GTO Poker Theories: Black Swan events

In this week's non poker theory for poker players we look at how to prepare for rare but costly events.

Nassim Nicholas Taleb
Nassim Nicholas Taleb

One of the real gifts poker has given me is that it has been a great jumping off point to learn things from other disciplines like economics, AI, psychology and Game Theory. So here is a series of articles where I bring some of the most interesting things I have learned from other subjects outside of poker which are applicable in this game we know and love.

It would be remiss of me not to eventually bring up a Nassim Nicholas Taleb theory or two in this feature, because he is so revered by poker players. I thought I would start with an example of something that anyone who has been around poker for a long time will appreciate.

One of Taleb’s most popular contributions is The Black Swan theory, from his book of the same name. A Black Swan event is an event which nobody saw coming, but had a profound impact. In fact his specific criteria for a Black Swan event is as follows:

  • The event is a surprise (to the observer)
  • The event has a major effect
  • After the first recorded instance of the event, it is rationalized by hindsight, as if it could have been expected

Avoid Black Swans, become antifragile

Nassim Nicholas Taleb
The theory comes from an old, incorrect, belief that there were no black swans

Taleb cited a number of examples such as the computer, World War 1 and the 9/11 attacks as Black Swan events. All three were difficult to predict, all three changed the world dramatically, and all three of them have been explained away as inevitable post hoc. One possible reason why this theory and book became so popular was that it was released around the same time as the 2007/2008 financial crash, which was a profound Black Swan event in and of itself.

Practically speaking, Taleb was not trying to suggest we should be able to predict Black Swan events if we were more astute. Instead he argued that we should be building more robustness to protect us when negative events we don’t see coming happen. He argued we should encourage institutions to become ‘Antifragile’ ie. able to get stronger in the face of chaos (which became the name and subject of his next book). For example, IT security tends to get stronger after every hacking attempt, after it learns to defend itself from more sophisticated attacks. 

A Black Swan event many people could face in their personal life might be getting laid off from work. You might have thought you had a job for life when you started working at that typewriter factory 30 years ago and never saw the advent of the personal computer coming. In your own life there are probably technological and societal changes coming that could disrupt your life in ways you never thought possible. However, if you have spent some time learning new skills, reading more, networking and doing a side hustle (like poker maybe) for extra income, you perhaps will have built in some robustness to survive a Black Swan event. Taleb argues that freelancers and tradespeople are often ‘antifragile’ precisely because they are always in danger of work running dry, so they constantly have to adapt where ‘company men’ may not.

Black Friday

black friday
The DOJ takedown notice on Black Friday

Poker had its own Black Swan event, known as Black Friday. This was where the US Department of Justice shut down PokerStars, Full Tilt and Ultimate Bet to American players in 2011, taking the online game away from them. In the case of Full Tilt and Ultimate Bet it also led to many players' bankrolls around the world being stuck in limbo for years. Not only did this mean that a lot of professional poker players lost money and their way to make future income, it also had a profound impact on the industry and many jobs were lost.

Nobody saw it coming, it had a profound impact and we all rationalised it as inevitable in hindsight.

What is the lesson poker players should take from Black Swan events and Black Friday? One lesson is not to put all your eggs in one basket. It is simply ludicrous to put your entire bankroll on any one poker site, but poker players still do this all the time. eWallets are not necessarily a safe place to keep all your net worth either (nor is Cryptocurrency). When money is your tool for making more money and if you are observing correct bankroll management, you really should spread your bankroll around. It’s not just a case whether the poker site you play on is safe, there could also be Black Swan events related to hacking or your country’s government that could take your bankroll from you. If you think this sounds like conspiracy, it’s not, it happens all the time and it is just common sense.

More broadly the best way to mitigate a Black Swan event is to invest in yourself. A lot of poker players were left in limbo after Black Friday with no way to make income and a gap in their CV. You never know when you will lose your job or stop enjoying the one you have, so it’s important to spend your time developing transferrable skills no matter what you do, just to give you options and prepare you for the worst case scenario. 

What theories from outside of poker have really helped you with your game? Let us know in the comments:

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