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Risk Taking and Decision Making in Poker, BUSINESS and life With Caspar Berry

. UNCERTAINTY. .

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Risk Taking and Decision Making in Poker, BUSINESS and life With Caspar Berry

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    1. Risk Taking and Decision Making in Poker, BUSINESS and life With Caspar Berry

    3. “The device is inherently of no value to us” Western Union’s opinion of Alexander Graham Bell’s Telephone 1876

    4. “The Americans have need of a telephone . But we do not. We have plenty of messenger boys.” Sir William Preece, Chief Engineer of Britain’s General Post Office, 1876

    5. “Everything that can be invented has been invented” Charles H Duell, Comissioner of patents, 1899

    6. “I think there IS A world market for maybe five computers” Thomas Watson Jr, Head of IBM,1943

    7. “640K ought to be e n o u g h for anybody…” Bill Gates, 1981

    8. “A s e v e r e DEPRESSION like that of 1920-21 is outside the range of probability” Harvard Economic Society – Weekly letter 16 Nov 1929

    9. Deal or No Deal 20,000 10,000 5,000 4,000 3,000 2,000 1,000 500 100 10

    10. Whether or not to do business with the market on the following terms… 20,000 10,000 5,000 4,000 3,000 2,000 1,000 500 100 10

    11. Whether or not to hire a new sales person who could sell the following amounts... 20,000 10,000 5,000 4,000 3,000 2,000 1,000 500 100 10

    12. Whether or not to invest time and money in ideas which may have the following results... 20,000 10,000 5,000 4,000 3,000 2,000 1,000 500 100 10

    13. Whether or not to invest time and money in ideas which may have the following results... 10,000 5,000 4,000 1,000

    14. Whether or not to invest time and money in ideas which may have the following results... 20,000 10,000 5,000 3,000

    15. Whether or not to invest time and money in ideas which may have the following results... 5,000 4,000 3,000 2,000

    16. Whether or not to invest time and money in ideas which may have the following results... 20,000 10,000 100 10

    17. Whether or not to invest time and money in ideas which may have the following results... 5,000 4,000 3,000 2,000 Total “Value” of the “idea” is 3,500

    18. Whether or not to invest time and money in ideas which may have the following results... 20,000 10,000 100 10 Total “Value” of the “idea” is 7,527.5

    19. So… 1) How do we get that objective “value”? 2) WHY is each individual’s valuation DIFFERENT? 3) Why does it tend to AGGREGATE just below the objective “value”?

    20. Gambling vs The Calculated Risk 0% 50% 100% % Likelihood of success

    21. Gambling vs The Calculated Risk The Coin Toss 50% chance of success Even Money Return = 1 : 1 (100%) 50% time win $1 = an expectation of $0.5 50% time lose $1 = an expectation of - $0.5 Thus creating an overall expectation of $0

    22. Luck is that which we cannot control

    23. Gambling vs The Calculated Risk The Coin Toss 50% chance of success Increased Return = 10 : 1 (1000%) 50% time win $10 = an expectation of $5.0 50% time lose $1 = an expectation of - $0.5 Thus creating an overall expectation of $4.5

    24. Gambling vs The Calculated Risk 0% 50% 100% % Likelihood of success

    25. Gambling vs The Calculated Risk Poker Hand Pot = $400 Cost of call = $ 40 (1000% return = 10 : 1) 25% chance of success 25% time win $400 = an expectation of $100 75% time lose $40 = an expectation of -$30 Thus creating an expectation of $70

    26. Whether or not to invest time and money in ideas which may have the following results... 3,500 5,000 4,000 3,000 2,000

    27. Whether or not to invest time and money in ideas which may have the following results... 3,500 5,000 x 25% = 1,250 4,000 x 25% = 1,000 3,000 x 25% = 750 2,000 x 25% = 500 _______ 3,500

    28. Whether or not to invest time and money in ideas which may have the following results... 20,000 7,527.5 10,000 100 10

    29. Whether or not to invest time and money in ideas which may have the following results... 20,000 x 25% = 5,000 7,527.5 10,000 x 25% = 2,500 100 x 25% = 25 10 x 25% = 2.5 ________________________________ 7527.5

    30. Gambling vs The Calculated Risk The Roulette Wheel: 48.65% chance of success Return = 1 : 1 (100%) 48.65% time win $1= an expectation of $0.4865 51.35% time lose $1 = an expectation of - $0.5135 Thus creating an overall expectation of -$0.027

    31. Gambling vs The Calculated Risk Imagine: All numbers yield a 20% return all the time BUT if 0 hits twice in a row (2.7% x 2.7% = 0.072%) You lose 1000 times whatever you have on the table! Return = 1 : 5 (20%) 99.93% time win $0.20 = an expectation of $0.199 0.07% time lose $1000 = an expectation of - $0.70 Thus creating an overall expectation of -$0.50014

    33. Abraham Lincoln Failed in Business in 1831 Defeated for Legislature in 1832 Second Business Failure 1833 Nervous Breakdown in 1836 Defeated for Speaker in 1838 Defeated for Congress in 1848 Defeated for Senate in 1855 Defeated for Vice President 1856 Defeated for Senate in 1858 Elected President in 1860 Assassinated in 1865

    34. If you have a 50% chance of success and do it 10 times... you have a 99.95% chance that at least one of your attempts will succeed. If you have a 5% chance of success and make 50 attempts... you have a 92.3% chance of being successful. If you have a 0.5% chance of being successful and you apply yourself 200 times, you have a 67% chance of success and if you do it 2000 times you have an incredible 99.97% chance!!!!

