The Art of Manliness - The Habits of Highly Effective Risk-Takers

00:00:00.000 Brett McKay here and welcome to another edition of the Art of Manliness podcast.

00:00:11.360 You may know Nate Silver as an election forecaster, but he's a poker player as well.

00:00:15.720 And his experiences operating in a world of competition and risk led him to explore what

00:00:20.160 his fellow gamblers, as well as hedge fund managers, venture capitalists, and many other

00:00:24.460 kinds of maverick types do differently than other people. Amongst the findings Nate shares in his

00:00:29.100 new book, On the Edge, The Art of Risking Everything, are the 13 habits of highly effective

00:00:33.960 risk takers. Nate and I discuss some of these habits today on the show, including exercising

00:00:38.540 strategic empathy, avoiding the pitfalls of resulting, taking a razor fold stance towards

00:00:43.500 life, and more. After the show's over, check out our show notes at awim.is slash risk takers.

00:00:59.100 All right, Nate Silver, welcome to the show. Thank you so much, Brett. So people probably

00:01:08.080 know you as the election forecaster, but what they might not know is you've had a career

00:01:13.860 as a professional poker player. Tell us about that. Yeah. So I was one of the, at that point,

00:01:18.960 relatively young kids, I guess I was in my late twenties during the poker boom era, which

00:01:23.840 was launched with Chris Moneymaker, who was this amateur who won the world tours of poker

00:01:27.840 in 2003 and the boom in internet poker. So I went to college, had a consulting job out

00:01:33.960 of college that frankly, I kind of hated, but a friend at the workplace was getting a poker

00:01:38.720 game started and being a competitive guy. I started practicing online, playing like free

00:01:45.460 poker and like free poker doesn't really work, right? No one has an incentive to actually play

00:01:49.200 well. So somehow I wrote myself into like actually depositing money at one of the more janky

00:01:55.480 online sites and somehow just started winning money. I think the reason why is that there

00:01:59.860 were so many new players to the game that there were a lot of fish as we call them poker kind

00:02:04.980 of suckers, kind of the blind leading the blind being slightly better than mediocre at this point

00:02:10.340 in time was still enough to be relatively good relative to the field. And before long, I was 0.90

00:02:15.080 staying up all night to play and kind of taking a taxi to work and getting in half an hour late

00:02:20.040 and barely knew how to make the printer work and things like that. And so I, I left my consulting

00:02:25.440 job to, to play poker and then help run a site called baseball prospectus with sports forecasting.

00:02:32.620 So you got a new book out called on the edge and you talk about how your career in election

00:02:37.640 forecasting, polling, and gambling are connected by a world that you call the river. What is the river?

00:02:46.680 So the river refers to a community of like-minded people. It's basically people that have

00:02:51.540 two characteristics. One is that they're really analytical. So they're kind of in the quantitative,

00:02:58.020 maybe more money ball mentality. They're trying to put numbers on things. They're trying to estimate

00:03:03.700 things, but that's paired with being really competitive. So risk-taking, they are sometimes

00:03:09.920 a little bit contrarian. They kind of are lone wolves who make their own way in life. And this

00:03:13.760 skill set, which is pretty unusual, if you look at kind of personality typologies, then oftentimes people

00:03:19.660 who are quantitative are kind of risk averse and, you know, there may be accountants or something where

00:03:26.020 they're play it pretty safe. But when you take these two elements and combine them, the risk-taking

00:03:32.200 genes, so to speak, and I think it probably is partly genetic with the analytical ability,

00:03:35.920 that can take you pretty far or lead to ruin potentially too. But those types of people,

00:03:40.800 I think are for better or worse, the people who tend to end up on the tails of the bell curve,

00:03:45.900 the people that sometimes in venture capital or poker or investing or different things or sports

00:03:51.820 betting, that's a powerful skillset in today's economy. Yeah. You talk about, you go into different

00:03:57.780 areas where you see these two qualities. So gambling is one, poker playing, sports gambling,

00:04:03.540 but you also look at the world of VC funders as well.

00:04:08.160 Yeah. I mean, if you talk about people who are extremely competitive, I talked to a lot of the

00:04:12.900 top venture capitalists in Silicon Valley and they love to compete, even though they might not need the

00:04:17.800 money anymore, even though they've already been really successful. They often have a chip on their

00:04:21.880 shoulder. That's one thing that also defines people in this world is they tend to be often pretty

00:04:26.960 self-motivated, right? They're not the people who are going to say, okay, I made a good living.

00:04:31.040 I'm going to go retire in Tuscany or something. They want to keep battling and keep fighting,

00:04:35.900 sometimes to their own detriment. I mean, I think you can certainly be too competitive for your own

00:04:39.380 good. And although most people are probably too risk averse, you'll meet people in the book who are

00:04:44.360 way too far on the other extreme. So what you do in this book is you take readers on a deep dive

00:04:49.360 into the world of the river. So you talk to gamblers, poker players, hedge fund managers,

00:04:55.640 VC guys, you talk to the cryptocurrency guy that just blew up that a Sam Bakeman freed guy.

00:05:03.420 And you do this to help readers understand how these people who are deeply analytical,

00:05:08.680 highly competitive, have a high tolerance for risk and uncertainty, how they operate.

00:05:13.940 But you have this great section and it was sort of an interlude into this tome of a book you wrote

00:05:18.520 that I really enjoyed. It's called the 13 habits of highly successful risk takers. And I want to focus

00:05:24.020 on this because I thought it was, I thought it was really useful. And in this section,

00:05:27.300 you expand out from talking to people in the traditional river community. So who did you

00:05:32.520 talk to, to figure out the habits of highly successful risk takers?

00:05:37.020 So in this section of the book, most of the people, like I mentioned, are like quantitative types,

00:05:41.940 but I also want to talk to people who take physical risks and different types of risks outside of the

00:05:47.420 kind of finance crypto betting space. So I talked to literally an astronaut. Catherine Sullivan was one of the

00:05:53.800 first woman astronauts. She was picked out of like literally 10,000 people, a class of like a dozen.

00:05:59.220 So she's quite a remarkable person. I talked to a former NFL player named Dave Anderson.

