Written by Luigi D’Onorio DeMeo

I have recently started reading “Thinking in Bets,” a book by Annie Duke, a professional poker player who has won over $4 million in tournaments and is the only woman to have won the WSOP Tournament of Champions. Annie retired from poker since 2012 and is now a consultant on decision strategy. I highly recommend this book for those who are interested in human bias and the never-ending internal debate we as humans face regarding luck versus skill.

Growing up, I heard the quote “Life is like a game of chess,” quiet often. Duke argues quiet convincingly that life is much more like poker than chess. Chess is really a game that tests the ability to perform complex computation quickly. There is theoretically a right procedure in each scenario and there is no hidden information. The pieces are there for both players to see. Poker, on the other hand is a game of incomplete information that contains an element of luck with every hand. You could make the best decisions possible and still lose the hand. Once the game is complete, you try to learn from the results, separating the quality of your decisions from the influence of luck is difficult.

Life is much more like poker; you could follow all the rules on the road for example and still get hit by a drunk driver. The point of this thought is that as human beings, we are conditioned to engage in something that is referred to as resulting, or the act of assuming our decision making is good or bad based on a small set of outcomes. We see this occur many times in financial markets where an investor hits big on a big bet and is lauded a genius. Duke advises that we change our thinking feedback loop to separate what we learn from outcomes depending on whether they were the result of luck or skill.

 In our experience in business valuation, more specifically related to litigation, we find that fellow appraisers and experts engage in a fair amount of resulting. Much of the way legal precedent works is basing future decisions on outcomes, whether or not the foregoing specifically applies to the present matter. We have been on the other side of experts and attorneys that engage in this type of tactic. Some examples include but are not limited to:

• Using the incorrect Standard of Value (Fair Value vs Fair Market Value)

• Incorrectly, or Advantageously applying discounts (Marketability / Control)

• Applying irrelevant industry rates to the subject company without actually understanding the industry or the data

• The incorrect level of value (Strategic Control, Financial Control, Marketable Minority, Nonmarketable Minority)

The lesson here is simple. Do not take a previous legal matter or engagement as the truth simply based on the outcome. Winning does not mean that everything used in that previous engagement can be applied again and result in winning. Resulting can lead experts down a path of non-independence and cause them to be exploited by the expert who has carefully studied and tailored their report to the subject matter.

At Red Maple Economics, we take immense pride in customizing our reports to the specific case. We research, deliberate and frankly chew on the facts before developing an appropriate method and strategy. We would love to hear from you and any comments on this article or your case!

Luigi D’Onorio DeMeo

Partner at Red Maple Economics

Luigi@redmapleeconomics.com

732-682-5666