    36. Whether or not to invest time and money in ideas which may have the following results... 3,500 5,000 x 25% = 1,250 4,000 x 25% = 1,000 3,000 x 25% = 750 2,000 x 25% = 500 _______ 3,500

    37. Whether or not to invest time and money in ideas which may have the following results... 20,000 x 25% = 5,000 7,527.5 10,000 x 25% = 2,500 100 x 25% = 25 10 = 2.5 ________________________________ 7527.5

    38. OPPORTUNITIES... IF YOU DON’T SEIZE SOME OF THESE OPPORTUNITIES SOMEONE ELSE WILL!

    39. So… Why do we undervalue OPPORTUNITIES? WHY are we RESISTANT to CHANGE? Why do we not like uncertainty? WHY are we so risk averse? Why are we so reticent to do something which could fail?

    40. FEAR of FAILURE

    41. Gambling vs The Calculated Risk Poker Hand Pot = $400 Cost of call = $ 40 (1000% return = 10 : 1) 25% chance of success 25% time win $400 = an expectation of $100 75% time lose $40 = an expectation of -$30 Thus creating an expectation of $70

    42. So… We are emotionally calculating probabilities and emotionally applying meanings to different possible outcomes… We get less pleasure from our gains Than we get PAIN from our LOSSES

    43. The S-Shaped Utility Curve

    44. Diminishing Marginal Utility

    45. Our propensity to embrace change, innovation and risk depends on... Our level of satisfaction with where we are and what we have now... Our REAL desires and GOALS for the future. In other words, how much we REALLY want what we SAY WE want... The extent to which we are prepared to lose what we have now in order to gain what we desire...

    46. Whether or not to invest time and money in ideas which may have the following results... 3,500 5,000 x 25% = 1,250 4,000 x 25% = 1,000 3,000 x 25% = 750 2,000 x 25% = 500 _______ 3,500

    47. Whether or not to invest time and money in ideas which may have the following results... 20,000 x 25% = 5,000 7,527.5 10,000 x 25% = 2,500 100 x 25% = 25 10 = 2.5 ________________________________ 7,527.5

    48. Whether or not to invest time and money in ideas which may have the following results... 8,000 x 25% = 2,000 7,527.5 6,000 x 25% = 1,500 - 1,000 x 25% = - 250 - 4,000 x 25% = - 1,000 ________________________________ 2,250

    49. Whether or not to invest time and money in ideas which may have the following results... 3,500 5,000 x 25% = 1,250 4,000 x 25% = 1,000 3,000 x 25% = 750 2,000 x 25% = 500 _______ 3,500

    50. Our risk aversion profile… 1 5 10 100 200 500 1,000 5,000 10,000

    51. So how do we overcome this “fear of failure”?

    52. Fear of Failure as we understand it is a fear of the consequences of SHORT TERM failure. Success is a result of a focus on long term achievement and the ability to see each short term action no matter how significant as merely part of a continuum or journey towards it. Thus the focus is on short term ACTIVITY (industry and endeavour) and LONG TERM RESULTS. A person’s motivation and decision is ultimately a result of the timeframe of their desire.

    53. At the very highest level of motivation and desire is a pure focus on the vision, the goal and the long term rewards of success. For MOST MORTALS in between the two is a successful motivation that embraces the fear (or hatred) of LONG TERM failure as a positive force. At the very lowest level of motivation and desire is a focus on the consequences of short term failure: that is, what if “this next action” fails.

    54. Fear of Failure How do YOU define failure? Long term? The failure to achieve whatever is important to you? Short term? The inevitable setbacks and rejections in the process.

    55. “ There are risks and consequences associated with action. But they are not as great as the risks and consequences of long term inaction. ” JFK

    56. LONG TERM FAILURE IS NOT AN OPTION… So… SHORT TERM FAILURE Is A NECESSITY

    57. What are our LONG TERM goals? What will be the consequences of not achieving them? What risks (potential short term failures) are unacceptable? What risks (potential short term failures) must we embrace in order to achieve them? What will we do differently as a result of today?

    58. What are our LONG TERM goals? What will be the consequences of not achieving them? What risks (potential short term failures) are unacceptable? What risks (potential short term failures) must we embrace in order to achieve them? What will we do differently as a result of today?

    59. So what kind of “risks” can we take…?

    60. Discussion Points Truth and Trust Practice and Perseverance Learning and Development Risk vs Regret Hiring vs Firing Thriving vs Surviving

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