Pro Traders Tend to Play Poker Instead of Chess
This piece was originally published on Bloomberg.com on January 4, but it was picked up by many other outlets, including the online edition of The Washington Post. It seems that even mainstream news readers enjoy this story.
It starts with a little anecdote about a bet. Back in 1983, a commodities investor named Richard Dennis bet his friend that he could teach a group of amateurs with no background in finance to become profitable futures traders. He ended up winning that bet. Since then, multiple scientific studies have been conducted to find out what makes a successful trader. This most recent one is by the University of Southern California and University College London.
What’s most pertinent to us is that this study found that the pro traders involved tend to play poker, while the non-pro trader college students in the control group tend to play games like chess, backgammon, or blackjack.
There seems to be a scientifically significant correlation between liking (and being good at) poker and being a profitable trader.
In fact, as this piece points out, trading firms use poker in training exercises for their potential new recruits. The author writes that he believes the connection is that both in poker and stock trading, you have to gauge other people’s perceptions in order to make the correct decision.
While at the card table, you have to guess what the other player thinks you might have; in the stock market, you have to guess where the average investor believes the market is headed. He even included this bold quote in his article:
“If you are not a trader but want to be one, either for your own account or for an institution, the study suggests you should play poker rather than attending class and take game theory courses over economics.”
However, he also goes on to write that this is just a mere suggestion. In reality, if you know more about economics than the average trader, that is also an advantage.
Aaron Brown is so passionate about the topic of the relationship between poker and trading that he wrote a whole book about it. His work “The Poker Face of Wall Street” was published in 2007 by the Wiley publishing house.
Poker Being Taken Seriously by Academics
Evidently, it’s not a great new revelation that poker is being studied in academic circles. It has been a focus of game theory as a great example of an incomplete information game. American poker pro Brandon Adams found the card game in his textbooks while working on his Ph.D. He later gave lectures at Harvard University in behavioral finance. Another world-famous college, MIT, held a course in poker strategy in 2015.
As for the connection between professional pokers and traders, the Canadian player Sam Greenwood worked as a stock trader before making poker his profession. Meanwhile, Vanessa Selbst made the same journey from the other direction. She got hired by an investment management company after retiring from the green felt.
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