Poker Player Behavior After Big Wins and Big Losses


We find that experienced poker players typically change their style of play after winning or losing a big pot—most notably, playing less cautiously after a big loss, evidently hoping for lucky cards that will erase their loss. This finding is consistent with Kahneman and Tversky’s break-even hypothesis and suggests that when investors incur a large loss, it might be time to take a vacation or be monitored closely.

A substantial body of evidence indicates that decisions are shaped by a variety of cognitive biases

Poker is a game of uncertainty that involves many unknown factors. Players do not know the cards that will be dealt, what cards their opponents hold, how their opponents will bet, or what their opponents’ bets mean. However, poker players can assign probabilities, and the accuracy of these probabilities plays a crucial role in the implementation of a winning poker strategy.

Optimal decisions should focus on the marginal prospective benefits and costs, without regard for past gains and losses. In poker, every hand is new and unrelated to previous hands. In practice, history does matter because:

(a) players may revise their assessments of their skills and strategy; and

(b) outcomes do have psychological effects.

Experienced poker players should be little influenced by wins and losses. But, of course, humans, are not dispassionate Bayesian statisticians and they often draw conclusions from limited data that should be unpersuasive (Kahneman and Tversky 1972)

Calibration studies which ask individuals to predict the outcome of an uncertain event (such as an election or the performance of a particular stock) and also to estimate the probability that their prediction will be correct, find that people are typically overconfident (Slovic, et al. 1976; Odean 1998) and maintain this misperception despite evidence to the contrary by attributing their successes to skill and their setbacks to bad luck (Langer and Roth 1975, Miller and Ross 1975, Fischhoff 1982)

There is considerable evidence that behavior is, in practice, affected by sunk costs (Arkes and Blumer 1985). Staw (1976) argues that adverse results often lead to an expanded commitment of resources in an attempt to justify the original investment

Kahneman and Tversky (1979, p. 287) observe that a “person who has not made peace with his losses is likely to accept gambles that would be unacceptable to him otherwise.”


There is evidence that moods affect risk-taking; specifically, that people are more optimistic when they are in a good mood (Isen, Means, Patrick, and Nowicki 1982, Wright and Bower 1992). Similarly, there is some evidence that stock markets do better on sunny days than on cloudy days (Saunders 1993, Hirshleifer and Shumway 2003).

In poker, winning a big hand is exhilarating and losing a big hand is depressing. These emotions may carry over into subsequent hands, with players more likely to take unwarranted gambles after winning and less likely to do so after losing. It is possible that mood swings may cause even experienced poker players to change their style of play after a big win or loss.

House Money

It has been argued that gamblers who win wagers feel that they are now playing with other people’s money (“house money”) and can afford to be less cautious (Thaler and Johnson 1990). After a big win, players might be less concerned about losing what was not theirs to begin with. Similarly, they may be more cautious after a large loss because they feel they are now playing with their own money.

Gambler’s Fallacy

Another possible reaction to gains and losses is based on the “gambler’s fallacy”—the belief that the more often something has occurred (heads in coin flips, winning numbers in lotteries, bad hands in poker), the less likely it is to occur in the future. Players who believe in the gambler’s fallacy may be less willing to bet after wins and more willing to bet after losses.

Hot and Cold Streaks

On the other hand, some players believe that cards can become “hot” or “cold.” More 6 generally, a substantial literature on regression to the mean indicates that people underestimate the role of chance when they use observed data to assess underlying phenomena. For example, many investors misinterpret a temporary blip in a company’s earnings as evidence of a permanent change in its profitability. Poker players who believe in hot and cold streaks may be more willing to bet after wins and less willing to bet after losses

Doyle Branson Strategy

Poker players may have strategic reasons for changing their style of play. Doyle Brunson, two-time winner of the World Series of Poker main event, deliberately changes his play after large victories. In Super System (2003), the most acclaimed book on poker strategy, Brunson recommends loose-aggressive play (betting many hands and betting more than necessary to stay in the game) after big wins in order to bully opponents into submission. The successful outcome of this strategy is known as a rush.

Ken Warren, a well-respected poker writer, once said about Texas Hold-Em: “More money is lost by players who know what the right thing to do is, but don't do it, than for any other reason. Having a strategy, a game plan and the discipline to stick to it are, along with a sufficient bankroll, the four most important things that a player needs to be a winner.”

David Nelson, the Senior Vice President of Legg Mason Funds, writes of Ken Warren’s observation, “You could say the same thing about investing. Game plan, strategy, discipline and obviously, bankroll.”

If investors are like poker players, their behavior might well be affected by large gains and losses; for example, making otherwise imprudent long-shot investments with the hope of offsetting a prior loss cheaply.

  • Coval and Shumway (2005) find that Treasury bond futures traders are much more likely to take greater risks in the afternoon if they have morning losses instead of morning gains.

  • Locke and Mann (2004) find that futures floor traders on the Chicago Mercantile Exchange (CME) increase their risk exposure after losses.

  • Garvey, Murphy, and Wu (2007) similarly find that professional day traders who lose money in the morning trade more aggressively in the afternoon.

  • Crum, Laughhunn and Payne (1981) argue that major mutual funds and portfolio managers who are not 19 performing up to their target levels “exhibit risk-seeking behavior in an attempt to increase the return on their portfolios and thereby to achieve their targets.”

  • Kumar (2009) found that in bad economic times, sales of lottery tickets increase as do investments in “lottery stocks” which are relatively inexpensive and usually unprofitable, but offer a small chance of a huge payoff.

  • A February 2009 article in The Wall Street Journal reported that many investors were responding their stock market losses by making increasingly risky investments: “the financial equivalent of a ‘Hail Mary pass’—the desperate attempt, far from the goal line and late in a losing game, to fling the football as hard and as high as you can, hoping it will somehow come down for a score and wipe out your deficit.” (Zweig 2009).

All of these actions are consistent with a “break-even” mentality

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