Framing effect and poker


Framing effect refers to the phenomenon that people react differently to the same piece of information, due to how the information is presented – in terms of loss, or in terms of gain. An example in poker would be: Suppose a player is considering investing 5k into a 5k pot. He could be thinking ‘If I invest, I could earn 5k’ (positive frame), or ‘If I invest, I could lose 5k’ (negative frame). Research has found that people¬†tend to avoid risk when a positive frame is presented (‘I may win 5k, but this is risky, and I don’t want to take the risk’), but seek risks when a negative frame is presented (‘I may lose 5k, although it’s risky, I want to take the risk’).

I can see how this affects decision making for someone who is unclear about his goals. Now my question is: if someone is clear about his goals (e.g., a good poker player), could framing still affect him?

A good poker player is required to prioritize his goals in almost every single minute – Is this a tournament that I want to ‘win big or go home’, or just cash? Is this a stage that I need to accumulate more chips, or just sit and watch the endangered players being eliminated? Is it more important for me to win this pot, or I can’t afford to lose more chips? Once he understands his priorities, he will know which one is more important – gain or loss – and make decisions accordingly.

Better still, if a player is really that good, he can totally use the framing effect to his advantage Рif he wants to encourage himself to take more risks, he could think in terms of negative frames; and when he wants to remind himself to avoid risk, he resorts to positive frames. 


Lessons of Life from Poker


1. Information is key.
Those who are well-informed make better decisions. Skill without information can be useless. Don’t under-estimate the power of a tiny piece of information; it may turn out to be a game-changer.

2. Decision-making can be simple: Anything with a success rate of greater than the current risk tolerance is worth doing. Risk tolerance differs in various stages of life. Normally, anything with greater than 50% chance is worthwhile. It does not guarantee success every single time, but it does over the course of a lifetime.

3. Act the opposite during social interaction. Be active around a passive person, and passive around an active person. Appear weak with someone strong, and strong with someone weak. And so on.

4. Knowing when to give up leads to success.