The Biggest Game of All

Benny Binion, was intrigued by an offer put to him one day to organise and stage the biggest poker game ever played. Nick “The Greek” Dandalos wanted to play, and beat, the best and Binion knew just the man.

He and Johnny Moss were friends from their days in Dallas where Moss had carved a reputation as the best Draw Poker player of them all – a feat he would go on to repeat in Texas Hold’em. Moss lived for the game of poker and reportedly played every day of his honeymoon, on one memorable occasion reaching behind him and taking his wife’s wedding ring off her finger before putting it into the pot.

Ever the opportunist, Binion said he would host and organise the game as long as it was played in public in his casino and both parties agreed.

The game lasted an amazing five months in total with the players only pausing to sleep – and even that was optional for Dandalos. Moss recalls coming down some evenings after a 4 hour break to see The Greek standing at The Craps tables, keen to start, and asking him why he insisted on sleeping his life away!

The legendary hand came during a stint of 5 Card Stud – not Moss’ preferred structure – in which each player gets dealt one card face down and a card face up before there is a round of betting and then receives three more cards face up, each followed by a another round of betting. It is a very pure form of poker, very little played these days on account of the low hands that are created which most new players feel creates little excitement. In this particular hand, Moss started with a nine face down and a six face up. Dandalos was showing an eight.

After an insignificant couple of bets, Moss caught an unhelpful two while Dandalos drew a four. The next card brought Moss another nine making him a pair of nines and Dandalos a six. At this point in the hand, Moss knew he was ahead because there was no card which Dandalos could have “in the hole” that is face down which could give him a superior hand. With a six and an eight showing, nothing could beat Moss’s pair of nines and therefore Moss confidently bet $25,000. It’s easy sometimes to be nonchalant about the size of bets in big poker games so it bears consideration that this single bet was very nearly as much as the contents of the most lucrative Deal or No Deal boxes. Dandalos called, however, maybe with a pair of eights, maybe a pair of sixes, maybe – better still for Moss – a seven on the off-chance that he might make a highly unlikely straight.

The next card brought an unhelpful and irrelevant two for Moss and an equally unlikely four for Dandalos. Again, Moss knew 100% that he must be winning at this point and bet out again – $30,000 -  enough to maximise his win but not enough to scare off his opponent who by this time, with just one more card to come, stood very little chance of winning the hand. Incredibly, the bet was called.

Moss’ final card was again an unhelpful three but Dandalos received an equally trashy jack. There were only three cards in the whole deck which Dandalos could have “in the hole” which could beat Moss at this point – one of the remaining three jacks to five Dandalos a pair of jacks. But for The Greek to have one would have meant that he had put $50,000 into the pot before that point with literally nothing; hoping, praying, feeling that he would catch one of just three jacks by the end of the hand. To Moss’ astonishment and delight, Dandalos bet out $50,000 and without too much hesitation Moss, believing his hand had to be better, pushed all his money into the middle of the table. More than $500,000. A huge bet. In any game. Of any era.

Apparently, in the pause that followed, Dandalos hung his head and Moss started to count the money in the middle as you do when you know that the pot is imminently going to pushed your way. Instead of folding his cards, however, Dandalos looked up at Moss and raised his eyebrows…

“Mr Moss, I think I have a Jack down there in the hole.” He said, essentially claiming to have won most of Moss’ fortune at that time.

“Greek” said Moss “If you’ve got a jack down there you’re gonna win yourself one helluva pot.”

Dandalos called the bet and turned over a Jack to reveal one of the craziest plays in all of poker and one of its biggest pots. He had bet more money than many Americans earned in a lifetime on a hand which until his last miracle card was just Jack, Eight, Six, Four! And Moss, regarded as one of the best five players ever to play the game had just played the biggest hand of his life. And lost.

Borrowing money to get back into the game Moss must have had some negative thoughts although he has never revealed them in all the time he talked about it since. All he ever said is that he knew that if his opponent continued to gamble like that he would break him in the end.

Eight weeks later, Dandalos, two million dollars worse off, rose from his chair and uttered the immortal words “Mr Moss, I’m going to have to let you go.” Johnny Moss went on to become the greatest player of his generation and Nick “The Greek” Dandalos was eventually seen playing $5 limit poker in the casinos of Gardena, California having won – and lost – more money during the course of his lifetime than most of us will ever see during the course of ours.

Posted 11:00am by Caspar and filed in Decision Making, Risk

“Because if I Don’t I’ll Die”

Lawrie Tallack is now an actor which is a rare career progression when you consider that he was once a fighter pilot in the RAF. A veteran of the gulf war and 200 parachute jumps, Lawrie was no stranger to taking calculated risks!