00:06:03.520 I talked to a guy who was literally an explorer and like climbs mountains. He's been in outer space

00:06:08.460 and things like that. He's taught at the Top Gun Academy. And what I found is that they actually had

00:06:13.580 more in common with the quantitative risk takers than, than I thought. The ability to be cool under

00:06:19.660 pressure. If you're up 29,000 feet on some mountain or you're literally in outer space, then, then you can't

00:06:26.340 panic when you're facing stress. You have to be capable of making good decisions under pressure. And they

00:06:32.240 have courage too. I mean, Catherine Sullivan was an astronaut at the time of the space shuttle

00:06:36.280 Challenger disaster. And, and before each mission for NASA at that time, you actually talk to your family

00:06:42.760 beforehand and kind of say a conditional goodbye. And she would say, look, they're putting me on a rocket ship

00:06:49.660 outer space. This might not end well. It hasn't always ended well with Apollo or Challenger or

00:06:54.140 things like that. So I just want to let you know that like, if something bad happens and I knew the

00:06:58.640 risks I was taking and I was doing this for the, for the love of exploration and the good of my

00:07:03.340 country and everything else. So they're very impressive, very impressive people. Yeah. Well,

00:07:08.220 let's talk about that first habit you found that these people who take physical risk have in common

00:07:12.600 with the people in the river, these analytical, highly competitive people. And you mentioned that cool

00:07:17.380 under pressure. And you talk about this in the book, like what happens to our minds and bodies

00:07:22.320 when we engage in risky behavior. And you talk about your own experience, you know, phenomenologically

00:07:28.380 what, what you experienced. So tell us that what happens to our minds and bodies when we're taking

00:07:32.040 part in risk. So look, we are trained through life times and, you know, eras and eras of evolution

00:07:39.720 to have a stress response. If you're playing poker in a $1, $2 game, and the stakes are low to you,

00:07:46.900 then, you know, you're just not going to have the same stress responses when you're playing like a

00:07:50.940 $50, $100 game, or you're at the final table in some major tournament. And the key is learning

00:07:56.440 how to handle that different operating system that you may find yourself suddenly engaged with.

00:08:02.340 Because it's not, by the way, being totally cool and not experiencing any stress. If you look at,

00:08:08.360 for example, I talked to a guy who was actually a golf instructor of all things and has worked with

00:08:13.060 professional golfers. And he said that like, you know, you might think of golf as a relatively laid

00:08:17.560 back sport, but PGA golfers have an elevated heart rate when they're playing, even when they're just

00:08:22.540 kind of walking from, you know, the fairway to the green or something like that. They're pumped up

00:08:26.980 and the athletes that have learned to deal with the stress can actually get, I mean, in the zone.

00:08:32.540 It's actually a real thing like Michael Jordan talked about back in the day where things are

00:08:37.200 elevated. You have heightened perceptual awareness. You know, your heart rate is faster. Some people

00:08:43.460 are kind of, kind of love that environment. They love dealing with the pressure. They feel like the

00:08:49.440 world is moving more slowly and they're thinking clearly. And so it's a rare trait, but that is

00:08:55.360 common between people who take financial risks and people who take physical risks. If you look at

00:08:59.320 traders, for example, on wall street, when there's some big news that breaks about a stock or a position

00:09:04.360 they're taking, their heart rates get elevated to their testosterone production changes and things

00:09:10.040 like that. This is partly why you can have bubbles in the market is that people are experiencing

00:09:14.060 physiological responses, but look, I'm mostly a mind guy, mostly a quantitative guy, but our bodies

00:09:20.920 give us important feedback too. And by the way, if you look at poker players now, not all of them,

00:09:26.100 but a lot of them are, are pretty self-conscious about their health routines. They understand that being

00:09:32.380 under stress is taxing on your body and paying attention and actually watching what your opponents

00:09:36.940 are doing is actually quite, quite taxing. Poker is a physical game, at least played in real life

00:09:41.780 and not on the internet and things like that. And so look, I'm not saying it's like the healthiest

00:09:45.680 population in the world, but we're a long way removed from the days of like donuts and whiskey

00:09:50.060 at the tables. Yeah. What do you do to manage your stress response when you're playing a high stakes

00:09:54.760 game? I mean, there's some stuff that's kind of basic. I mean, I think breathing deeply. I think

00:10:00.200 one thing that's important is like slowing down a bit. I mean, I tend to be a pretty quick decision

00:10:05.500 maker about lots of things, but slowing down and saying, I'm going to take my time and be in a

00:10:10.900 rhythm with these decisions and really kind of watch what my opponents are doing. That's pretty

00:10:15.520 important. I mean, I think also you always want to be playing for stakes that, that you can afford

00:10:20.040 to lose. You don't want to go on tilt because your whole life has been upended by, by a poker game.

00:10:25.440 So you have to kind of find the right pressure point where you feel real stress, but you also have

00:10:31.100 like a safety net underneath you. And that, that is true in poker and outer space or something. You

00:10:36.060 don't have a complete safety net or climbing a mountain in the Himalayas. You don't have a complete

00:10:40.020 safety net, but in poker, it's kind of just through trial and error, learning that pressure point where

00:10:45.120 you play optimally. What does it mean to go on tilt? That's a phrase you see in poker a lot.

00:10:49.960 What does that mean? So going on tilt means responding emotionally in an unhelpful way.

