Have you ever wondered if you can trust your gut feeling?
I have, many times.
So many times I wrote a book about it.
I recently talked to Poker Pro Annie Duke about this on Future Skills.
Interestingly, she seems to have a view on this that’s similar to mine.
Intuition can be very, very good, there is no doubt. A lot of what you’re doing at the poker table would go into that general category of more intuitive, gut feeling, or just really quick pattern recognition.
“Where I think it goes wrong is when you don’t hold intuition accountable to a more rational process.”
Annie is best known for her career as a professional poker player, where she has won a World Series of Poker bracelet, the World Series of Poker Tournament of Champions, and the NBC National Poker Heads-Up Championship, and has won more than $4 million in tournament poker.
She’s also the author of the new popular book: “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts”
Me, her, and investor Mikael Syding sat down for a ~70 minute talk and covered a lot of ground.
Here are my favorite lessons from the conversation–related to learning, gut feeling, rationality, and the parallels between magic, finance and poker.
These are good examples of where the world is moving faster and you have to be adaptable to stay at a high level. As you read through it, you’ll probably be able to see similarities to your own field or favorite hobby, and how it’s evolved over the last 10 years or so.
Note: If you’re particularly interested in when you can trust your gut feeling, we get into that half-way in and then continue all the way to the end. But I figured I’d provide the full context, and not just that a few soundbites, as that’s my own preferred way of learning.
The Evolution of Poker: From the Private Tables to Public TV
Ludvig How is poker like the market?
Annie: You’re trading against other people now, aren’t you? It’s all sorts of different ways. The people that you’re playing against will create your market conditions because you can be at a table where the people are more aggressive or less aggressive. You have to think about their range, what everybody’s risk tolerance is. You’re always thinking about return on investment, both in a hand and in a game. The kinds of decisions that you
make in a particular pot will affect the way that people perceive you and the kinds of investments you can make in the future.
Then, there’s also macro issues. The kinds of strategies that worked really well, say, between 2002 and 2004 were really, really different than the kinds of strategies that worked after 2004. As you had all of these new players come into the game, essentially the kinds of strategies that you could do at the table drastically changed. A lot of people who had played in the ’90s and were successful got weeded out because they didn’t change their strategy to fit the way that everybody else was playing changed.
A lot of analytics that people could run that just were unavailable in the ’90s. That’s changed the way people play in a very drastic way. The conditions are always changing and you need to be changing with the conditions.
Note: This is a very good parallel to what’s gone on in the stock market since social media created communities.
Ludvig: That’s a really good in-depth explanation. One thing that it makes me think about is actually magic! Magicians and things like that. Today, all the magic tricks are revealed on YouTube because people want to seem smart, and then, it becomes harder for the magicians to come up with new tricks, but if they want to stay magicians then, obviously, they have to come up with new tricks.
Annie: Right, exactly. I can give you a general example. In the ’90s when you were playing in a tournament, in general, people gave you a lot more credit when you were raising in particular situations.
For example, if you were to open the pot for a raise and I were to re-raise you, in a tournament situation, you might actually fold a hand as a matter of course without really thinking very much about it, that was as strong as, say, a hand like 10s, Jacks, or Queens. That’s actually quite a strong hand but because it was such a limited group of players that were playing all the time, that the hand values– People gave people credit for like, “Well, you know that you have to have a really good hand so you’re raising in first position, and so you must have a really good hand. So, if I’m willing to re-raise you, I must have a really good hand.”
That was a lot of what the thinking was at that time. Then, a couple of things happened. First of all, when poker got on television and the hole cards got revealed, you realized that actually people were re-raising with junk a lot more than you thought. Therefore, you must be calling with junk more often in order to teach them a lesson about doing that.
A New Breed of Poker Players
Annie: Then, there was just also just a lot more discussion about poker because more and more people came into the game, more young players came into the game who were really, really, really smart and really mathematically oriented, and they weren’t playing old school style.
One of the ways that I would analogize it is that options trading changed drastically from– I mean, if you looked at what options traders were doing when they were trading on the floor in 1981 without a computer screen and analytics, compared to the way that they trade now. Obviously, it’s a world of difference. In some ways, one of the things that I think is similar between the two is that a lot of the success that could come from an options trader in 1981 was brute force. How aggressive were you in the crowd? That was a helpful personality trait or style to have.
When Can You Trust Your Gut Feeling?
Next we talk about how reliable intuition really is.
In my book Breaking out of Homeostasis, I devoted a chapter to answering this question. When can you trust your gut feeling? In which situations?
My conclusion is: This is possible only after having gained Expert Pattern Recognition. This comes from trial and error, research, and success reinforced as habits. For example:
Financial traders can scan multiple computer screens with low effort; one for news, two for asset price updates, and (at least) a fourth for trading chart programs, and still remain attentive to information that may alter market prices. And professional online poker players can play multiple tables at the same time.
When you achieve expert pattern recognition in a domain you can go with your gut. This stands in stark contrast to being a dilettante, who’s constantly duped by his homeostasis. The dilettante cannot reliably trust his emotional responses, hormonal reactions, and reflexes—for they have not been honed for the task through trial and error.
How many areas can you attain expert pattern recognition for? No one knows for sure. But at least several, if you enjoy learning and start early in life.
Another thing on intuition: You should beware of when and how much you can trust your intuition.
It varies between areas. The worst mistakes are made when you think you know what you’re doing and you don’t.
With that as a backdrop, this next part of the conversation, where Mikael starts off asking Annie how much *actual thinking* is involved in a game, will make more sense.