One evening his Commanding Officer came in to warn them that they would be making a jump the next day from a high altitude balloon. “Don’t worry though boys” he said “it’s really not that different to what you’re used to. Just bear in mind that when you jump it really is a long way to fall before you open up.”

“And then he paused” Lawrie recalls “and seemed to relive a traumatic memory or something before reiterating that it really really was a long way to fall.”

For some reason, Lawrie went to sleep that night unnerved by what was intended as a pep talk! After hardly sleeping at all during the night, he went to his superiors and informed them that he could not bring himself to do the jump. In short, he refused.

In blackjack there is a (fairly common) situation in which you have 16 and the dealer has a 7 or higher showing. Given that you’re trying to make 21 without going bust only a 5 or lower will improve your hand. A 6, 7, 8, 9, 10, Jack, Queen or King will bust you. And yet the book (that is the guide to basic strategy which has been worked out according to the inexorable maths) tells you to hit – to take a card. It feels so counterintuitive. And yet the book is adamant: you must hit the hand. Why?

The bottom line is that you are in a terrible position there. Not as terrible as being in a plane hurtling to earth but you have 16 – the worst possible total – and the dealer has a 10 (let’s say). You are going to lose a lot of money in this situation on the average. The VALUE of this situation is negative. BUT you will lose LESS money in the long run than by standing pat. Yes you will bust yourself 8 times out of 13 but the times you will improve will win it for you enough times to outweigh those losses.

The point is that in everything we do we need to take a Long Term approach. Even though by hitting the 16 we may bust and it’s going to be painful, it is the right thing to do. Sometimes doing the right thing is hard. It will be painful. But it’s right because the alternative is MORE painful and therefore risky.

There are definitely risks we cannot afford to take. But there are also risks that we cannot afford not to take. And not taking any “risks” is the greatest risk of all.

After his refusal to obey an order, Lawrie’s disciplinary hearing was inevitable and effectively the conclusion was foregone. You can’t refuse to do a jump in the RAF. Loving his job and desperate not to lose it, Lawrie pointed to his exemplary record in the services, all of which they said had already been taken into consideration. They had – they said – his safety at heart:

“What if you were in a plane Tallack hurtling towards the ground at terminal velocity and had to eject hmmm? What would you do then? We have to know that you would put your safety first.”
“Well of course I would. I’d eject insisted Lawrie. But they were unconvinced.
“How? How do we know that?”

To Lawrie the answer seemed perfectly obvious. “Because I know that if I don’t… I’ll die!” He said.

Posted 11:00am by Caspar and filed in Decision Making, Risk

The Origins of Fear of Failure

The Law of Diminishing Marginal Utility basically says that the more that we have of something (as denoted by increases in the Quantity measured on the horizontal axis) the less and less additional satisfaction we get from each additional unit of it.

At its simplest level this just means that if you eat a big bowl of ice cream, while each spoonful is making your tastebuds tingle as your dopamine is released when you start… about halfway through you’re probably a lot less keen on the taste of ice cream and each spoonful is giving you less and less satisfaction.

Clearly this is the case for ice cream because eventually you will feel sick, but it is also the case for many things: it would be nice to have a Ferrari but if you had 10 Ferraris most people who read this would probably not get the same happiness from the 11th Ferrari as you got from owning the first one. It would be nice to go on holiday but you probably wouldn’t be getting the same utility from the 66th day as you got from the first one. And even where money is concerned, while it would be nice to make a million pounds, but Warren Buffet almost certainly doesn’t get the same thrill of making a million pounds after having made thirty six thousand of them already that we would. Indeed as Arnold Schwarzenegger once said “Money doesn’t make you happy. I’ve got fifty million dollars. I’m no happier than when I had $48.”

The effect of this apparently irrelevant aspect of our psychology however could not be more profound when it comes to the decisions that we make. In other posts I’ve referred to the way in which otherwise rational people like Stuey Ungar and Nick Leeson made apparently insane decisions because of the allure of the upside and the limited downside associated with them. They gambled as a result of their emotional situation at the time. Well this is the opposite. Diminishing marginal utility means that most of the time we actually get LESS pleasure from our gains than we get pain or potential pain from our losses.

This muted upside and exaggerated downside in our Emotional Expectation calculation is what stops a lot of us from achieving the Long Term results that we want: we are scared of losing what we have in order to gain what we desire. Often, that is because we don’t even know what it is that we desire. Sometimes we do but we’re not prepared to lose what we have in order to achieve it in the Short Term.