00:10:55.200 Okay. The most common form of it is if you take a bad beat and then you get really angry about that

00:11:00.260 and then you punt off, there's a term we'd use the rest of your chips, but there are other types of

00:11:04.660 tilt. There's boredom tilt. If you're not getting a lot of hands, you may start to overplay certain

00:11:09.800 things. There's entitlement tilt. Sometimes if you win a lot of money, you feel like you're God's gift

00:11:15.840 to poker. All of a sudden, notwithstanding the fact he probably just caught some good lucky cards

00:11:20.360 and you get very mad when all of a sudden your luck reverts back to the mean. And I've seen a lot

00:11:25.360 of guys late in tournaments or in high stakes cash games where they'll start out really well at the

00:11:31.140 beginning of the night, build up a big stack and then lose a pot via a bad beat or, or they get

00:11:35.740 outplayed or something. And then they go on tilt. And all of a sudden the guy who was a chip leader is

00:11:40.200 on the rail out of the tournament 45 minutes later, people really struggle with literally

00:11:46.600 counting their chips before it's time to cash them in. And then feeling like they are now lower

00:11:52.360 than the kind of peak they experienced before and going into a downward spiral. It's, it's a real

00:11:56.160 thing. And this can happen in other areas besides poker. I mean, a business person who's like, Hey,

00:12:00.780 I'm on this hot streak. I'm awesome. And I, they just take these unnecessary risks and it just blows up

00:12:06.100 in their face. It reminds me, I'm watching, um, Lawrence of Arabia right now. Have you seen that

00:12:09.920 movie? I have not. Okay. Well, there's this part where he, he actually starts to think that he's

00:12:14.560 like God basically, that he's unbeatable. And then he gets, he just gets his butt kicked. Um, 0.99

00:12:20.400 so he went on tilt. Yeah, no, I look, I, you know, people can have, I think a, a God-like complex

00:12:27.240 sometimes, right? If you're, if you're, if you're Elon Musk and you wake up and you're like the,

00:12:32.360 you know, richest person out of 50 billion people or however many it is that have ever lived, then

00:12:37.160 it's probably a little bit weird. You're probably pinching yourself and being like,

00:12:40.200 is this real life or what's happening exactly? And dealing with outlier success is something that

00:12:45.160 I think also is something that, that is hard, hard. I mean, obviously it's probably you'd love

00:12:49.760 to have, but that doesn't mean it's, it's a straightforward thing to deal with either.

00:12:52.760 Yeah. Like a good takeaway there is like, you have to be cool under pressure and pressure could be

00:12:57.040 when your things are going against you, but also when things are going for you,

00:13:00.480 that's a different kind of pressure as well can cause you to do dumb things. 0.81

00:13:03.680 For sure. I mean, it's how you do in the high stakes moments. And by the way,

00:13:06.780 one theme I heard over and over again is that you don't want to try to be a hero, right? So the

00:13:12.280 ex NFL player I talked to, he said, well, look at, look at when people, he's a big sports science guy.

00:13:17.500 Look at when players get injured in the NFL. It's often in the high pressure moment. So like

00:13:22.400 interceptions, fumbles, kick returns, punt returns, where there's a lot of leverage and a lot of

00:13:27.080 things happening at once. And guys get out of their routines. They try to do something heroic

00:13:31.700 with 80,000 fans screaming at them or something. And they wind up overextending themselves and not

00:13:36.380 executing the basic A, Bs and Cs and getting hurt. If you can just execute your baseline training

00:13:41.860 and game plan under pressure, like that's going to get you further than 95% of people. And yeah,

00:13:47.760 there probably are a few people who experience some elevated in the zone maverick level kind of

00:13:53.440 performance, but just executing under difficult circumstances and not thinking too far ahead

00:13:59.900 goes a long way. Yeah. You have this mantra that this guy talked about. Don't be a hero. Just do

00:14:04.520 your job. I think that's really useful. Just do your job. Absolutely. So another habit you talked

00:14:08.880 about, you mentioned successful risk takers have courage and you describe this courage as residing

00:14:15.400 between competitiveness and confidence. Why is courage the word you settle on to describe this

00:14:22.040 stance towards life? Look, I talked to a lot of people in this book who, who are making their

00:14:27.060 own way in life, right? You know, one of the best poker players I talked to is named Maria Ho. She, 0.99

00:14:33.020 by the way, is uncanny, fantastic at like reading people. She is able to have conversations with

00:14:39.640 people to get very natural streaming conversations while she's in the middle of a poker hand, which is

00:14:43.180 actually pretty difficult. It's a different part of your brain that you're using. And, you know,

00:14:47.280 she grew up in an Asian American family where I don't mean to stereotype too much, but by her own

00:14:50.940 words, her parents want her to become a doctor or something like that. And she was like this,

00:14:56.560 right? She kind of bribed her way into like her college dorm poker game by bringing over a bunch 0.99

00:15:02.140 of beer because all the guys were ignoring her on poker night and things like that. And, you know,

00:15:06.560 she's someone who has made her own way and is not afraid of anybody and goes toe to toe and often

00:15:11.800 wins against the best players in the world. So I do think there's an element here of, of courage. It's also,

00:15:15.920 you know, overconfidence is very risky when you're doing something like playing poker,

00:15:19.860 you know, it's a difficult game. You're playing as other skilled opponents. And so,

00:15:24.120 you know, part of it is, is being self-aware, but I do think some of it comes down to

00:15:29.500 being willing to take chances that have what I call a positive expected value, meaning it won't

00:15:34.740 always work out. But over the long run, if you made that decision a hundred times that you would

00:15:39.640 wind up in a better place more often than not. And a lot of people are very risk averse. I mean,

00:15:43.020 look for many years, I mean, people just barely eked out a living and the average human lifespan

00:15:47.200 was 39 years or whatever. And, and you'd get a disease and it would kill you or something like

00:15:51.940 that. And now we live in a world where there's a lot more abundance, but people still can have like

00:15:57.920 a, a scarcity mindset and do things that they think are risk averse, but actually put them at

00:16:03.520 more risk of falling or failing out of success in the long run, because they're too unwilling to make

00:16:08.440 a change at a time when that would be good for them. You know where I've seen that idea of being

00:16:13.820 risk adverse actually set you up for more harm? Skiing. So whenever I first learned, I, I went really

00:16:20.460 slow and I was being really way too careful and I was just falling down all the time. Finally, my

00:16:26.580 instructor told me you'd actually do better and are safer if you go faster. Like being too careful is

00:16:32.860 what messes you up and makes you fall down. So he said, you just got to kind of go for it. And it,

00:16:37.520 and it's true. Absolutely. Or another context where it comes up is in, I talked to HR McMaster,

00:16:43.100 who's a former, whatever, multi-star general. And he says in war, you can't just stand still,

00:16:48.360 right? If you're in the middle of a battle, you often face situations where you have to charge

00:16:51.780 forward or retreat. And it sometimes can be hard to know whether charging forward or retreating is

00:16:56.460 better. Sometimes it's better to kind of literally or proverbially fold your hand, so to speak.

