crossposted from my blog

There are two ways we miscalibrate risk.

1. We risk too much on things that are low conviction
2. We risk too little on things that are high conviction

I learned these lessons in poker and in trading and they have helped me reason about broader life. I call them the fold pre principle and the pocket ace principle.

the fold pre principle

On poker forums there's a running gag. Whenever someone posts a complicated hand history and asks, “What should I have done here?” the top reply is “fold pre.”

Translation: You never should have played that hand in the first place.

It's a snarky answer that skips all of the nuance but that's exactly the point. The simplest fix was to never enter that low conviction spot at all. Everyone knows that they should cut their losers early but the fold pre principle is [...]

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Outline:

(01:07) the fold pre principle

(03:29) the pocket ace principle

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Narrated by TYPE III AUDIO.

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