Sometimes this fear is good. It’s what stabilizes our society. America’s delinquent youth don’t fear the downside as much as weedy academics – which is why they label them irrational and uncontrollable. It’s fashionable now to blame the parents, of course, but what it they’re not scared of what they’re parents have to say or do.

If Nick Leeson had been a little more frightened of his Mum or Dad then maybe Barings bank would not have gone the way it did. Likewise, if Kenneth Lay or Jeffrey Skilling had feared the eternal flames of hell a bit more then maybe they would not have tried to swindle their shareholders out of millions and embrace their own personal and corporate downsides to quite the same extent.

But there is a downside to this fear too. And it is a downside which costs similar shareholders a great deal more in the Long Run than a couple of corporate frauds no matter how massive and illegal they have been in recent years. The fact is that much more pervasive fraud is occurring every single day in boardrooms and offices every single day in companies across the world as leaders make decisions in direct contravention of the legal requirement to operate at all times in the shareholders best interests. They don’t. They don’t even come close to doing so. They operate largely out of a sense of self-preservation and fear of short term failure. I certainly would if I were in their situation and had the weight of quarterly shareholder reports bearing down on me on a daily basis. These are not the conditions necessary to motivate people to take the necessary risks to be the best at what they are doing.

On the last bend of the women’s BMX event in the 2008 Olympics British cyclist Shanaze Reade gave up a certain silver medal place in order to overtake the leader and push for gold. She failed, came off her bike and went home without a medal or – she says – any regrets. She was prepared to lose what she had in order to gain what she desired.  Would she have done the same had she had to report her results to a group of shareholders at the end of every race? Shanaze Reid went into that race as the world champion and the out and out favourite. And she got to that place by consistently being prepared to lose what she had in order to gain what she desired.

The ability to lose what you have in order to gain what you desire ultimately this is what will define your ability to achieve what you want – whatever that may be. The question is how do we embrace that mindset in poker, business and life?

Nick Leeson – King of the Rational Emotional Decision Makers

Nick Leeson is a working class lad made good. Then made bad. Then made good again. His story is famous the world over. He is the man who brought down an entire bank. Exactly how this was allowed to happen is of course a Black Swan in itself but it did and the fallout was immense, not least for Leeson himself who ended up in a Singapore jail for several years before laudably coming back with a vengeance and writing a book about his recovery and the effect that stress can have and how to beat it.

The exact details of what happened in 1995 are obviously complicated but essentially the principle is exactly as the world understands it: by the end of 1992, the amount concealed in the error account was £2m, but the end of £1994 it was £208m and by 23 Feb 1995 Leeson fled the country leaving a note saying “I’m sorry” and an account which held £827m in losses. Essentially, Leeson had got caught in a spiral of loss partly due to his decision to use a system to try and correct what began as fairly modest errors.

The system – known as the Martingale system – is known to gamblers and traders the world over and must be the cause of more unhappy nights in Vegas than any other. Essentially, it says if you lose your first bet (of, let’s say $1) you simply double it on the next spin, or hand, and if you lose that, simply double it again and so on and so on until you, eventually win, as you eventually must. The inherent problem with the system is that in theory it works perfectly. At some point within an infinite period of time, however, the monkey on the typewriter will bash out the works of Shakespeare or at least a sonnet or two! What the laws of probability don’t say, however, is WHEN! Which means that an infinite bankroll is required to make the system work in practice, something that even Warren Buffet doesn’t have. And neither did Barings Bank!

But here’s the question: why – when he was £100 million pounds down, did Leeson – an apparently intelligent, determined young man keep going? Why not throw in the towel, concede defeat and do the time that he was ultimately sentenced to do? Why push the envelope until the point of no return and potentially destroy everything for everyone in the process.

The answer lies in the meanings or values that Leeson placed on the different possible outcomes of the potential opportunities available to him.

The only thing that meant anything at all to him at that point was just breaking even. Reducing the losses to £70 or £40 million meant nothing. He was still going to lose his job and almost certainly go to jail in this eventuality. Increasing the losses to £200, £300 even £400 or £500 million was not going to worsen the situation for him really. He had got to a stage where the downside remained the same and the meaning of the upside (his possible reward) was everything. Effectively doubling through and breaking even meant safety, it meant freedom, it meant employment, it meant an end to the stress which eventually gave him cancer. It meant getting the life he loved back.

In this way Nick Leeson was no different to the millions of gamblers who step inside the billion dollar casinos in Las Vegas or Sun City or Mayfair or anywhere around the world. Largely otherwise intelligent, rational people make decisions for an evening which deep down they know will cost them money. People who play slot machines, for the most part, know deep down that the house will win in the long run. I’m not saying that there aren’t people in those places who become convinced that they are “hot” or that they have a “system”.

