John “JimmyLegs” Wray is a feared mid-stakes heads-up player, coach, video producer, and sponsored CardRunners pro, all while being a full-time father of two. Before getting bitten by the poker bug, he was a writer/director for TV and animation, a background that serves him well now that he’s regularly producing content for CardRunners. “Brain Fail,” his entertaining look at the intersection of poker and behavioral psychology, has quickly become one of the most popular and talked-about poker series on the web.
No, it’s not a slang term for a night out at Chippendales. The Endowment Effect is a very real force currently twisting your mind and affecting your ability to play rational poker. Don’t believe me? Let’s take a look at two scenarios with our hypothetical hero, Bob.
SCENARIO #1
Bob is in a Heads-Up No Limit Hold’em match against a tight, straightforward player.
Blinds: $0.50 / $1
Villain: ($100) Dealer
BOB: ($100) Big Blind
Dealt to BOB: [Ks][Kc]
Pre-Flop (Pot: $1.50)
Villain RAISE to $3
BOB RAISE to $12
Villain CALL
Flop (Pot: $24)
[Ad][8s][3c]
“Damn,” thinks Bob. Why is there always an ace on the flop? He fumes for a second, but realizes that there’s no guarantee his opponent has an ace, so his kings might still be good.
BOB BET $22
Villain ALL-IN $88
A stream of profanities pours from Bob, but his inner monologue goes something like this: “The villain has an ace here, right? Maybe, but I’ve got kings! It’s a monster! He could be shoving with 9-9 through Q-Q or a wheel draw or even on a stone cold bluff, right? Sure, he’s been playing tight, but everyone bluffs at least 10% of the time – I think I read that in a book somewhere. Screw this guy, there’s no way he’s making me throw my cowboys away!”
Getting about 2 to 1 on his money, Bob angrily makes the call… and loses to his opponent’s A-J.
SCENARIO #2
Bob is in a Heads-Up No Limit Hold’em match against a tight, straightforward player.
Blinds: $0.50 / $1
Villain: ($100) Dealer
BOB: ($100) Big Blind
Dealt to BOB: [7s][2h]
Bob hasn’t been very active recently, so he decides to try to pick up this pot pre-flop with a bluff against his tight opponent.
Pre-Flop (Pot: $1.50)
Villain RAISE to $3
BOB RAISE to $12
Villain CALL
Flop (Pot: $24)
[Ad][8s][3c]
Well, the 3bet failed miserably, but since there’s no guarantee his opponent has an ace, Bob tries to win with a continuation bet.
BOB BET $22
Villain ALL-IN $88
“Oops,” Bob thinks, chuckling. But, just as he goes to click the fold button, a genie appears in a puff of smoke and makes him this proposition: “Bob, if you make this call, I have the power to magically transform your 7-2 into pocket kings! Whaddaya say?”
Bob thinks about it, but quickly realizes that he’d really be no better off with kings than 7-2. Since it’s overwhelmingly likely that his tight opponent indeed has an ace, Bob would be drawing to only two outs even with K-K. The 2 to 1 pot odds aren’t nearly enough to warrant that gamble, so Bob politely refuses the genie’s offer and instead folds the hand.
Notice anything about the two scenarios? That’s right, they’re effectively identical. In both cases, the action, pot size, bet size, board texture, and opponent’s likely holdings are exactly the same. And Bob is being asked to risk the same amount to show down pocket kings in both hands. So why was he willing to call off his stack in the first situation, but fold in the second? Shouldn’t his decision be the same in both scenarios?
If Bob were a computer, then it would be. But, Bob isn’t – he’s a human being. And human beings are flawed, wonderfully irrational creatures. Tucked away in Bob’s mind are hidden cognitive biases that are skewing his perception and affecting his decision-making.
One of the forces at work here is the Endowment Effect. It’s a fancy psychological term, but what it boils down to is that people tend to value items that they own higher than identical items that they don’t own. For instance, subjects in an experiment were willing to pay, on average, $6 for a travel coffee mug presented to them. Then, they were given the mugs for free and an hour later asked how much they would be willing to sell those same mugs for. In just one hour of ownership, the average price for the mugs had risen from $6 to $9! Once the mugs became personal property, the subjects became attached to and emotionally invested in them and the mugs’ perceived value increased.
And now our Bob examples start to make a little more sense. In Scenario #1, Bob already owned the kings. They were his, by God, and he’d invested money and emotional energy in them. He’d be damned if he was going to throw them away for just one more bet. The Endowment Effect distorted his valuation of their relative strength, so much so that he was willing to pay a premium to avoid having to throw them away. But in Scenario #2, Bob had no such claim to ownership and so it was much easier for him to look at the situation objectively and make a rational decision.
Maybe you wouldn’t make Bob’s mistake, but many players do every day. And you probably make similar mistakes you aren’t even aware of. How often have you mocked an opponent for playing a hand like J-7o only to find yourself playing the same hand later? Logically speaking, J-7o is J-7o, but the perceived value shifts when it’s your J-7o, doesn’t it?
When you break down the game, poker is all about estimating value. Under a certain set of circumstances, what is X hand worth? Is it worth a call? A bet? A raise? If so, how much? And how does that value shift now that we’ve seen what our opponent has done? We’re constantly calculating the value of our property (our hands) and we do it multiple times every pot, hundreds of times an hour, and thousands of times a session.
It’s crucial that we are aware of any psychological force that might distort the perceived value of our hands and the Endowment Effect does just that. If we let it, the Endowment Effect can exert an invisible pull on each and every hand of poker we play, inflating the perceived strength of our own hands just because they’re ours. This helps explain why new players are such calling stations: every hand looks more valuable than it really is and by God, no one’s going to make them throw it away.
So, next time you’re put in a tough spot, try thinking about your hand in terms of how much you’d be willing to pay to buy it. Distance yourself from that feeling of ownership and you just might muffle the Endowment Effect enough to allow you to make a more objective and rational decision.
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