Risk Analysis Lessons from Poker: How Face-to-Face Communication Can Help You Better Read Risk Tolerance

Zachary S. Finn, AINS, ARM, is the Clinical Professor & Director of the Davey Risk Management & Insurance Program, Lacy School of Business, at Butler University. He can be reached at [email protected].

“Jimmy D isn’t going to put his tournament life on the line for an all-in bet, ” said Jimmy D for the third time. Again, referring to himself in the third person.

It’s not often that you get to interact with someone who refers to themselves in the third person, but it’s always a treat. First there is the look; greased back hair, aviator sunglasses, shirt with the collar popped open and high, with chest hair for days. Then there is the attitude, personified with a gold medallion necklace that just screams “I’m Jimmy D, fool!”

Jimmy D was my opponent at the final table of a no-limit Texas Hold’em poker tournament at the Belterra Casino in Florence, Indiana. It had been a long day of monotonous play, but I was doing well and made it to the final table of players. I could taste the win, and that sweet, sweet money.

This was a big prize in the thousands.

If you don’t know me, I am a risk manager by education, training and experience. I could give you the technical answer about what a risk manager does, identifying, prioritizing, and managing an organization’s risks and opportunities, but I prefer this quote from “Game of Thrones”:

“Don’t fight in the North or the South. Fight every battle everywhere, always, in your mind. Everyone is your enemy; everyone is your friend. Every possible series of events is happening all at once. Live that way and nothing will surprise you. Everything that happens will be something that you’ve seen before.”

Risk managers try to prevent bad surprises and exploit good ones. But what is a “surprise” anyway? We are trained to think of “risk” in terms of frequency and severity, probability and impact. Probability leads to the objective, quantifiable side of risk management. Is this a “500-year flood” risk corresponding to an annual exceedance probability of 0.2%, or a “100-year flood”?

The folks who do that analysis […]

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