Mikael: How detailed would you say that all these considerations were right when you were playing? I’m thinking of comparisons with speed chess where I can’t see, at all, how they’re thinking. They are just perceiving the pattern and then, they make a split second decision. Of course, you have maybe a couple of more seconds over when you play poker but I still can’t really see how you actually go through all this statistics and mathematics and thinking of relative strengths and bluffing etcetera. Do you see what I mean? How much truly detailed analysis? And how much is Expert Pattern Recognition?
Annie: It’s a combination. You do have moments where you take more time but even then, if somebody does what’s called ‘calling a clock’ on you, you get a minute and 10 seconds. That’s enough to do some analysis but most of it is pattern recognition. I’ve been here before, I’ve seen this before. I’ve seen people behave like this before, I’ve seen this person behave like this before. Quite a bit of what you do, actually, is noticing when somebody isn’t following a pattern, which I always used to describe as basically noticing when the story doesn’t make sense.
Sometimes, you’re running through the hand and obviously, you’re doing this pretty quickly, and someone is trying to represent a particular hand. You run through the hand and you realize that their actions, up to the point where they tried to represent that hand, just don’t make any sense if that was the hand that they actually held. It’s a lot of pattern recognition. What I point out to people, because I think this generalizes to life, is thatintuition can be very, very good, there is no doubt. A lot of what you’re doing at the poker table would go into that general category of more intuitive, gut feeling, or just really quick pattern recognition.
Where I think it goes wrong is when you don’t hold intuition accountable to a more rational process. When you walk away from the table later, you have to be able to talk to people and deconstruct the hands, particularly hands that you had some sort of difficulty with. You should never allow the people that you’re working with to have the answer of, “Well, it was just my gut. My gut told me I was supposed to call.”
Then, that’s the end of the discussion. I’m just going to say because if that’s the be all and end all, like, “Well, my gut told me so.” That’s a big red flag that probably the decision wasn’t optimal because regardless of whether you’re doing it by pattern recognition, gut feel, or whatever, you should be able to go back and tell another human being why that was the correct decision. You should be able to explain it well enough that they can understand why you did it.
Ludvig: This is my philosophy in every area of life in the sense that you want to gain expert pattern recognition in a field, but the difficulty is to gain it. Then, after you’ve done that, the problem, going back to what you were saying, is that they can’t explain it to other people. They get stuck in this curse of knowledge thing and it becomes difficult because they weren’t documenting what was going on from start to finish, so they lose touch of the journey. They think that other people will be at their level or they get cynical about other people who are not at their level. Is that something that you’ve thought about?
Annie: Yes, I think that’s true. If you’re not holding yourself accountable to being able to explain it to other people, your knowledge becomes siloed. That’s where you can really have bias start to dig in.
Even if there are other people who are doing things that are different than you and having success, you’re going to be more likely to start falling prey to motivated reasoning and confirmation bias. Dismissing them, entrenching your own way that you do things….. Actually, what you just pointed out, I think, so beautifully is what happened.
How to Use Gut Feeling For Complex Decisions (Like Finance)
Annie: They continued employing the exact same strategies that they had always employed, that had always worked for them, was, “Oh, these new players, they’re such idiots and I’m so unlucky. And who can play against these guys? Because they don’t even know what they’re doing.” There’s always just dismissing the other people
at the table as the problem.
Ludvig: All right. So it’s similar to your example of the finance industry where you had these people who were just intuitive traders from years of experience on the trading floor. Then, these analytical traders came in with computers and stuff, and then, the older ones with experience hate the new ones because they’re outdoing them.
Mikael: There is a different parallel as well, that I’m familiar with from my career as an investment professional. It’s that they started out with grit, and details, and spreadsheets and then, they build up an Expert Pattern Recognition. Then, they start relying on only that–Intuition only–whereas, I, and a few of my more successful colleagues, use intuition merely as the starting point. It’s a good way to filter out a handful of probably good ideas. Once you have those ideas, you still have to go through them as carefully and thoroughly as you’re used to.
Annie: I cannot agree with you more. I think one of the biggest problems, is that we are not holding our ideas accountable. Once we feel like we have the expertise, we’re just done.
How many times have you had an expert trader, where someone says to them, ”Well, why did you do that? Why did you make that trade?” And they were like, “Gut feeling.” And everybody goes, “Okay”, as if that should be an acceptable explanation.
It may be true that your gut feeling was good enough and that’s what got you there and it made you make this brilliant trade. The problem might not be with that particular trade or decision, but it’s going to come down the road as you’re not holding your intuition accountable.
Summary: When You Can or Cannot Trust Your Gut Feeling
To simplify, we can boil it down to two types of situations: Body and Mind.
Body situations = hunger, fear, pain, becoming tired. There is a lot of distortion of gut feeling here. Most people get hungry every 3-4 hours; are afraid to talk to strangers and speak up in a group or try new things, will not go to the gym if tired, and will quit at their goals at the first sign of pain.
Though normal, none of these are good things. They are examples of homeostatic resistance–where the body wants to stay the same–not accurate “gut feelings” that will give you success.
Mind situations = complex decisions causing confusion. Should you just go with your first thought in these instances or should you get more info and make a careful plan?
The guideline is this: Only in areas where you have put in work and had previous success. This makes it easier for your pattern recognition to prune out the false options. And then, as Mikael suggests, you still need to do your homework.
3 Guidelines for More Accurate Gut Feeling:
- Don’t underestimate how good your brain and body is at tricking you (and how strong homeostasis can be).
- Don’t overestimate how many areas you can trust your gut feeling in.
- You can reliably trust your gut feeling in an area if you have gained Expert Pattern Recognition; where you have gone through the trial and error and consciously dialed in good habits.