The Shocking Truth About Poor People - Something for Nothing Syndrome

There are many diseases out there in the world, but there none of them have affected as many people as negatively as the "Something for Nothing" syndrome.

Let's face it. No matter what some may say, almost all of us want to be rich and successful. 

Now for some good news and bad news:

Good news: Anyone can become rich and successful as long as they can offer more value than what they get paid for. (that's it)

Bad news: Many people end up doing the exact opposite (myself included)

And the result is that most people don't end up where they want to be. 

Before speculating why this happens, let's first look at some manifestations of the "Something for Nothing" syndrome:

1) The Lottery: We're all seduced by "a dollar and a dream" but every time I've bought a lottery ticket, I've been left with "an expired lottery ticket and disappointment". Trying to get $383 million with $10 is a bit far fetched but millions of people are still playing every day. The same goes for other forms of gambling such as blackjack, poker, roulette, stock market speculation, sports betting, etc.

2) Cheating: Top scores without studying; Ponzi Schemes (Madoff anyone?); Use of performance enhancing or weight loss drugs; The long term results are usually pretty poor.

3) Slacking off: People who try to do as little as possible in their jobs and find ways to get through the day doing nothing. (There are people who actually brag about their prowess in this)

The list can go on and on (even extreme bargaining is a form of this syndrome) but one thing all of these examples have in common is that most of the people engaging in such activities are NOT rich or successful. Go to any casino and look around you - what type of people do you see? Usually the low to lower middle class, trying to "make it". I would not be surprised if the same demographic made up the majority of lottery players. The same goes for the slackers and the cheaters, how many of them do you know have been able to sustainably become wealthy and successful. 

Yes, there are cheaters, slackers and gamblers that get rich but the key word is "sustainable". At the same time the percentage of people with the "Something for Nothing" syndrome that do get rich is extremely small if any. 

So why does this happen? 

People are motivated towards pleasure and away from pain and the "Something for Nothing" syndrome appeals to both of these motivational directions. When you can obtain something without doing anything, you have gained pleasure without incurring any pain. Secondly, anyone who enjoys taking the easy way out or wants to be rich immediately will be prone to activities such as gambling because there is no other place where you can get a 100% return on your investment (if you can call it that) in less than a minute. 

Unfortunately for those suffering from this syndrome, the natural law is that for every action there is an opposite and equal reaction so if you give nothing, naturally you will get nothing. On the other hand, if you give more value, you should receive more money in return. 

Despite learning that "There is no such thing as a free lunch" in my first economics class more than a decade ago, I've been afflicted with this syndrome myself and only recently realized the power of being "valuable". I use to brag about working only a few hours a day, winning at the casino or getting a crazy bargain but now I realize that all those things have worked against me in becoming truly successful. I now constantly look for ways I can add value for my employer, friends, clients and loved ones and I have found life much more enjoyable. 

Directions for being successful: Just add value.

Streaks and Slumps

As all tennis fans know, the most dominant player in tennis, Roger Federer, lost yesterday in the first round at the Dubai Tennis Championships. Just last year he was unstoppable, winning three Grand Slam titles. Now with the recent loss last month in the Australian Open semifinals and this unimaginable first round loss, many critics proclaim that Federer is in a slump. How the tides have turned. This is testament to the yin and yang balance discussed earlier in Yin Yang Markets.

To some extent, I am sure that we have all experienced or at least witnessed the phenomenon of slumps and streaks. Whether it is in sports, gambling or stocks trading, steaks and slumps seem to come into play whenever performance is involved. What I want to discuss in this post is that in reality, there are no such things as streaks and slumps, just probability. Almost all perceived streaks and slumps, with a few outstanding exceptions, are within the realm of inherent probabilities. For example, if a baseball hitter has a .300 lifetime batting average, but in one season had a 40 game hitting streak. His chances of hitting the ball will seem to be higher than average to both himself and observers during this "extraordinary" streak but if you study his lifetime hitting statistics, you will see that there is no evidence that points to a higher probability to hitting the ball. So even though he was "on fire", he was still only performing within his normal chances.

