Playing poker and investing (part 2)
October 24th, 2006 by KenricI’d like to give an example of how poker players make money… For those that don’t know the rules of No Limit Texas Hold’em, they can be found here.
Suppose you have pocket 5’s (55) and you and your opponent both have $3,000 on the table. Your opponent has raised $200 preflop. 55 is not that great of a hand and you know that you probably have a worse hand than your opponent. However, you also know that if you flop a set (three of a kind) that you will most likely win all of your opponent’s money.
Now here comes the math part. The chances of getting a set on the flop is about 1 in 8. So for you to invest your $200 into the pot, there needs to be the potential of making at least $1,600 to make this investment worthwhile. Your opponent has $2,800 and you know that he will put it all into the pot after the flop. You have an 1 in 8 chance of winning and your payout is 14 to 1.
Now let’s look at it from an investment stand point. You are investing $200 to get $2,800 with 1 to 8 odds. Let’s totally take the poker aspect out of this scenario. I pull out a new deck of cards and take out two of the 5’s. Then I say “I will give you 14 to 1 odds that I will not flip over a 5 on my next three cards.” Would you take this bet? If you took this bet 100 times, you would probably come out way ahead. In my opinion, this would be a good investment.
Why isn’t this gambling to me, why do I call it investing? It’s because the mathematically probability is saying that I will make money.
To further simplfiy it, let’s just flip a coin and play heads or tails. Every time heads comes up, you pay me $1.25. Every time tails comes up, I pay you $1.00. Who do you think would come out ahead on this after 100 flips.
This is how pro poker players consistently make money. They are making plays with positive expected value. The plays they make have consistently a better probability to pay them off. If you play this way over thousands of hands, you will make money.
Posted in Gambling | 
Stumble it!
Yep, very true… I just wish I could keep my concentration long enough to play intelligently for a tournament-style game. Eventually I get tired, lose my concentration, and… start losing chips!
Friday I lost almost all my chips in a couple of bad beats, then I managed to crawl back to chip leader after about 10 hands… only to lose most of it again on a hand I had no business betting on… Damnit!
NG
By NLG on Oct 24, 2006
Im not a big fan of your analysis here. While numerically you’re thinking correctly, poker is a much more complex game than what you’ve described. Skilled players can read hands well, and it is possible (to use your 55 hand above) that a skilled player could get away from an overpair where the 55 flops a set. (For example, if the flop came 567 spades, when the villain was holding red aces.) In this case, if you’re playing a strong opponent, playing 55 against a raise wont be laying you the required implied odds, because you can’t reasonably assume that everytime you flop a set you’ll win the pot. Also, a fair amount of the time, you won’t flop a set but will have the best hand, and will be bluffed off it, for example where AKs raises, you cold call 55, and the flop comes QJ4 rainbow. If the raiser fires at the pot, it takes a very skilled player to peel the flop and see 4th street. Or, to use another example of why I think you oversimplify poker thinking, consider the effect of position–i.e., limping with small pairs in early position with the hope that even if you’re raised behind, you can see a flop and hope to make a big hand.
By MiserlyBastard on Oct 25, 2006
Miserly,
I agree with what you’re saying. I was trying to give a simple example that non-poker players could understand. I started to write more and more and realized it was becoming a how to play poker post so I cut it back. There are tons of variables as you have mentioned and they just can’t be explained in a simple post.
By Ken on Nov 5, 2006
Miserly,
BTW, sorry about your comments showing up so late, they were both caught in my SPAM filter which I check about once a week. I don’t know why they ended up their.
By Ken on Nov 5, 2006