Prospect Theory — a must-read article by Barry Tanenbaum and Dr. Rachel Croson in Card Player

by Lou on October 19, 2005

Although I no longer write for Card Player and haven’t since earlier this year, you have to give credit where it’s due, and they deserve some applause today.

The current issue, Vol. 18/No. 10, October 18, 2005, contains one of the most thoroughly original and compelling articles I’ve read in ages. It’s entitled “Understanding Poker Errors Through Prospect Theory,” and is the first in a two-part series by Barry Tanenbaum. The series is coauthored by Dr. Rachel Croson, an associate professor at the Wharton School of the University of Pennsylvania.

Rachel has been attending BARGE for years, and each summer she usually administers a questionnaire to the players in attendance. Over the years she has documented how poker players differ from the general population, and how they are similar.

Their article discusses common poker errors that are similar to errors made by the general public when confronted with evaluating risks in real life. Rachel and Barry discuss these errors and provide advice about exploiting them in others and overcoming them in your own play.

Developed by Amos Tversky and Daniel Kahneman — Kahneman won the Nobel Prize in Economics for his work in this area — Prospect Theory formalizes certain errors many poker players will recognize. They include Loss Aversion (the agony of defeat far exceeds the thrill of victory), Asymmetric Risk Preference (preferring to gamble more when behind than ahead), and Misestimating Probabilities (believing that low probability events will occur more often than they figure to).

Every thinking poker player owes it to him or herself to read this article as many times as it takes to come to grips with how Prospect Theory might affect their own game, and how to use it to assess an opponent’s play. It’s an amazing article. Give it a read.

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