Archive for August, 2013

Is poker gambling?

Posted under: gaming

poker-waitressNote that this post relates mostly to the question as formulated with American protagonists in mind. Other countries may have a slightly different understanding of this topic.

So, if you are involved with poker or online poker, you probably have a strong opinion about the above question, “is poker gambling?”. And most people who do not play the game of Texas Hold’em also have their opinion. Is it a bit like the question “does life exist on other planets”, sci-fi fans have their well rehearsed answer as well as most people who are not even remotely acquainted with the thinking of great minds such as Isaac Asimov.

And sadly most people believe that poker is gambling, or they simply assume that poker is gambling, so as to avoid taking any risk. Since April 2011 when the US Department shut down poker sites and indicted executives at online poker rooms and payment processors, most Internet payment processing companies are becoming more stringent with controlling any payments involving American counterparts and they want to make sure there are not related to ‘gambling’. And of course if they see an online blackjack or poker transaction they assume that that is gambling. But is poker gambling?

Interestingly none of the main decision makers in the current online poker witch hunting has tried to answer this question either, as it is more convenient to maintain the status quo and pretend that it is gambling. But let’s be real for a minute. It is not like we are asking if there is life after death, as we certainly cannot answer that as no one has ever come back from true death. Here we are asking a simple question and it can be answered scientifically.

This is exactly what two Professors of Economics at the University of Chicago have recently done: a study to determine the part that skill plays in the game of poker. U. of Chicago is one of the highest regarded University in the world when it comes to Statistics and Economics, and they published their results in the ‘NBER Working Paper Series’, which is also a reference publication for scientific academic research. In short this study carries as much weight as it gets when it comes to scientific methods and proofs, and it could be used as strong evidence in any tribunal debating the issue delineated in our title.

In their study titled ‘The role of skill versus luck in poker: evidence from the world series of poker’, Professors Levitt and Miles decipher the results from the 2010 WSOP from a very interesting angle. They divide all players into two groups, either poker pros who are supposed to be highly skilled such as Phil Ivey, or unknown persons not playing poker as a profession. This dichotomy is determined before the results of the 2010 WSOP are known.

They then calculate the return on investment (ROI) of the two groups of players. Note that the average ROI of all players is slightly negative as the organizers deduct some fees and costs from the entire prize pool. So what did these two eminent economists discover?

The players considered highly skilled achieved an average ROI of 30%, whereas the rest of the players realized a –5% ROI. Given the sample size and the spread between the two groups, this difference is considered statistically significant, proving that poker is a game of skill.

The conclusion of their paper is quite ironic as they state that academic research has generally not found much skill in asset management, even though the public usually believes that such skill exists. Quite the opposite with poker.

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