00:17:00.920 But standing there and being indecisive is by far the worst of those three actions a lot of the time.

00:17:06.400 And people freeze, you know, fight or flight is actually not the worst response because freezing

00:17:12.540 in the face of stress is often the option that gets you in the most trouble.

00:17:16.700 Yeah. You talk about this idea of having a chip on your shoulder. A lot of these people you talk to

00:17:20.540 have got a chip on their shoulder. Why do you think they do? Why do they kind of walk around

00:17:25.740 with this idea that they're kind of the underdog and they've got something to prove?

00:17:28.840 So a lot of them have some degree of childhood trauma. I mean, Elon Musk had a difficult childhood.

00:17:36.520 Jeff Bezos was adopted. I mean, it's usually, you know, it's people who are good at milking 0.97

00:17:41.000 grievance or challenges sometimes, but they're people that feel like they have to,

00:17:44.980 they constantly have to prove themselves and maybe, maybe go overboard, frankly. Right. I mean,

00:17:49.180 we are, by the way, talking about the people who are extreme outliers, very far on the tail of the

00:17:53.640 curve where they keep doubling down over and over again, kind of even when they've already won,

00:17:59.320 which may not be healthy necessarily. But, you know, in a world of 8 billion people,

00:18:03.340 if you're talking about like the, you know, 100 richest people in the world or 100 most successful,

00:18:07.960 then they, they both have to be lucky and good and insanely risk taking. These are not like trust fund

00:18:15.960 kids who are just kind of living out their life in Tahiti or something. They're people that often were

00:18:20.400 upper middle class. They had certainly some degree of privilege, often a considerable degree,

00:18:25.580 but they kept gambling and keep gambling even when they've already won.

00:18:29.940 When have you seen this chip on your shoulder become a hindrance? Like what are some people

00:18:32.740 where you've seen that become a problem for them?

00:18:35.940 I mean, Sam Beckman-Fried is one example of somebody who was willing to take insane levels

00:18:40.900 of risk. I mean, obviously he also had issues with fraudulent premises for, for his company and how

00:18:47.160 who's using user funds and FTX, but he's someone who almost had a borderline death wish. And I'm

00:18:53.860 using that term deliberately because, you know, I mean, he kind of literally told me, this is before

00:18:58.200 he got into trouble in terms of bankruptcy and, and being a convicted felon on seven felony counts,

00:19:03.940 whatever it is and everything else. Right. He told me that if you're not willing to risk ruining your

00:19:08.800 life, that you're not taking enough risk. And that's the wrong message. We're talking about

00:19:13.080 calibrated, calculated risk-taking and courage is a part of it because most people left to their

00:19:18.060 own devices are too risk averse, but he's someone who goes way too far in the other direction.

00:19:23.340 You know, his parents are academics who have a particular philosophy of life. I'm not sure if

00:19:27.360 he had trauma or whatever else, you know, he's somebody also who didn't have like a good

00:19:31.660 network of friends to help bring him in. So he ran his business out of the Bahamas,

00:19:36.420 which are kind of further removed than you'd think from the rest of society. I mean,

00:19:40.020 he's in a compound on the other side of the Island from where most of the tourists are.

00:19:43.940 His girlfriend's running his hedge fund. His parents work for him. So he doesn't have any

00:19:48.760 buddies to like, to say, Hey man, you're going a little too far with this stuff. And that can be

00:19:53.180 very dangerous. This seems less of an example, having a chip on your shoulder and more just hubris.

00:19:59.000 It seems like Sam Bakeman Freed had this idea of himself as this wonder kid and he developed almost

00:20:03.520 this God complex, like he could never lose. And that just made him really make decisions that just kept

00:20:09.140 on snowballing. And then he went on tilt, went on mega epic tilt. Yeah. Okay. So another happy

00:20:15.340 you talk about is successful risk takers have strategic empathy. Then you talked to HR McMaster

00:20:20.800 about this. What is strategic empathy? It's the ability to see the world or the quote unquote game

00:20:26.700 in your opponent's shoes. And this is important. I mean, I think one habit people have is to treat

00:20:32.220 other people as what in video game terms you call non-player characters, people that don't have

00:20:37.300 agency or don't have the ability to make decisions on their own. But when you're in a really competitive

00:20:42.060 field, whether it's venture capital or poker or sports betting or, or the military battleground,

00:20:47.140 you're dealing with actually some of the smartest and brightest people in the world. And they are

00:20:50.700 capable of adapting and adjusting to the situation. And so understanding how they think and kind of,

00:20:57.360 to use a more technical term, what the equilibrium is when everyone's playing their best and like,

00:21:01.640 where can you hold your ground? Where can you attack? But, you know, we're not talking about the most,

00:21:07.300 touchy feely people in the world, Brett. It's like not that type of empathy,

00:21:10.620 but saying, if I were in my opponent's position, how would I play this poker hand, for example,

00:21:15.920 and then reciprocating that back in your hand and going through the iterations of that.

00:21:20.500 That's like basically what like computers do when they're playing poker. They simulate back and forth

00:21:24.520 one person's action, then people mix adjustments and they adjust and adjust and adjust until you get

00:21:29.240 to some optimum point. In a very competitive world, that's how it works. There usually isn't free

00:21:34.080 money just lying on the ground for taking, you have to, you have to, you know, play your best

00:21:37.940 and assume your opponents are playing their best also. Yeah. You kind of be a little, you have to

00:21:42.040 have the empathy of a psychopath almost. It's like, it's not that like you're like feeling like,

00:21:46.600 oh, I feel bad that they feel bad. It's like, well, I'm just, what would this person do so I can

00:21:50.400 kick their butt? Yeah. I don't know if I quite call it being a psychopath. I mean, I do think in poker 1.00

00:21:56.180 in particular, like the emotional empathy part probably is good too. You know, the other day I was playing

00:22:02.500 a fairly high stakes game and my friend had been having a rough night and I thought I could bluff

00:22:09.380 him out of a pot where he was probably supposed to call and much to his credit, it didn't work.

