Whenever people find out I play poker professionally, I get a wide range of reactions from “Wow that’s so cool” to “Man, that seems risky” to “Well you better save the money you have now because your good luck won’t continue forever. And then you’ll lose it all”. In this first topic, I’ll try to debunk some myths about what poker is and what differentiates it from games of chance.
First off, poker is often unfairly associated with casino games like slots, roulette, or craps. I can only assume this is because poker is often found and played in a casino next to these games of chance. However, it is fundamentally different. Games of chance are played against a house and require no skill or strategy. (Blackjack is the exception among casino games because it is a game that requires some skill but in the end, it is still a losing proposition against the house*). In these games, the house (i.e. the casino) ALWAYS has an edge. These edges are formed within the structure of the game because the payouts offered by the casino are worse than the odds of winning. This means that all the players have a negative expected value (-EV) on their bets. Players may win at these games in the short run, but as the number of trials increases, the players’ actual results will eventually converge on their expected value, and they will end up losing. This is how the casino makes their money. They take these small edges over huge samples and that adds up to a ton of money.
For some quick and easy math to see why these games have negative expected value, let’s look at roulette:
There are 38 numbers (36 on the board and 2 greens).
Let’s say you bet $1 on 23. Well your odds of winning are 1/38. Each individual spin of the wheel is independent of any other and each number will always have a 1/38 chance of hitting. If the number you bet on (23) hits, you will be paid 35:1 so you will keep your $1 and profit $35. If any number but 23 hits, you lose $1. The general formula for figuring out your expected value (EV) is:
EV = (Probability of Winning)* ($ Profit when you win)- (Probability of losing)*($ loss when you lose)
So if you bet a $1, your EV can be easily calculated:
EV = (1/38 * 35)– (37/38 *1) = 35/38-37/38 = -$0.05263
This means that every time you place a $1 bet on an individual roulette number, you lose about 5 cents and the casino makes about 5 cents. Now different bets on the roulette table (and in other games like craps) have different pay outs, but they are all losing bets. They all have negative expected value (-EV) and this can be mathematically proven as evidenced by the example above. (If you want to see why other games of chance found in a casino are –EV, tell me which games in the comments below and I’d be happy to cover that in a later topic.)
Poker is fundamentally different from this in that the players do not play against the house. Rather each player competes against the other players at the table. Poker is a zero-sum game (minus rake) with strategic depth requiring immense skill. This means that for every dollar lost at a poker table, someone else is winning a dollar. The casino makes their money by acting as a middleman and taking a small percentage up to a certain dollar threshold (known as the rake) out of pots. In this respect, the structure of poker is identical to that of derivatives trading, where brokers take a % of each trade and essentially mimic the rake.
For many readers this post is probably pretty basic, but I think it is an extremely important distinction to make. In all of the casino games (craps, roulette, slots, etc) every single player has negative expected value. It is impossible for any players to have a positive expected value (without cheating or counting cards in blackjack). Poker is different. The structure of poker as a zero-sum game where you compete against other individual players (rather than the house) enables certain players (the more skilled ones!) to be +EV and others to be –EV, even though the average EV of all the players in the game will be 0 (assuming no rake).
* Blackjack is different from pure games of chance (like roulette or slots) because it does require some skill. Each hand, players are faced with a variety of decisions- hit, stand, double, split – that will impact their results. Like poker, players that make better decisions with have higher EV and players that make worse decisions will have lower EV.
However, unlike poker, blackjack is played against the house, and the house still has a built-in edge. In blackjack, the casino’s advantage comes from the dealer acting last. The other players must make their decisions first and if a player busts (goes over 21), he loses his bet, regardless of the dealer’s results. Even if the dealer subsequently busts on the same hand, the player who already busted loses his bet. For this reason, the dealer getting to act last has value. It creates an edge for the house and makes the most skilled blackjack players slightly –EV. Most calculations are that a player making optimal blackjack decisions faces between a 0.1-1% disadvantage (they will lose a fraction of a cent on every dollar bet). Obviously, players that don’t make optimal decisions will be more –EV and lose more money. The main point being that in blackjack, the house has a built-in edge and even the most skilled players are –EV. In poker, the relatively more skilled players will be +EV (more on this later).