For Nick Leeson, whatever the probability of the downside, the meaning he placed on losing even more money was minimal. The only thing which meant anything at all to him was breaking even. This was immoral, certainly, given the consequences of his actions for thousands of people but rationally… well, rationally it made sense! Given a similar lack of moral fibre any one of us might well do the same in the same situation.

Certainly given a different situation which, for example, forced us to make a decision to do something which might kill us but which might also very well save the life of our child, which mother or father would not take this course of action? Naturally, this is a hypothetical situation with no detail at all and the first thing you would want to know would be the probabilities involved – but we’ve already covered that. The point is that the meaning we place on the possible upside as a parent would far outweigh the potential downside. Somewhat morbidly, in order to more closely simulate Nick Leeson’s emotional calculation we would probably have to assume that we were likely to die in either event – a factor which would make the ultimate decision a no-brainer.

The situation that Leeson found himself in was very different to going into a casino with £50 (or even £50 million like Kerry Packer did) that you’re happy and prepared to lose. It’s more akin to the position that the poor sap who has heard about the Martingale system finds himself in after maxing out two credit cards in a desperate bid to win back that first $10 after a statistically freakish but eminently possible 10 spin losing run (1024 -1 against). Now, we are anything but happy. We are anything but prepared. But in much the same way, if for very different reasons, there is very little additional pain we can experience. It’s not just our credit cards that are maxed. So are our pain levels. And the only way is up.

Posted 02:47pm by Caspar and filed in Decision Making, Risk

Taking Risks on Life’s Journey

The first thing to understand about betting on a roulette table is that when you bet red, at the simplest level, the casino is betting black. And neither is more likely than the other. Indeed, according to some people’s definitions of the word, casinos are “gambling” in the same way that their punters are.

They’re not, of course, which is why most people use the word “gambling” incorrectly and why we need to calibrate our terms when we talk about this complicated but fascinating subject. Every time the wheel is spun, however, uncertainty reigns and nobody but nobody can tell you with any certainty what the result is going to be. It is the visibility of uncertainty in a casino – as opposed to its often invisible nature in life – that makes it such a wonderful little laboratory in which to study the way people that people react to it.

As a young man I never took drugs, bungee-jumped or even placed a bet. Activities associated with risk just never appealed to me. Then, aged 26, – quite out of the blue – I quit my job as a reasonably successful writer for film and television to become a professional poker player.

This was long before poker became the multi-billion dollar industry that it is today. In 1999 poker was the preserve of a few eccentrics and iconoclasts who had either never known any other “career” or who had dropped out of one because it wasn’t offering them the thrills they dreamed of as a child. I guess I fell into the latter category.

With hindsight, it was the best career move I ever made. I learnt more from three years in Las Vegas than any other single formative experience. Playing poker for 10 hours a day 6 days a week for three years certainly taught me a thing or two about risk and just how little most people understand it.

Most people assume that – as a professional poker player – I was a gambler but the fact is that “gambling” is the act of placing a bet where you have the worst of it. In the long term, if you “gamble” you will lose money. Playing poker professionally is not about gambling but taking a series of “calculated risks” with the aim of making a healthy long-term profit at the end of the day.

Isn’t that the aim in business too? What poker players call “bets” business people call “investments” but the uncertainty is still there. We live in an increasingly uncertain business world where it is impossible to guarantee the outcome of anything.

In my seminars I demonstrate how to bet on the roll of a die and make money – even though you lose five times out of six – and explain why professional sports bettors aren’t looking for the horse most likely to win. The implications of that often changes the way people view risk forever.

Operating a business in the knowledge that you will be profitable in the long run, even though some of your investments will fail, is something that the best companies in the world have known for many years: companies like 3M, HP, and Google have created cultures that encourage risk taking and accept failure as a necessary part of their calculations. They don’t sweat the short term any more than a casino manager sweats when someone wins a lot on roulette in one evening: they know that the house will bust them in the end, just as the great company knows that great ideas will always be produced by a healthy culture of innovation and adaptation.

After three years in Vegas I came home to England and effectively became an entrepreneur. I know that I could not possibly have done this without the knowledge and skills that poker gave me and it is a pleasure for me to foster discussions around this whole area with people in business today.

Posted 12:27pm by Caspar and filed in Risk, Uncertainty

Risk Taking in Poker Business and Life

The future is uncertain. For all of us. Hopefully one of the positive things that we all might take from the “current financial crisis” is the numinous truth of that thought. Perhaps understanding that even the money we have sitting on deposit in our current accounts is not 100% safe will serve us all well in the long run.

Continue Reading »

Posted 01:23pm by Caspar and filed in Risk, Uncertainty