00:22:14.280 He had the presence of mind to know that like, hey, I know that I'm having a rough night. I know

00:22:19.300 Nate knows that. Therefore, I know that Nate may be trying to exploit that by getting me to fold a

00:22:24.160 pretty good hand. Therefore I call. And so he won, he won a lot of money from me. So that's a good

00:22:28.440 example of him one upping me in strategic empathy. Yeah. One way you can develop the strategic

00:22:33.060 empathy is practice. We did a whole podcast about this, but a red teaming where you try to figure

00:22:38.260 out how to beat yourself. Like how would the competition beat you and like simulate that?

00:22:43.020 We're going to take a quick break for your word from our sponsors.

00:22:50.000 And now back to the show. Okay. Another habit you talk about is that risk takers

00:22:54.400 are process oriented and not results oriented. And you talk about this in the book. We've also

00:23:00.640 had Andy Duke on the podcast talk about this idea of resulting for those who aren't familiar. What

00:23:05.440 is resulting in poker and why is it bad? Yeah. So in poker, generally speaking,

00:23:11.340 if you can get your money in as like a 60% favorite six zero, you're pretty thrilled with that.

00:23:16.480 That leads to a very high return on investment in the longterm. You're still going to lose 40% of the

00:23:21.780 time. In fact, some players might say, I'll take a 53, 47 edge. You'll lose almost half the time.

00:23:26.940 The edges are thin and very competitive games like poker or sports betting. So in poker, you kind of

00:23:32.100 learn this the hard way because you'll have many hands where you get all in and you have like three

00:23:37.500 of a kind and your opponent has a flush draw and you're supposed to win that hand about 65% of the

00:23:42.640 time. But if you play thousands of hands, the 35% comes up a lot. And so, you know, you did

00:23:46.880 everything right and you, you can't control the turn of the cards. So you, you learn that through

00:23:52.640 example. But, you know, I think we all have to acknowledge that like luck plays a role in our

00:23:58.440 lives. Being in the right place at the right time counts for a lot, almost by definition. If you're

00:24:03.020 a very successful person, you probably both, both are lucky and good. I mean, you're probably lucky

00:24:07.640 to be born into a country at a time where there's a lot of economic opportunity and you're lucky to

00:24:12.300 have your, your health and your support network and things like that. And so, so appreciating that

00:24:17.560 I think is a healthy mentality as well. Yeah. So resulting is judging the quality

00:24:22.400 of a decision by its outcome. And that can lead to faulty thinking because, you know, sometimes

00:24:26.960 things turn out well for you, but it's not because of anything you did. You just got lucky,

00:24:32.140 but also something can go badly, but you actually made a good decision. It just didn't go your way for,

00:24:37.580 you know, whatever random reason. Yeah. I mean, you see this, I'm a, I'm a

00:24:41.320 Detroit Lions fan. You see, you know, Don Campbell was criticized for aggressive play calling and

00:24:47.220 going for it on fourth down, but like, you know, you have to take risk and you have to make the

00:24:51.660 best decision that you can in the long run and not be embarrassed by failure and not be embarrassed

00:24:56.120 by sometimes even looking foolish because, you know, look, if we all had perfect information,

00:25:00.440 if we knew how everything was going to turn out, then a, the world wouldn't be very interesting or

00:25:05.320 fun. But also, you know, if you're working in finance or poker or whatever else or investment,

00:25:11.440 you have to take the opportunity before other people do. You can't wait for the perfect academic

00:25:16.740 model to come in and perfectly solve the answer because by that point, the more aggressive players

00:25:21.820 in the market will already have squeezed all the juice out of lemon. And so being willing to work

00:25:27.100 with incomplete information and make your best estimate. And if you're wrong, by the way,

00:25:31.960 you, you should double check your process. If you're wrong, if you're consistently wrong in

00:25:36.760 particular, if you're getting things wrong over and over again, then maybe your process is bad,

00:25:40.300 but, but most people are to results oriented and not process oriented enough. Yeah. The example

00:25:45.480 Annie Duke uses is Pete Carroll in the Superbowl in 2015. So it's a fourth quarter, less than a

00:25:53.080 minute left. The Seahawks need a touchdown. They're on the one yard line of the Patriots and everyone

00:25:59.240 expects Carroll to call a running play because they got the, they got one of the best running

00:26:02.620 backs in the league, but he calls a pass play intercepted game over. And after that, everyone

00:26:08.520 just goes crazy saying like, Oh, it's the worst decision ever. But if you look at the actual

00:26:13.380 statistics and the probabilities, like the decision made sense, it was a good decision. And if you'd won

00:26:19.180 the Superbowl, people would have said, yeah, that was, that was a great decision. So another happy

00:26:23.320 you talk about is a successful risk taker takes a raise or fold attitude toward life.

00:26:29.580 This is partly what I talked about before with HR McMaster on the battlefield. You don't want to

00:26:33.580 get stuck in the middle sometimes. I mean, and often in poker, if I go sometimes in the summer,

00:26:37.620 I'll deal like a backyard game at my friend's apartment in Brooklyn. And this is with people

00:26:42.060 who have never played poker before, except maybe once, once a summer when we play and really

00:26:46.440 inexperienced poker players are uncertain. And so what they wind up doing is calling a lot

00:26:51.620 or checking the in-between passive actions instead of the bolder actions of raising or

00:26:57.060 folding. Folding, quitting can sometimes be a bad action. I mean, you may have talked to

00:27:01.680 Andy Duke about this here, but quit. In general, people are happier when they, when they make

00:27:06.140 a change. If they think they're unhappy in a relationship or a job, or they want to move

00:27:09.960 cities or something or change their lifestyle. Usually if you talk to them afterward, they're

00:27:13.920 happy they made that decision. I think it's also kind of partly a matter of cultivating a few

00:27:19.600 things in life that you specialize in. I think where you can have more of a comparative advantage

00:27:24.420 over the field, I think is usually more worthwhile than trying to be like a jack of all trades.

00:27:29.600 And you talk about Andrew Luck, the football player, kind of using this principle in his

00:27:34.600 own career. Tell us about that. Yeah. So, you know, very successful Stanford graduate,

00:27:39.900 Indianapolis Colts quarterback, but had a bad offensive line, was injured a lot. And to many

00:27:45.060 people's surprise, retired when he was age, I think 29 or 30, when he still had probably half

00:27:49.540 his career left. And, and he said, look, I have a new, a newborn on the way for the time being.