So why do people usually attribute streaks/slumps with an enhanced probability for success/failure, respectively, when in fact both streaks and slumps can be explained within the normal probabilities? Well, people are natural pattern seekers. We can look at things that are random or meaningless and rationalize some sort of pattern or meaning. Also, clusters of similar outcomes that seemingly defy probability tend to capture our attention, forcing our mind to rationalize such a deviation from the norm. (Imagine 30 coin tosses, where the first 15 tosses land on heads and the second 15 tosses land on tails. If you were only shown the first 15 tosses, you would probably feel that the chance of hitting heads on this coin is higher than 50% and that maybe it is a trick coin. This perceived increase in probability is what causes people to believe in players being "in the zone", "on fire" and "unstoppable". )

The difference between coin toss results and a baseball player's batting average is that batting average is dependent on skill. Skill varies from person to person but the more skillful you are the higher your chances of succeeding in what you attempt to do. Although not impossible, it is rare to see win streaks from bad teams or hit streaks from poor hitters. What you usually see is good teams going on long win streaks (2007 New England Patriots) and star players (Michael Jordan) being "on fire". Those who are at the top of their profession or sport have above average probability for success leading to increased chances of producing streaks. Stephen Jay Gould explained long streaks as "a matter of extraordinary luck imposed on great skill".

I know of many people, including myself, that have been in streaks and slumps. During streaks, everything is great but complacency and overconfidence sets in because one perceives a higher chance of succeeding. This is especially prevalent in gambling, when someone, after winning a few successive hands, feels that they have a higher chance of winning even though all casino games have fixed win/lose probabilities. This overconfidence is what causes most winners to give their winnings and more back to the casino. As for slumps, most people I know always try to place blame on others, their routines and/or their strategies. This leads to frequent unnecessary overhauls and changes that can further lead to sub par results (good golf players "tweaking" their swing after a short series of bad hits). Don't get me wrong, it is always good to evaluate and improve, but to make big changes in technique and strategy after a small slump may be "throwing the baby out with the bath water". Also in most cases, only time is needed to let probabilities run its course.

So next time you're in a streak or slump, just know that you are still operating within your normal chances of success/failure and overconfidence or despair is unwarranted. As mentioned, skill is a factor in determining your "normal chances", so improving your skills is a necessity if you want to have "streaks" of success. Many top players (Tiger Woods, Alex Rodriguez and Roger Federer) have experienced both streaks and slumps but they eventually always come back to win because probability is on their side. Thomas Jefferson once said "I find that the harder I work, the more luck I seem to have".

So if you want to get lucky, you know what you have to do.

Luck => Success. Hard Work => Luck. Hard Work => Success.

As always, feel free to comment below!

Recommended Reading: Confidence: How Winning Streaks and Losing Streaks Begin and End by Rosabeth Moss Kanter, A Random Walk Down Wall Street by Burton G. Malkiel

Memoirs of a Gambler - Poker

If you read the last Memoirs of a Gambler - Blackjack post, you'll know that my 2008 IRS Tax Rebate money, which I expect to receive soon, was spent in vain. As I once again vow never to spend money on such a fruitless endeavor, it reminded me of the many nights I use to spend playing poker. I associate poker with the lottery not because I've thought about quitting both countless times but because it is all about probability. Any good poker player knows that you never put your chips in the pot when the odds are not in your favor but when the lottery jackpot gets big like last week's $270 million dollar behemoth; one is lulled into a false sense of "pot odds". I'll discuss this in more detail later in the post.

