Poker players and procurement professionals both make calculated risks for a living.
Caspar Berry, a professional poker player, said playing poker was a great metaphor for the role of procurement. “You will have to make decisions, plan your day, innovate, change, know when to challenge and when and who to trust.
“I would argue that poker is a great metaphor for that. When we play poker, we are making a decision, every 90 seconds, a resource allocation decision just like you allocate money, time, passion, attention, status, standing, respect, credibility.
“All of these scarce resources are on the line.”
Speaking at the Procurious Big Ideas Summit in London, Berry said the key to being a professional poker player was to accept uncertainty and acknowledge you will lose most of your hands.
“Simple risk/reward analysis shows you sometimes the opportunity with the highest return is not necessarily the one most likely to succeed – that’s what you learn when you play poker. The last card is going to come down, it’s going to change everything and therefore we need to accept that, embrace that and do the attendant maths,” he said.
Poker was a game of long-term averages, he said, and even if you are likely to lose a particular hand betting on it might still be the best decision.
For example, he said, if on a particular hand there is a $4,000 pot, the cost of calling is $400 and you have a one in four chance of winning, the upside of winning once is worth more the cost of losing three times.
This is because a 25% chance of winning $4,000 creates an expected return of $1,000, while a 75% chance of losing $400 creates an expected loss of $300. This totals an expected return of $700 ($1,000-$300).
Pot = $4,000
Cost of call = $400
25% chance of success
Winning $4,000 25% of the time = expectation of $1,000
Losing $400 75% of the time = expectation of -$300
Overall expectation $1,000-$300 = $700
Return on investment (700/400)*100 = 175%
“If we fold our cards in this situation we have turned down $700, we have passed it up because we could fail,” he said.
“Calling in this situation is the right thing to do irrespective of the outcome on this occasion. Decision-making science allows us to say a decision is good or bad despite what happens in this particular iteration.
“Risk is not a stupid, dangerous, reckless thing. You do this all the time anyway because every single person in this room has been to a meeting and nothing came of it, but we don’t stop going to meetings. Maybe someone who embraces some short term conflict, maybe that person gets more in the long run?”
Berry spent three years playing poker for a living in Las Vegas, where he said he earned on average around $70,000 a year. He was known for playing all night with three cans of Red Bull in front of him. He said while some businesses are life or death, most are not.
“Most of the time what’s going to happen, someone is going to end up looking foolish because something went wrong, and I would challenge whether that is a risk actually,” he said.
“We’ve all done it, solved a problem in the short term – which is where we live – and created a problem for somebody somewhere else down the line. Maybe we’ve suffocated returns by removing the ability to take initiative, and we didn’t do that because we didn’t think about it, we did that because the world’s a complicated place.”
Berry said studies have shown those best at predicting outcomes were more humble, open-minded and hungry for data. “But I would argue more than anything else, they embraced the reality of constant uncertainty,” he said.
“What if in the time you’re trying to find a right answer it’s changed? What if there was never an objectively right answer, just a series of probabilities? What if the way to navigate an uncertain world is to accept that you’re going to be wrong more often?”
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