This post will extend off of Business School at the Poker Table – Part 1. Part 1 focused on Expected Value and finding constants in a decision that we can calculate from. Implied Value (Implied Odds in poker) is a long term expression of Expected Value. It gets a bit more complex and less precise, but it’s no less powerful. When you’re about to make a decision about most anything in your day or career, there are effects that happen long after the decision. If you volunteer for a new project, you score some bonus points with your boss, but you have more work this quarter. If you sleep in tomorrow morning, you’ll be more rested and you may not see much negative immediately. That could creep back up at review time when you’re discussing your annual raise. Like I said in Part 1, everything is a poker hand. Let’s look into more ways we can tilt the odds in our favor in all aspects of life.
The example hand today is above. You’re holding pocket 4’s and you are certain your opponent’s play represents he made top two pair. You both have $1,000 in play and the pot is $50. Your opponent bets $30 into you and you’re left with a decision. You’re crushed and there are 2 cards in the entire deck that save you. Even going through the calculation is a waste of time but lets do it anyway. A call here makes the pot $110.
0.08*$110 – 0.92*$30 = -$18.80
By making this call, you expect to lose $18.80 every single time you make this decision. Let’s be honest, you lose the $30 you call with just about every time. It’s obvious that you need to fold this hand and move on. You can’t win them all. But there is Implied Value here. Let’s look past one bad bet and see the entire hand. Your opponent is in a very powerful position and if you hit your hand (albeit a rarity) you’d be able to completely blindside him.
If the next card is a 4, you can take his entire $1,000 stack away from him. That 4 looks completely harmless and your opponent will happily continue betting. The beautiful part is you’re definitely not putting any more money at risk here. If the 4 doesn’t show up, you’re obviously not betting any more than that first $30 and can easily give up the hand. The turn card is a 4 coincidentally 4% of the time.
0.04*$1,000 – 0.96*$30 = $11.20
With the implied odds, you can expect $11.20 every time you play for the three-of-a-kind to bust your opponent. With a long term plan, we just turned a dire decision into a profitable one.
(Note: There is more to be calculated in this hand. Fold equity, range calculations, and bet sizing all play a key factor but are out of scope for this post. They don’t impact the calculation noticeably and can for now be omitted.)
Now let’s turn this principle loose on the real world. The very first opportunity for SewnR Consulting has now evolved into our biggest client. The first project didn’t look very attractive to us. It was an expansive app and a minuscule budget. I spent weeks coding for essentially no pay. After hosting online content, we basically lost money. I saw a tremendous longterm opportunity though. The client was a household name and the app had huge potential for more improvement later on. Much like our example poker hand, there’s no guarantees but the rewards for a bold play were far greater than the risks. I wanted that brand beside ours and I wanted the large enterprise experience bad. I over-delivered the project and the client was so impressed that we haven’t had an hour of non-billable time with them since.
Outcomes like these aren’t an everyday occurrence, and much more often you’re left wondering why you spent that $30 on an almost sure-miss. You need to have confidence in your calculations and always remind yourself what information you had at the time to make a decision with. Hindsight is convenient. It’s easy to sit back and watch someone else hustle, miss, then call it foolish. You’re never going to win big; however, unless you get in the game and find an angle no one else would take. Taking these shots are necessary to making progress in the long term.