# Poker's Lessons on Coronavirus (and Innovation)

We're all swimming in a soup of information and speculation about the coronavirus, and I'd love to be able to say I have some startling insight that will clear everything right up. I don't, of course. But I do have two bits of historical perspective that might help to frame a part or two of the many issues before us.

First, from my days as a reporter, I learned the value of understanding precedent—the line at the Wall Street Journal was that "there are no new stories, just new reporters." The precedents here, as this Washington Post article ably describes, suggest that the coronavirus may be more like the H1N1 virus, which official statistics say killed 12,469 people in its first year in the U.S. in 2009-2010, and less like the 1918 Spanish flu, which killed 50 million worldwide. There's no guarantee, of course, but perhaps history can help us start to form expectations and to see what path we're headed down.

The second bit of perspective comes from a curious exposure to poker—both my brothers are former professional players, and I was hired by one of the top poker players in the world to help him write a book on how to apply poker thinking to everyday life. Although he eventually decided he didn't have enough insights to warrant a book, I've found some poker concepts to be quite useful over the years. So, I'll tell you what I think they say about the coronavirus. I'll then add some thoughts on applying poker principles to innovation; yes, the transition doesn't really work, but I figure I won't be returning to poker any time soon, and I've found the principles to be important.

Poker players don't just bet if they think they have a better-than-even chance of winning a hand. They calibrate their betting based on a concept called "pot odds." They estimate their chances of winning a hand and multiply it by the size of the pot to help decide how much they should bet: A 50% chance of winning \$1,000 warrants a \$500 bet, while a 20% chance would justify a \$200 wager.

Although there are a lot more variables involved with the coronavirus, governments can still apply the "pot odds" concept. They would start with the health, economic and other risks posed by a virus that Bill Gates says is behaving like a once-in-a-century pathogen. They would then multiply that rough figure by their best estimate of the odds that it will come to pass. My suspicion is that the potential catastrophe is so great that even a slim chance of the worst-case scenario would justify more mobilization of resources than we've seen to date.

Poker pros would also remind you that the outcome doesn't determine what the right course of action was. You aren't a genius if you draw to an inside straight on the river (the fifth face-up card) in Texas Hold'em and beat a set (three of a kind). You're just lucky. The right bet is the right bet, and poker pros are very disciplined about evaluating themselves based on the odds, not the outcomes. So, when the time comes to allot blame for the spread of the coronavirus or to hand out credit for containment (here's hoping), the actual toll from the virus should be set aside. It's possible to do all the right things and still have a massive problem, just as it's possible to do all the wrong things and hit that straight on the river.

Now for the awkward transition to what poker says about innovation....

When I lived in Silicon Valley in the late '90s and early aughts, I was invited to play in the neighborhood game and didn't want to lose too much money to a bunch of smart, numbers types, so I called my younger brother right before leaving my house and said, "You have two minutes. Give me your best stuff." One pointer not only set me up for the game (I had one losing night through maybe a dozen evenings over two or three years) but showed me a mistake that I've seen companies make repeatedly.

My brother told me that most of the money in Texas Hold'em is lost before anyone sees any of the five community cards that are dealt face-up. Each player is dealt the two face-down cards, and the temptation with mediocre cards is to think, well, maybe this will grow into something, and it won't cost me THAT much to see the flop (the first three cards that are dealt face-up, for anyone to use). If you're ruthless about whether you bet your first two cards, my brother said, you'll avoid the slow bleeding of chips that affects so many players.

That sort of mistake shows up in innovation efforts all the time. Once a venture gets set up, it's very hard to kill—among other reasons, people typically view the end of a project as a failure, rather than as education that can define future efforts, and fear their careers will suffer. So, companies bleed money through ventures that everyone knows aren't going anywhere. Think of Iridium, the Motorola satellite phone project that invested billions of dollars in the hope that the technology would prove out and a reasonable business model found, then couldn't find a way to gracefully back away from its big bet. (Of course, the technology never did work as advertised, and having to charge more than \$3 a minute for calls didn't allow for much of a business model.) Motorola was on top of its game in the '80s and '90s, known for its innovation, but even those guys fell for the "betting on the come" trap.

My next lesson in poker came a decade-plus ago, with the book flirtation with the famous poker player. (I'm pretty sure I signed a non-disclosure agreement, and I've never seen him publicly say anything about the project, so I won't identify him.) Even though the book never went anywhere, he exposed me to numerous concepts, including pot odds, and I began to see how companies get confused about probability.

Many companies start with the goal and work backward to the odds: "We need to generate this sort of bump in the stock price, so we need profit to climb X% this year and revenue to increase Y%. What can we do that gives us the best chance of hitting X and Y?" The problem is that the best chance isn't necessarily a good chance.

The backward approach can show up in any sort of strategy discussion but seems to be especially prevalent in decisions about innovation, particularly if the company is under some pressure. Having done a number of home remodels in my time, I used to think that the most expensive words in the English language were, "while we're at it...." But I've come to believe those are eclipsed by the CEO who says, "well, we have to do something."

Look at Sears, which, as it began closing stores by the dozens years ago, decided that it had to try something to break the cycle. It made a heavy investment in digital operations, including a loyalty program, even though Sears didn't have the right technology, the right technology people, the right customer base...pretty much the right anything. The digital/loyalty program may have been the best chance, but that chance was still maybe 10,000-to-one.

Yes, every company needs to be exploring digital possibilities, because there are opportunities out there, as well as threats that you'll want to spot as early as possible. But you can play lots more hands if you're willing to fold your losing cards quickly. In the process, you'll increase the odds that you'll spot opportunities that aren't just your best chance but that are real, live, good chances to cash in.

In the meantime, let's hope and pray that leaders around the world play their cards (our cards) perfectly as they deal with the coronavirus in the weeks and months to come.

Cheers,

Paul Carroll
Editor-in-Chief

## Paul Carroll

Paul Carroll is the editor-in-chief of Insurance Thought Leadership.

He is also co-author of A Brief History of a Perfect Future: Inventing the Future We Can Proudly Leave Our Kids by 2050 and Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993.

Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.