Friend of the blog and Cornell grad student, Kyle Siler, has research that has been covered by Time magazine. Let that sink in for a moment: Time. Friggin. Magazine. In his research, he studied gazillions of internet poker games and found a fascinating result: the more hands you win, the less money you win.
The reason for the paradoxical results was straightforward enough: the majority of the wins the players tallied were for relatively small stakes. But the longer they played — and the more confident they got — the likelier they were to get blown out on one or a few very big hands. Win a dozen $50 pots and you’re still going to wind up far behind if you lose a single $1,000 one. “People overweigh their frequent small gains vis-à-vis occasional large losses,” Siler says.
Siler applies this risk taking to everyday life, too:
Investing, driving, buying a house and merely crossing the street are all acts that involve discernible risks and uncertain rewards. The more small returns you get from your small investments in stocks, the likelier you are to make — and lose — a big investment. The more times you get behind the wheel and speed a little bit, the likelier you are to speed a lot — with deadlier consequences.
“These kinds of calculations are made every day,” says Siler. “Adultery is another good example. People get away with it countless times but they get caught just once and they lose everything.”
Nicely played, Kyle.
h/t: Contexts Crawler