Flashback - January 21, 2006 at the Tropicana Casino/Resort in Atlantic City, NJ

It is about 9 pm on a Saturday night and after eating at Seaside Cafe, I head over to the poker room (one of the only non-smoking havens in the casino) and cash in $200 at the cashier for some chips. After my initials were called, I was led to my seat at a $1/$2 No Limit Texas Hold' Em game. After settling in and making light banter with my neighbors, I begin to play.

After about 2 rounds of unplayable cards (at least for me), I finally get something I can play. I was dealt a JH TH (jack and ten of hearts) and sitting right behind the button I proceed to call the $5 pre-flop raise that already had 5 callers. At the flop, there was a total of 8 people who called (loose table) and the flop came 9S 2H 8H (Pot = $57). Nice, I had both a flush draw and an open ended straight draw and with a $10 bet it was a no-brainer call. Four people paid to see the turn which was the AH (Pot = $97). Sweet, I hit my flush although it was not the nuts (best possible hand). Second position bets $25, third position folds, I re-raise another $25 making it $50 total to protect my already made flush. First position folds and second position hesitantly calls. The river comes a KD (Pot = $172). Second position checks, I bet $30, he calls. I show the flush and he mucks. I can only assume that he has maybe two pair with the ace but who knows. He says "good hand" which is actually poker lingo for "You Bastard!" and I reply with the cordial "thanks". After raking in my chips, I tip the dealer $3 and begin to stack my chips.

After what seemed like an eternity of second class hole cards slowly eating away my stack (stack = $335), I finally received a gift from the poker gods. Pocket Rockets! Sweet! Struggling to maintain my poker face and sitting in third position, I raise pre-flop to make it $15 to play. Fourth position folds, fifth position calls, sixth position calls, seventh position re-raises it to $50 and everyone after folds with the raise coming back to me. I re-raise to $100, causing pretty much everyone else to fold besides me and the guy in the seventh position. He stares at me for a good minute and then goes all in making it another $210 to go. I think to myself - Nice, this is the situation I want, I have the best hand and I get to put all my chips in play, I call. We flip, he had Cowboys (Pocket Kings) and I turn over my aces. Flop turns 3D 7H 9H (Pot = $650), a bunch of rags and the flush draw wasn't an issue since we both had hearts. Turn comes JC - Nice, just one more bullet to dodge. As the dealer turns over the river card, a KS, my heart sinks, Cracked Aces, once again. The table exclaims in my sympathy as I looked in disbelief as what SHOULD have been mine was now being taken by someone else. I would feel victimized but I've experienced so many bad beats in poker than one almost feels that the rules of probability do not apply to this game. Needless to say, I quickly lost the remaining $25 on a few tilt-induced plays.

This is yet again another true story about my casino exploits. I don't really consider poker gambling because I am not playing against the house, where their games have a built-in edge, but rather against other players where the probability for winning is inherent in the cards you receive and also on the skill you possess. I would put poker in the same category as stock investing because success is usually achieved if you make the right decisions based on probabilities. The best players know when to stay in the hand and when to stay out of a hand.

When it comes down to poker or stock investing there are two elements, process and outcome. Process is the strategy that you apply and outcome is the result that occurs. Since poker is a game of probability, there are two outcomes for both the "right play" and the "wrong play". When the right play is made and the player wins, it is "the way it should be". When he loses, despite doing all the right things, it is a "bad beat". When a player makes a wrong play and wins, it is attributed to "dumb luck" and he's usually look down upon by the other better players. When the wrong play is made and the player loses, he gets what he deserves. Most people only focus on the outcome, "Who cares if you make the right play and go home broke, I'll rather make the wrong play and be a winner!", because the results are what really matters and are more tangible. In the long run this type of thinking is detrimental because one starts to attribute a good result as being synonymous to a good process. Since process ALWAYS trumps outcome, this type of thinking will cause you to eventually lose all your money because you have been mislead to think that the "wrong play" is the "right play" just because you won a hand using it. Probabilities always pan out in the long run. The same can be said about stock investing. Those who use unsound strategies to pick stocks become positively reinforced in their process when they make money but in the long run, they tend to lose more money than they make because they only chase performance instead of focusing on developing a sound strategy. Fund managers that do have a sound strategy (ie. Warren Buffet, George Soros, Peter Lynch) may have down months or years but their long term track record is unparalleled. Casinos are the same way, even though most casinos have only a 1-2% edge on all casino games, in the long term they always win.