00:27:54.640 I have my health. I'm a smart dude. I went to Stanford and I've had a great career, but I want

00:28:00.120 to make sure I have a good life for the rest 50, 60 years of my life. I don't have to prove

00:28:05.220 anything to anybody. And the, you know, the NFL player I talked to in the book, Dave Anderson,

00:28:08.780 who is, you know, kind of a guy who is more on the margins of the sport, kind of a Wes Welker,

00:28:13.600 short slot receiver type, but like in a lot of training camp battles to gain starting time and

00:28:18.760 things like that. He's like, you know what? I admire Andrew Luck because there's no particular

00:28:24.000 honor if you go through and get hurt. And by the way, Dave's ex friends, ex teammates, I mean,

00:28:29.460 a lot of them, you know, suffered physically from the NFL. It's a, it's a, it's a sport where you're

00:28:35.180 taking real physical risk and your body is grinded down. And so he's like, I admire the guys who do that.

00:28:40.380 But if you're a guy who found success and you're willing to say, I want to, you know,

00:28:44.360 get some mileage and have a wonderful life for my next 50 years, then, then he admires that too.

00:28:49.480 Yeah. So luck folded because he saw the expected value. It was like, ah, it's better if I just quit

00:28:53.900 this NFL thing and do something else. And like the call thing would have been like, I'm going to keep

00:28:57.700 the career going. Maybe I go to a different team with a better offensive line and maybe I can make it

00:29:01.560 work. He's like, ah, no, I'll just quit this. Yeah. I mean, maybe call it, or maybe that would be

00:29:06.440 raising actually, right. To say that, okay, I'm going to demand a trade and improve my situation.

00:29:11.080 Whereas calling is kind of muddling through for another season when, when you're worried about,

00:29:16.360 and by the way, I think often when people are in a situation, they're unhappy. And I mean,

00:29:20.080 that's reflected in inferior performance. You know, people can even have a tendency to like,

00:29:25.800 you see this in poker tournaments sometimes where a player's made the third day of a tournament,

00:29:29.940 but then he's getting stressed out. Maybe he's having to miss days of work,

00:29:33.400 or maybe he's homesick, or maybe he feels like he's accomplished enough. And there's a little

00:29:37.380 bit of like survivor's guilt or imposter syndrome and they'll self-sabotage or even things like if

00:29:42.460 you're playing poker and you didn't eat a good lunch and you're thinking, boy, it wouldn't be

00:29:46.340 nice to have like a burger and like a beer or something, right. You'll find ways to like,

00:29:50.020 and fly home on the red eye. You'll find ways to self-sabotage if you're in a situation where

00:29:54.460 you're not able to be fully present. Yeah. This can happen in your career. You hate your job,

00:29:58.860 but instead of, you know, either folding or raising, you just kind of keep muddling along 0.99

00:30:04.540 to see if you can make this work and you're just miserable. Yeah. That's when you start to make

00:30:09.420 mistakes. And as someone who's done a lot of different things in life and had a lot of

00:30:13.000 different careers, I mean, I just know kind of from experience that like I can be like literally

00:30:17.600 five or 10 times more productive when I'm happy and engaged than when I'm trying to muddle through.

00:30:21.980 Yeah. So another rule is, or another habit you found that successful risk takers had is

00:30:27.300 successful risk takers are prepared. And you talked to it. Did you talk to a fighter pilot

00:30:31.560 about this? Yeah. I talked to, uh, Victor Viscobo is the name of the explorer I talked to earlier.

00:30:36.900 So he's been to like the seven highest peaks on each continent. But before that he, he was a fighter

00:30:41.820 pilot and also taught other pilots at what's kind of informally called the Top Gun Academy. So I

00:30:47.320 talked to him shortly after Top Gun Maverick came out and I kind of asked him what he thought

00:30:51.420 about that movie. And he's like, yeah, Maverick is actually kind of bullshit, right? Cause Tom 0.98

00:30:56.840 Cruise is telling people don't over-prepare and just kind of trust your gut and wing it a little

00:31:02.340 bit more. I mean, I guess this gets a little bit to the skiing thing where sometimes you do have to

00:31:05.600 let go and be immersed in the situation, but military missions, you know, missions to execute

00:31:11.840 some tactical strike are meticulously planned out. And what you find is that when you're planning

00:31:17.760 out plan for the everyday eventualities and you're actually better prepared when something

00:31:22.860 unexpected happens, you're not wasting bandwidth with the basic blocking and tackling stuff. You

00:31:27.460 know how to execute and, and, you know, fly the jet home and turn around if you need to.

00:31:32.040 So you have more of your attention. I mean, attention is a scarce resource. People forget that,

00:31:36.300 like people say, why didn't you pay attention to this or that? Well, it's because like attention

00:31:39.000 is a scarce resource and the human mind can do amazing things when it's focused. And so, you know,

00:31:43.840 clearing up mental bandwidth with preparation for dealing with emergency situations or dealing with,

00:31:50.000 you know, amazing opportunities is a really important life skill.

00:31:53.880 Yeah. See, Eisenhower famously said, plans are useless, but planning is everything.

00:31:58.440 Perfect. I love that quote.

00:31:59.960 And then something else I was fascinated by in the book, and when you're talking about this,

00:32:03.160 this world of poker or something that's happened in the past 15, 10 years that's made poker players

00:32:09.160 better is this development of like poker simulators or software. Tell us about this guy.

00:32:13.760 I thought it was really interesting because I think this kind of goes along with it. You're

00:32:16.360 preparing so you can make those more intuitive decisions when you need to.

