GTO Poker Theories: Prospect Theory

Does losing feel worse for you than winning feels good? You are not alone.

Daniel Kahneman
Daniel Kahneman

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.

This week’s theory not only won Daniel Kahneman a Nobel Prize, it also will probably feel the instantly most relatable of theories if you are a poker player. Prospect Theory asserts that we make decisions based on our expectations of loss or gain from our current relative position, rather than the outcome in a vaccum. All economic decisions are made relative to a reference point, such as our current wealth, rather than in absolute terms. So we don’t look at a $50 investment exclusively in the context of whether it is a good investment, we make our decision based on what losing $50 or gaining $50 would do for our current position.

The biggest finding perhaps of all from Kahneman was that we are innately risk averse, the losses hurt more than the wins feel good. We would rather preserve what we have rather than try to increase it (however, when we don’t have much to lose, we take more risks).

This is invariably why you will frequently see people ‘take the money’ on TV game shows where somebody has a reasonable amount of money guaranteed, but has a chance to risk it to win more. It is the exceptions to the rule that go viral on shows like Who Wants To Be A Millionaire or Deal or No Deal, most people hold on to what they’ve got.

Losing feels worse than winning feels good

You already probably recognise this in poker, but here Lex Veldhuis demonstrates it perfectly in this short clip:

In the space of a minute he gets very unlucky, then very lucky, and the reaction to the bad beat is so much more intense than the reaction to the lucky break. We all feel like this, when we are on a downswing it hurts like hell, when we are winning we celebrate, but not as much as we vent when we are losing.

Prospect Theory highlights something deeply ingrained in human beings. For survival reasons we have evolved to pay more attention to the things that hurt us than the things that benefit us. Psychologists have determined five big personality traits that shape who we are and one of them is neuroticism, which is the negative emotion trait. Neuroticism unfairly gets a bad rap and is a stigmatised term, but it is actually a very important trait. It is neuroticism that keeps us alert to danger and it is neuroticism (in parents) that keeps infants alive. We all have varying degrees of neuroticism, but for most of us losing hurts more than winning feels good.

This is why you get Main Event winners who moan about how bad they run, when even a basic understanding of variance would determine that they should never complain about anything bad again in their life, because winning the Main Event is such a statistical unlikelihood no matter how good you are.

Dowswings an upswings

poker graph
You always remember the bad beats more than the good beats

I think Prospect Theory is really useful to understand variance in general, but it is easy to see in a poker tournament. Let’s say you have spent the last three hours of a tournament nursing a short stack of ten big blinds and getting no hands whatsoever, then you find a couple of double ups and get yourself up to an average stack. You feel pretty damn good, it’s a do-over, you are back in the game. What about when you build up a huge chip lead in those three hours then lose a couple of big pots and get beat down to an average stack?

In both situations you have an average stack three hours into a tournament, a perfectly decent situation to be in, but if you are like 99% of poker players you are much more likely to go on tilt if you lost that chip lead. Even though both outcomes are the same, you feel like you lost something you already had in the 2nd example.

Most people are risk averse but some of the best advice I had in this regard was to factor in the risk of doing nothing. Holding on to what you already have prevents it from being taken from you there and then, but it also prevents it from becoming so much more.

Prospect Theory also is a pretty good advert for staking, like the sort we offer at SpinLegends, because you have less of that initial attachement to the money to feel like you lost it. 

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


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Comments (1)

  • LemOn36


    Shoutout to mr. Amos Tversky the co-creator of Prospect theory and the field, he shouldn't be omitted when talking about it as they co-wrote most of the breakthrough papers and books together