With all games involving probabilities, there will be times that you will lose despite doing everything right. That is why you never put all your eggs in one basket for investing, gambling, day trading or anything else you do. Capital preservation is paramount when probability is involved because a 2% chance of failure can still happen and when it does, you want to able to play another day. When you only play the probabilities that are in your favor (making the right plays), it will always lead to superior outcomes it the long run. So if you want to win, don't focus on the results but rather on a sound strategy. Play like the house and play the "right way".

Now back to the issue of big jackpot lotteries giving a false sense of "pot odds". According to this website devoted to probabilities surrounding the Mega Millions lottery, the odds of winning are 1 out of 175,711,536. So it is common to assume that as long as the jackpot is above $175,711,536, it makes sense to play because the payout is higher than your probability of winning. But most big jackpots, after all the taxes that are deducted, are never above that probability and when you account for the increased chance of multiple winners for big jackpots (since a lot more people play), the probability doesn't even come close. Also, according to government statistics, there are about 1.3 deaths per 100 million vehicle miles (1 in 76,923,076). So if you drive half a mile to the store to buy the lottery ticket and drive half a mile back home, your chance of getting killed or killing someone else is 2.5x more likely than winning the Mega Millions Jackpot. For those who drive even further to buy tickets or those on motorcycles, I don't even want to do the calculations. In conclusion, according to probabilities, Mega Millions Jackpot lottery is a fool's bet (I'm sure the lottery winner from Georgia disagrees).

Truthfully speaking, I wouldn't be surprised if I end up spending more money on lottery tickets in the future because "hey, you never know".

Recommended Reading: Winning Decisions: Getting It Right the First Time by J. Edward Russo and Paul J. H. Schoemaker

Memoirs of a Gambler - Blackjack

With the buzz of a $270 million dollar jackpot swirling in the air and suggestions to dream big and that I never know what could happen, I was moved to write about a topic near and dear to my heart, gambling. As I spend my expected 2008 IRS Tax Rebate money on lottery tickets, I am overcome by the familiar and uncontrollable urge to think about what I would do with the money I am about to win. Although such grandeur hopes have always been met with disappointment, I am sure this time it will be different. Why else would I play? Albert Einstein once defined insanity as "doing the same thing over and over again and expecting different results". Although I am not certifiably insane, I am stricken with a similar disorder of irrational thinking - gambler mentality.

Flashback - December 17, 2005 at the Tropicana Casino/Resort in Atlantic City, NJ

It is about 11 pm on a Saturday night and I sit at one of the few $15 minimum blackjack tables. I cash in $195 (high rolling, I know) figuring that I need to lose at least 13 (my lucky number) minimum bet hands in a row to lose all my money.

First hand, I play $15 and dealer shows an 8 and I have a king and a ten, I stand, he flips over his hole card, a 10, and I am straight (my stack=$210).

Second hand, another $15 bet to "feel" the shoe, dealer shows a 5 and I have 8 2, I naturally double down, next card a 4. After sarcastically commenting about my good luck, I stand, dealer shows a hole card 10 and proceeds to bust after drawing an 8 (my stack=$240).

Third hand, yet another skeptical $15 wager, dealer shows a 9 and deals me a blackjack. Maybe today was my lucky day (my stack=$262.50).

Fourth hand, I get aggressive, betting a whopping $22.50, dealer shows a 6 and I have 10 5. I stand hoping that the dealer will bust. Dealer turns over an 8, draws an ace then a king, 25, bust, the tables celebrates (my stack=$285). I think to myself, Sweet, it has only been bout 10 min and I already have a 50% return on my money, beat that stock market. The noise at our table and the general look of content on our faces was more than enough to attract a few people looking to get in on the action.