00:32:20.500 Yeah. So these are called solvers is the name where they literally use, you know, lots of fancy

00:32:25.620 technology to calculate what the optimal play is, the game theory optimal play is for poker in any

00:32:31.080 given situation. Now it's not as easy as it sounds because it's this complicated, literally like

00:32:35.340 13 by 13 matrix. And, and sometimes there are multiple best plays that you're, you're equally good

00:32:41.200 to raise or call for example, but that's a matter of preparation, right? Where, because your opponent's

00:32:46.280 not going to play as well as computer. However, understanding what the theoretically correct play

00:32:50.960 is allows you to, to deviate and make an exploit that Hannah talked about before where I made this

00:32:56.040 bluff. Like I knew that was probably a pretty dubious bluff if I was playing against the computer

00:33:00.880 and I incorrectly guessed that my friend would not be playing like a computer. And instead he made

00:33:05.500 the right play and called, but that was a self-aware, a self-aware attempt to the poker

00:33:10.820 term for it is exploit my opponent. I mean, he didn't fall for it. You take chances in poker,

00:33:16.560 they don't always work out, but it was a studied play where I knew why I was making an unusual

00:33:21.340 choice. How have you seen these solvers change the world of poker since you've been playing?

00:33:26.920 Oh man. I mean, just like the level of sophistication, at least for the top half of the

00:33:31.720 playing pool is just, is just much better. You might see some like, you know, old guy who you

00:33:37.300 think hasn't played a hand other than aces or kings in six years, right? And all of a sudden

00:33:41.640 they're bluff raising and talking about solver outputs that they're looking at. So for a certain

00:33:46.080 type of like studious player, maybe not someone who's playing professionally, although the professionals

00:33:50.860 use this too, obviously, but it really helps lift your game up if you're someone who has a busy life.

00:33:55.560 So I'm sure many of your listeners do, but wants to really raise the floor on how well they play,

00:33:59.980 like developing intuitions from playing with solvers is something that I would recommend.

00:34:05.500 Yeah. I've heard people talk about this, how, you know, AI might replace some stuff,

00:34:10.580 but artificial intelligence, like you're going to get the most out of it. If you combine

00:34:14.100 artificial intelligence with human intelligence, like chess playing, I guess like the best chess

00:34:18.140 players are the ones who like use AI and human ability. I don't know if that's true.

00:34:24.720 Yeah, I know. Look, they're, they're studying the computer sims and the computers are better at

00:34:28.180 chess than the best human players. But, you know, again, like Magnus Carlsen or someone can also

00:34:33.180 make exploitive plays. It can say, I bet my opponent won't be prepared for this line that

00:34:38.320 I'm going to take. And so even though I know this line is not optimal as a computer would play,

00:34:41.900 I think it's actually optimal against another, another human being.

00:34:44.820 Yeah. So, okay. The lesson there, just over-prepare because that over-preparation will allow you to

00:34:49.940 exploit when you need to, because it allow you to make those intuitive decisions when things are on

00:34:55.100 the line. Yeah. Look, I mean, these poker players today, they're all, you know, they're all very

00:34:59.540 smart, but they're spending a lot of time off the felt studying because you just have to be

00:35:03.560 realistic, right? You can be a smart, accomplished person. If you're going to the arena where you're

00:35:09.260 selecting for all the other smart, accomplished people who are playing the same game as you and

00:35:12.820 they're playing because they think they're going to win your money, right? You know, what makes you

00:35:16.080 better than them? Well, maybe you're not, but to have any hope of competing, then you, you have to be

00:35:20.420 rigorous and studious and not just wing it. So another habit is successful risk takers have

00:35:25.420 a selectively high attention to detail. What'd you learn about this from that, that astronaut?

00:35:29.900 Well, I mean, her phrase is the most important thing is to know what to pay attention to,

00:35:34.440 right? She put it in a more eloquent way, which I'm spacing on, no pun intended for a minute. But,

00:35:39.280 you know, if you literally go in like a space shuttle, there are like 84 different dials and knobs and

00:35:43.680 bleeping indicators and things like that. And understanding what you're focused on, you have a mission,

00:35:48.880 but when something goes wrong, you have to pay attention to that. And when something goes wrong,

00:35:53.380 while you're trying to solve the thing that goes wrong, you have to know kind of what

00:35:56.220 demands the most of your attention at any given time. I think you also have to learn how to,

00:36:00.440 how to pace yourself, you know, in poker, you might only face one really important decision every hour

00:36:07.720 or every half hour, every two hours, but that one decision might have a hundred times or a thousand

00:36:12.980 times the value of a, of an ordinary kind of low stakes decision. And so learning how to like pace

00:36:18.280 yourself again, that can involve, you know, mental and even physical health to some degree,

00:36:22.840 but, you know, understanding that like, you know, if you play in a poker tournament,

00:36:26.200 especially when you get toward the end of a tournament where it might just be two or three

00:36:29.140 or four players left, you know, it's quite draining. You know, I'll have situations where

00:36:33.260 I've been playing in an intense tournament. I'm like, okay, I finally got knocked out,

00:36:36.700 but I won some prize. That's great. I'm going to go, you know, meet my friend for a beer and relax,

00:36:41.780 right? You kind of make it halfway back to your hotel room and you're like ready to fall asleep

00:36:44.400 because you kind of left it all on the line and paying attention is physically, is physically

00:36:48.260 taxing. No. Yeah. You talk about a lot of poker players talk about the game being hours of boredom

00:36:53.960 punctuated by moments of sheer terror, because yeah, most of the time it's just like, you're

00:36:58.080 nothing's really happening. And that can lull you into this sort of complacency where you stop paying

00:37:03.100 attention and then you, you miss, miss something where you could have won big for sure. And, you know,

00:37:08.380 picking up on physical reads on your opponent. I mean, one thing that you'll discover is that

00:37:11.580 if you are in a situation, because poker, if you're just playing a low stakes game,

00:37:15.780 you're chatting in between hands, you're checking your phone, right? You're watching sports on TV,

00:37:19.640 et cetera. You're killing some time. When you do play a high stakes game or get deep in a tournament,

00:37:25.720 all of a sudden you find that all this other stuff that you're ignoring, there's a lot of

00:37:29.180 information there about the way people are putting their chips into the pot. And you're thinking ahead

00:37:33.840 toward what if they bet this amount of this card comes. And all of a sudden when decisions really

00:37:39.020 are high stakes and they matter, then you find there's lots of things that you're kind of

00:37:42.680 shutting out most of the time in everyday life. And that's, that's okay. I mean,

00:37:46.640 we can't all be going at full speed 24 seven, but knowing how to pace yourself and knowing when you

00:37:51.440 have to turn on and be at a high attentive level is, is being prepared to do that and healthy enough

00:37:57.380 to do that is, is important. So another habit that I liked was successful risk takers are good

00:38:02.140 estimators. And with this habit, you say that good risk takers are Bayesians. What do you mean by that?

