Stu The Kid and the Rational Emotional Mind

About twice a week, I have the privilege of working with leaders in the UKs public, private and third sectors in my “Risk Taking and Decision Making” seminars. In addition to giving them what I hope are some interesting, sometimes inspiring, insights into Risk, Uncertainty and why they do what they do, we also have a lot of fun. Specifically, we play a game very similar to (but obviously not actually) Deal or No Deal in which the people in the room are asked to BUY the box from me, rather than SELL it to me as they being asked to do on the television show.

I sell in a number of different ways: sometimes an auction, sometimes a negotiation, sometimes a closed envelope bid. But no matter how I sell it, the same phenomenon happens every single week. At the beginning of the session, I give them a specific number of poker chips (their scarce resource) and inform them that the team or individual at the end of the session with the most number of chips will get cheered and free drinks all night (depending on the client, you’re not allowed to do this in the civil service). The losing team, however, will be booed! They think I’m joking so I repeat myself. The losing team will be booed. It’s amazing how the promise of a cheer and a boo focus the mind of competitive colleagues but focus it they do and when it comes to sell the box… everyone… and I mean everyone… values it completely differently. Why?

In order to understand this, let’s consider the story of Stu “The Kid” Ungar. Born on the Upper East Side in 1953 to Jewish parents Stu was exposed to gambling at a young age. By the age of 10 he had won his first local gin rummy tournament and soon after he dropped out of school to play full time, earning thousands of dollars in the process. Rummy – a game with as much variance, or short term luck, as poker – is theoretically difficult to dominate, but Stu managed it. He didn’t just beat his opponents, he destroyed them mentally.

One night he beat Harry “Yonkie” Stein, the man widely regarded as the best player in the world before Stu came along, so consummately that Stein gave up the game soon afterwards. Soon afterwards, no one would play him. He had to offer handicaps to people to get them to take up the challenge but even that didn’t work so he moved to Las Vegas and took up poker.

The first time he ever played No Limit Texas Holdem was in the he won the World Series of Poker main event in 1980. He won it. And came back in 1981 and won it again! During the course of his career he played in 30 tournaments with buy-ins of $5,000 or more against the best players in the world and won 10 of them! He was the best of all time, and he knew it. As he himself exclaimed: “Some day, I suppose it’s possible for someone to be a better no limit hold ‘em player than me. I doubt it, but it could happen. But, I swear to you, I don’t see how anyone could ever play gin better than me.”

During the course of his life he is estimated to have won more than $30m at the poker table including the $1,000,000 first prize for winning the 1997 World Series, the third of his three titles in the big one. He was found dead in his room of a cocaine overdose in November 22 1998. He had just $882 to his name. His friend Bob Stupak took up a collection at his funeral to pay for the services.

Stuey Ungar was one of the quickest and most brilliant statistical minds ever to play the game. He used to shout out probability calculations across the card table to two decimal places. He knew every probability there was to know and those that no one knew he calculated in seconds. He took the most brilliant calculated risks that the game has ever seen but he died practically broke after having lost everything on dice and horses.

How could a man with more understanding of Expectation than anyone who ever lived repeatedly and willingly throw millions of dollars away in the course of a lifetime?

The reason cannot be the different probabilities involved or even the different  possible potential outcomes, but the meanings we apply to the those outcomes. And they are different for everyone.

Most people go into a casino with a certain sum of money in their pocket which they are willing and happy to lose. “I have £50 for the evening” they say “and then it’s home to bed.” So the potential emotional downside for them is limited. They went intending – or at least agreeing – to lose £50 so when it happens it is no big deal. The meaning they have decided to place on that loss is minimal. But the upside… oh the upside…

Dopamine is a neurotransmitter commonly associated with the pleasure system of the brain providing feelings of enjoyment and reinforcement which motivates a person proactively to perform certain activities. Dopamine is released (particularly in areas such as prefrontal cortex) by naturally rewarding experiences such as food, sex, drugs, and neutral stimuli that become associated with them.

Dopamine is good because by reinforcing the things which keep us alive, (giving those things an emotional upside) we continue to make decisions which give us a release of dopamine. The meaning or value we apply to the feeling that dopamine induces is positive although we are largely out of control of this process. The drugs that trade illegally in our society are, not surprisingly, those which also precipitate a release of dopamine into the body.

Now we start to get an insight into the life of an addict who is getting massive dopamine highs from his wins and almost no emotional lows from his losses. Stu Ungar’s intense and detailed knowledge of the mathematics of his investments on the nags were irrelevant to him. Because that was not the part of his brain that was doing the deciding. And the part of him that was didn’t care about the losses. He just lived for the wins.

Labeling Stu Ungar however as irrational, however, or bemoaning the kids who are apparently immune to the threat of tougher sentences or even a greater likelihood of being caught is to completely miss the point, however. These people are not irrational in the sense of being unpredictable or insane or delusional or unaffected by the consequences of their actions. Far from it. There is research showing evident links between aggression and dopamine because obviously before the development of a justice system there was as much of an evolutionary advantage to being aggressive and defending one’s life as there was to taking risk and exploring new territory.

No, It’s not that Ungar or delinquent teens in America are irrational. That’s not the problem. Indeed, the problem is quite the opposite. It is that they are intensely rational, constantly weighing up upsides and downsides and probabilities thousands of times a day, like the rest of us. The problem is not the absence of a calculation, it is the INPUTS into that calculation. It is the meanings that they place on those outcomes that are the problem.

More specifically it is that for whatever reason, the thought of losing a hundred thousand dollars didn’t bother Ungar any more than we’d be bothered by the thought of losing 50 pence and thought of going to prison doesn’t bother a portion of American teenagers anymore than it bothers us to be stopped by police for having a headlight out. Conversely, the thought of winning half a million (away from the poker table) gave Stu Ungar shivers of excitement and the thought of beating someone and stealing their wallet still gives some people a rush of dopamine which kept their prehistoric ancestors alive.

We can argue about what causes the particular meanings and values which these people place on the different possible outcomes until the cows come home, the fact is that these people are not being irrational any more than the acquisitions team of one of the world’s biggest companies who told me once that quite early on in their final confabulation, despite the mass of data thrown up by the due diligence someone in the room would pose the question “how do we feel about them?” In other words “OK, what meanings do we place upon these numbers?”

In another room full of senior executives culled from the upper echelons of British industry there is a different decision to make: how much to give me for my box. With offers varying hugely across the room, it’s clear that despite their similar backgrounds and capabilities we have a room full of people here who place very different meanings on the upsides and downsides involved.

I personally find this endlessly interesting because of course there isn’t even any money at stake, just status or reputation given that they are effectively just playing a game with their colleagues. Some of them – perfectly reasonably – don’t really care about it arguing that “they’re just poker chips” and therefore are often prepared to bid whatever is necessary for the chance of opening the most lucrative box. Others, though they might not like to admit it, care deeply and don’t want to do anything which might mean they have the least at the end of the day. As one participant exclaimed as he banged his fist on the table, exasperated with the collective decision-making of his colleagues: “What are you lot most driven by… the thrill of the cheer or the fear of the boo?”

As I remarked at the time, a better examination of why we do what we do in poker, business and life is actually hard to find: what are you most driven by? … the thrill of the cheer or the fear of the boo?