Fifth hand, 4 for 4 so far, I'm hot, so I place $25 in the betting circle and before the dealer gets the chance to deal, a young woman (lets call her Jane) flanked by two of her giggling cohorts cashes in $40. She bets $15, I am still at $25 and the dealer shows a 6 and I have 3 8 so I eagerly double down, a 6, hmmm... 17, no worries, he'll bust. Jane is dealt a 9 4 and to my horror and the horror of the other players, she hits, dealer hesitantly turns her over an 8. Jane and her friends cheer while the rest of the table watches anxiously as the dealer turns his hole card over revealing a 10. As the dealer pulls out the next card from the shoe, the mounting suspense is dissipated by swears and groans as the dealer apologetically reveals a 4, 20, @#%!. Jane and company celebrate oblivious to the scathing stares from me and the other victims on the table (my stack=$235, Jane's stack=$55). This stupid girl doesn't know how to play, damn newbies, always making me lose money, I should stand up.

I put $25 in the betting circle and Jane plays $20, sixth hand. Dealer shows a jack and I have 10 5 so I hit and receive a 3. Jane has queen 4 and after much deliberation with her friends, stands. Dealers turns over a queen (my stack=$210, Jane's stack=$35).

Seventh hand, I play $15 with the rationale that a loss will only bring me back to square one, Jane bets $20. Dealer shows a 9, I have 10 7 and Jane has 10 8. Dealer turns over a queen (my stack=$195, Jane's stack= $15). Man, three in a row already and I've lost all my winnings, I should really get up from this table.

I place $15 in the betting circle; Jane plays the last of her chips. Eighth hand, dealer shows an Ace, I have 9 5 and Jane has 10 2. Thinking that a 14 was not worth insuring, I decline the dealer's offer. Jane also declines although I don't think she really understood what was happening. After sweeping his hand over the cards to reconfirm that no one took insurance, the dealer turns over a 10. The table boos while Jane's corner whimpers at their misfortune (my stack=$180, Jane's stack=0). I should really get up, this dealer is killing me. Jane then stands up and leaves the table with her friends. My heart rejoices and with a renewed optimism, I wager $20.

Ninth hand, dealer shows a 5 and I have 8 8 so I put up $20 to split them. For the first 8, I'm dealt a 2 so I put up another $20 wager to double down, a 9. For the second 8, the dealer gives me a third 8. Recounting to the dealer and my fellow players about how I have fantasies about a set up like this one, I split again. For the second 8 a 7 and for the third 8, a 3. "Wow, I guess I have to do it" I said to the dealer and put up yet another $20. Now with a total of $100 on the table, my palms moisten as the dealer turns over his hole card, a 6. All is lost, I thought to myself. The dealer reaches for and turns over his next card, a 3. "Yes!" I exclaimed and standing up from my seat and in a mock Chinese accent I call for the almighty "Monkey!" (casino slang for 10) to come out. The dealer slides the next card from the shoe and I try to synchronize a table slap with the dealer's turn of the card. As I vehemently slapped the table, the dealer turned over a 7. Doing the math twice to make sure it was really 21, I slumped back into my chair and watched helplessly as the dealer struggle to clean up the mess of cards and chips in from of me (my stack=$80). Damn me, I should have gotten up when I was flat. I'm already down $115, I can't stop now. Either I get back to flat or I lose it all.

Tenth Hand, I bet $30 since I can't imagine seeing myself making a comeback $15 at a time. Dealer shows a jack, I have 10 3, I hit, a 9, bust (my stack=$50)

"Lets not waste anymore time. I am my father's son and I am here to gamble" and with such declaration, I go all in, $50. Dealer shows a 9, I have 10 4. I hit, a queen, bust (my stack=0, my mood=horrible). What a bad way to go, the dealer didn't even get a chance to bust. I knew I should have gotten up when I was winning.

