making when I begin to lose concentration. Calling to see another card with no real hand-plan, but just "because it's cheap".
___________________
This week the thought of LTCM (and Keynes) came to mind when I saw that it was now marginally more expensive to buy municipal bonds insured by MBIA or Ambac than it was to buy bonds with no insurance at all. Now, it doesn't matter how likely you think MBIA or Ambac are to fail, that likelihood, unless you are Patrick HanrahanOHanrahan, cannot exceed 100%. Therefore the insurance offered by MBIA and Ambac cannot have a negative value. Therefore the pricing is irrational and it will, eventually, come back into sync. This would be the kind of discrepancy that LTCM would have pissed on in the years before it went mad and stopped realizing that the medium-term is slightly further away than just after lunch.
The study of irrationality is hip. For so long a fundamental of economics has been that people act rationally, even though common sense tells us that this is not the case. Although I know that I should read more poker books, I am irresistibly drawn to books which I think tell me more about the meta-world of poker players and what makes them tick.
Sway looks to be the latest "must-have" in this field, following the fad of Nudge and Predictably Irrational.
In poker, it's a great strength to know how people's irrationality can be exaggerated. Why, for example, do we find ourselves playing more cautiously if we are near to level as the end of a long cash game approaches? If we are a long way up or a long way down, we are far more likely to make gambling plays. To what extent does that fact that telling someone that it's their looseness that helps them win (when in fact it's been their tight-aggressive play that has won them money) get them to play more loosely? (If you tell someone that they are a bit deaf then their subsequent score in a hearing test will probably drop.)
To what extent to skilled "chatty" live players (see Negreanu, Channing) exploit this kind of stuff?
If you pass a guy on the street looking up, how likely are you to look up?
++++++++++++
I've been five-tabling this week, partly because my energy level in the gym has convinced me that I'm in a bit of an up-phase of the good ol' bi-polarity. I've done this to stop my normal reaction, which is to shift rapidly up in stakes. This led me to consider other matters of meta-rules that matter far more, I think, than individual marginal decisions.
1) I can manage just about 70 minutes of five-tabling before my attention starts to wander. When my attention does start to wander, I have a habit of calling preflop with hands where I should really fold or raise. The important question I have to ask myself pre-flop (about 40 times an hour out of the 350 or so hands played per hour) is "what is my game-plan with this hand?" If the only answer is "well, let's see what happens on the flop", then a call is almost certainly wrong. Indeed, calls are very rarely right (for my style of play in the type of game I find myself). An implicit assumption in many poker books appears to be that there will be a drip-drip loss of funds (because you see speculative flops cheaplpy and then fold because you miss) compensated for by occasional big wins (where you hit your hand and get paid off by a serial non-believer). Perhaps there are many games like this, but if you find the big wins disappearing into the aether because you don't get paid off, what you see is a drip-drip loss that is NOT compensated for by occasional big wins.
I would say that the majority of tightish players (say, those with a 17%/4% range of stats) lose money gradually because they are not getting paid off. Their opponents have Pokertracker too. They can see the numbers. These guys' bet sizes are rather unimaginative, which makes reading their hand strength even easier. Only the (very few) absolute fish pay them off. Result, a gradual loss of cash which the player blames on poor cards.
Meanwhile there's another kind of player (say, 16%/16%) who also gets into trouble. Once again the opponents have Pokertracker, once again they can read the stats. This guy puts in his raise in the cut-off and can't figure out why either the button or one of the blinds always seems to "find a hand" with which to reraise. The net result here is again a gradual loss -- this time caused by folds preflop to a reraise.
The winners (and I emphasize here that I'm talking about these afternoon games where the majority of the players are multi-tablers of the grinding/nitty variety) have a wide-range of VPIP$, from as low as 9% to as high as 25%. But the proportion of raises remains roughly constant -- declining slightly as you reach the higher VPIP%. Say, from 9%/6% to 25%/17%.
++++++++++++++
I've slightly adapted my style in the past few weeks, playing marginally tighter and reducing my raise level to 3x from no matter where (4x with one limper). Occasionally I vary this depending on the stack size of people behind me and on how loose/tight aggressive/passive they are. I'm juggling with the idea of reducing my bet size on the flop with a view to taking it down on the turn more often. I've discovered that I make more when I get called pre-flop than I do when I am not called (yes, one would expect this, I know), so, quite possibly, I'll make more if I am called on the flop than if I elicit a fold from my continuation bet. One argument here is to widen my range (I know this one), but I like the style of making it look to opponent that he is getting implied odds when he is not — i.e., offering a cheaper price that is still too expensive).
In effect, I'm trying to get opponent to make the mistake I find myself making when I begin to lose concentration. Calling to see another card with no real hand-plan, but just "because it's cheap".
___________________
