Should you call the bet? Should you leave your job? The poker table might not seem like the place to go for guidance on decision making, but the game is about calculating risk and reward, all in what Annie Duke, a retired poker champion, decision strategist, and author of Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts, calls “a cloud of imperfect information.” Poker, it is said, is life distilled into a game. In both, to use the eternal words of Kenny Rogers, you have to know when to hold ’em, and know when to fold ’em.
There are moments during a poker game when you’ll have full confidence that your hand can’t be beat, that you have “the stone cold nuts,” says Tricia Cardner, licensed psychotherapist, poker player and author of Purposeful Practice for Poker. But it’s rare. Mostly, you have to make a decision. Sometimes it’s to call or raise. Other times, folding is the wise move, but when you’re already heavily invested in a hand, your thinking gets murky. In such situations, folding is no longer seen as an option, even if your hand is likely going to be beaten, because so much money has already been pushed forward.
In poker, the latter situation is known as being “pot stuck”. In business and life, it’s known as the sunk cost fallacy. In both, effort or money already spent is causing you to stay around even though it’s a losing proposition.
The sunk cost fallacy sinks a lot of people. How many friends do you know who have stuck-it-out with a job or relationship or house or so-so daycare provider because they’d already invested in it? There are many reasons a person remains committed, as notions of ego, pride, fear of failure, and more come into play.
But there are ways to think about such situations and poker players can teach us all a lot. Good players know when it’s time to move on to the next hand. The question is how do they do it.
Paying Attention at the Table
During a poker game, information is on constant display. You can tell how tight people play, how they respond to being raised, how quickly they bet when they have something. You just have to notice, believe, and use it, Carder says. It’s also context. If two amateurs are going to battle it out, giving her the chance to move up the money board, it’s not a hard fold because she’s playing the long game, not just that one hand.
It’s essential, Duke adds, to know much money has already been played in order to calculate the return on a possible bet, the pot odds. If you have to only put in $100 to win $1,000, for instance, that’s an easy call regardless of the strength of your hand. If it’s $200 to win $300, you have to take into account how many possible cards could help you, and how many players you’d have to face. Without knowing the pot size, you’re playing blind. “That’s the whole shebang,” she says. If it doesn’t add up to a good value, it’s an easy decision to lay it down.
There’s one more part in play: a mindset shift. After you bet, Duke says, the money belongs to the pot. Believing you still own it makes you want to protect your sunk costs. Ego is a big part of this instinct, says Danna Greenberg, professor of organizational behavior at Babson College and co-author of Maternal Optimism: Forging Positive Paths Through Work and Motherhood.
This is where a lot of real life comes into play. You want to be seen as strong and a great decision maker – backing out doesn’t scream that. It’s also identity. You’re a poker player, a senior manager, a homeowner, and that gives you seniority, a social network, direction. All of these are hard to let go.
There’s also the fact that pain can be comforting. It’s like the uncomfortable shoes that you still wear solely because you bought them. “We suffer,” says Ayelet Fishbach, professor of behavioral science and marketing at University of Chicago Booth School of Business, who adds about the sunk cost fallacy, “It’s not inefficient.” Switching brings losses. It’s not something to do constantly.
Know When to Fold ‘Em: Take the Future Tense
Sometimes you need to get out. Duke says that in life, like at the table, it’s crucial to think about the decision that you want, not about the ones you’ve made. It could be any big choice, but let’s say it’s a job. Do some mental time travel and imagine, If I stayed, what would it look like a year from now? Would there be opportunities? Would I be any less unhappy? Fishbach adds that it’s also important to think about what’s missing from your current situation, which helps focus on the issue.
After you do this, ask, “What would a new situation look like?” It might be great. It might be terrible, but if your current situation has no reason to improve, your pot odds are better by changing, and, per Duke, you’re now evaluating the value and risk of an opportunity. Fill that in with information that’s been in front of you — the culture, the bosses, the strength of your industry. Talk to your spouse about what a change entails and you might find out that it’s more doable than imagined. But going through the process makes it all less of a mystery.
It’s good to think about what matters to you, not overlooking the intangibles — the commute, the ability to work from home, says Ashley Whillans, assistant professor of business administration at Harvard Business School and author of Time Smart: How To Reclaim Your Time and Live a Happier Life. Quantify those pieces. If the thought of one makes you happy, it’s worth about a $10,000 raise.
There’s one more mindset shift, of not seeing something as a total loss. Duke says that even when you fold late in a hand, you still gain useful information. The job could have been awful, but you built skills and made friends and you carry those forward, Greenberg says. Duke adds that you learn what you like and need. You can spot a bad boss and destructive culture; that awareness moves forward as well. “That’s the best information you can get,” she says.
Like at the table, you’re trying to not make the same mistake over and over. With experience, you’ll gain the knowledge to inspect the roof and ask about your future boss’s intentions, matters that you never considered before. The past is helping the next move. “You want to live in the moment and five years from now, not five years ago,” Duke says. “It’s a brand new decision today.”