00:38:07.940 So Bayes theorem comes from the Reverend Thomas Bayes. This is like a 17th century who came up

00:38:13.260 with a formula called Bayes theorem, which is about updating information based on incomplete

00:38:18.540 information. So if you go to like a dinner party or some social event with someone you don't know

00:38:24.480 very well, and you're trying to be a sympathetic, friendly guest, this is an example of kind of a

00:38:30.320 Bayesian process where you start out knowing not very much at all. You're probably being pretty

00:38:35.920 cautious and pretty polite, but then you found out that actually you went to the same high school

00:38:40.140 or you were for the same sports team, or maybe, you know, your wives or partners have something in

00:38:45.220 common or you, or, or you have a shared interest. And so you adapt and adjust in a very natural way.

00:38:51.280 In some ways, it's like actually a very intuitive process in poker. It can be a little bit more

00:38:56.440 rigorous where you are actually trying to estimate a probability. You know, if you, if you're,

00:39:00.260 if someone goes all in on the river and you have to write 35% of the time to make the call,

00:39:05.560 well, then knowing if you're right 40% or 30% is important. So developing practice at like

00:39:10.460 mathematically estimating things, right? It's an annoying habit. If I go to like a NBA game,

00:39:15.900 I'm a Knicks fan, for example, I can estimate pretty well. The Knicks are down five points with

00:39:20.100 six minutes to go in the fourth quarter. I can usually estimate pretty well what their chances are

00:39:24.180 of winning. Not well enough to necessarily bet blindly at FanDuel or something, but, but enough that

00:39:29.860 I'm always thinking in terms of probabilities. Is this a skill that you can get better at?

00:39:34.660 Oh, a hundred percent. I mean, it's drilled into poker players heads through playing tens of

00:39:40.680 thousands of hands. And it's a hundred percent something that you've learned through practice.

00:39:44.480 Yeah. I've, I've, something I've been thinking about lately is I wish I was better at thinking

00:39:48.240 more probabilistically. I mean, I think I might do it intuitively. I'm not very explicit about it.

00:39:53.040 I'd love to be able to take sort of those intuitive, probable decisions that I make and make it

00:39:58.440 explicit. Any advice on how to do that? I mean, again, it's partly having a practice

00:40:03.440 where you've kind of experienced both the good outcomes and the bad outcomes. So you kind of

00:40:06.700 see where your expected value winds up or the long run. And by the way, this is meant for decisions

00:40:09.960 that you are able to make repeated times when it's things that are one-offs, like who should I get

00:40:14.340 married to or things like that? Should I make a major life altering course of action? Then I'm less

00:40:19.760 concerned about how people make their decisions, but things where you get more than one crack at the

00:40:24.420 apple. If you're, if you're a, an investor in Silicon Valley, you're going to make dozens and

00:40:30.020 dozens of investments over the course of your career. And so again, being process oriented and

00:40:34.440 learning from that and, and, you know, and trusting the process. Yeah. So another one that you talked

00:40:40.420 about is successful risk takers are conscientiously contrarian. What do you mean by that?

00:40:45.900 So a lot of people in the river being kind of lone wolf types tend to be contrarian. They say,

00:40:51.180 if you want vanilla, I want chocolate and vice versa. That can sometimes get them in trouble.

00:40:56.620 I mean, sometimes these like founders can be jerks, assholes, even they can be difficult people. 0.99

00:41:02.300 But what you want is you want to have a sense for like, why are someone's incentives different 0.99

00:41:06.820 than mine? That's the conscientious part. So I talked to one friend of mine who works for a hedge fund

00:41:11.880 and they try to find out when people have like bad reasons for making stock trades. So if for example,

00:41:18.480 you have a company where an equity founder has a bunch of equity locked up until X date,

00:41:23.540 until August 1st or something like that, then on August 1st, they're allowed to sell their shares.

00:41:29.320 If you know that they're making a non plus EV expected value, I shouldn't use the EV jargon,

00:41:34.360 a non expected value-based decision, then that creates an opportunity to like exploit them

00:41:38.360 potentially. Or I find this in like politics a lot as I will get in battles with people on Twitter

00:41:43.300 and whatnot. Because I'm trying to forecast elections. I'm trying to understand what the

00:41:49.020 likelihood is that Democrats or Republicans will win. And they're trying to be partisan or

00:41:53.220 something, which is fine, but we're playing different games. I mean, if someone's playing

00:41:56.100 a different game is when you can be better at what you're trying to accomplish.

00:42:00.780 Well, Nate, this has been a great conversation. Where can people go to learn more about the book

00:42:03.480 and your work?

00:42:04.380 So the book is called On the Edge, The Art of Risking Everything. And my newsletter is called

00:42:07.820 Silver Bulletin. It's on Substack, natesilver.net.

00:42:10.640 Well, Nate Silver, thanks for your time. It's been a pleasure.

00:42:13.340 Thanks so much, Brett.

00:42:15.460 My guest today was Nate Silver. He's the author of the book On the Edge. It's available on

00:42:18.660 amazon.com and bookstores everywhere. You can find more information about his work at his

00:42:22.220 website, natesilver.net. Also check out our show notes at awim.is slash risk takers,

00:42:27.140 where you find links to resources. We delve deeper into this topic.

00:42:36.940 Well, that wraps up another edition of the AWIM podcast.

00:42:39.780 Make sure to check out our website at artoothmanliness.com, where you find our podcast

00:42:43.500 archives, as well as thousands of articles that we've written over the years about pretty

00:42:47.080 much anything you think of. And if you haven't done this already, I'd appreciate it if you

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00:42:54.420 you've done that already, thank you so much. Please consider sharing the show with a friend

00:42:58.360 or family member who would think you'd get something out of it. As always, thank you for

00:43:01.800 the continued support. And until next time, it's Brett McKay reminding you to not listen to the AWIM podcast,

00:43:05.880 but put what you've heard into action.

00:43:09.780 Thank you.

00:43:11.500 Thank you.

The Art of Manliness - August 14, 2024

The Habits of Highly Effective Risk-Takers

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