This particular turn of events is 90% true. The only discrepancy is my poor memory of the actual cards that came out for each hand. This night was memorable not only because it happened so quickly but because a bulk of my casino visits have been very similar to this one. Although the dollar amounts and number of hands played maybe different, the scenarios presented in this flashback occur all the time. This story also contains many examples of the gambling mentality. To understand gambling mentality it is necessary to know:

Why do people gamble?

• The allure of "easy" money is addicting - If you make $100 a day doing hard manual labor, and if you can win $100 in 10 minutes by playing cards, which would you prefer.
  

• To obtain immense wealth unobtainable through hard work - A dollar and a dream, that's all you need. No matter how hard some people work, they will never make $270 million. At casinos, any lucky streak in any casino game will make you tons of money.
  

• The excitement of putting something on the line - Thrill seekers can get a rush from knowing they can lose it all. Adrenaline and Serotonin can come into play.
  

• It's a behavioral psychology thing - The best way to motivate people to perform a certain activity is to give them rewards only some of the time. If people are constantly rewarded, they would get bored of the activity and the effectiveness of the reward will also decline.
  

• It isn't gambling at all - Some people play games that have a skill aspect in addition to the chance aspect such as poker. Card counters, who swing the win percentages slightly in their favor for blackjack by accounting for the history of cards, is another example for skill coming into play. Most of these people are professional gamblers because they possess an edge that can provide them with sustainable consistent income in these "chance" games.
  

What is the Gambling Mentality?

• Attributing Meaning to Things that Don't Have Meaning - Gamblers have a tendency to imbue meaning on things that are otherwise meaningless and this manifests itself in superstitions and signs. Unlucky dealers, elaborate routines, and unwashed lucky socks are all part of the gambling mentality. Gamblers tend to often mistake correlation for causation.
  

• Feelings of Control - Gamblers see chance games as something they can control. The more they play the better they get at it. There is a sense of skill mastery. You can see why with this mentality, gambling can get so addicting. How many people do you know that are "experts" at gambling or have a "winning strategy" to beat the house? Gamblers feel that as long as they play the "right way", they will win money.
  

• Skewed Views - Gamblers have a skewed perspective on outcomes relating to chance events. While a regular person might view a losing streak as a string of losses, a gambler might see the same losing streak as a string of near misses with each loss bringing him/her closer to a win. In most casino games, the probability to win for each wager is the same for every other wager. Just because red comes up on the roulette table, the chance for it to land on red or black on the next roll is still the same as for the previous roll. So just because one loses 8 times in a row, it does not make it any less or more likely that one will win on the next roll. When it comes to games of chance, the probability of the future outcome for the most part is independent of the historical outcome.

From some of the observations mentioned about reasons for gambling and gambling mentality, it is no wonder why casinos can look like palaces and still give complimentary room, meals and awesome amenities. Casinos stay in business not because of beginning gamblers that don't know basic strategy but because of the veteran expert gamblers who roll their eyes and make a fuss when their gambling flow is ruined by people who "don't know how to play". Most people lose when they go against the house but because they feel with every loss they are one step closer to winning, they persist so they can one day get that big payout. If they ever do get that big pay out, they will probably be more entrenched in this vicious cycle because now they've received some positive reinforcement from all their efforts.

I won't lie, I like to gamble and I can't say whether gambling is good or bad but I can say compulsive gambling is bad. Know your limits and if you can no longer control your own actions, it is time to get some help from groups such as Gamblers Anonymous or 1-800-GAMBLER.

Feel free to give accounts of your own gambling exploits or share your thoughts about this and other posts by leaving comments.

Stay tuned for more recollections in the Memoirs of a Gambler series.

Recommended Reading: Busting Vegas by Ben Mezrich