The Merits of Poker
by
Robert Stewart
by Robert Stewart
"The
game exemplifies the worst aspects of capitalism that have made
our country so great."
~
Walter
Matthau (Total
Poker by David Spanier, page 201)
Many
members of the public will have no doubt noticed the prevalence
of poker tournaments on television, and the increasing number of
books giving advice on how to play the game, and win. Let me say,
right from the outset, that I am a poker enthusiast for many many
reasons, not least of which is that it is a more enjoyable way to
make money than any other method I know of. The sceptical reader
will be aware that about 80% of those who play poker report that
they win – a conclusion that equates with the view that 80% of those
who attend public school are above average. But then poker simply
reflects many of delusions and idiosyncrasies of life.
One
reason I love the game is the extraordinary close affiliation with
libertarian principles. Let me explain further.
Poker
is usually play by between five and eight players, usually but not
exclusively males who enjoy the company of each other plus the thrill
and skill of being able to extract cash from their rivals. The rules
are pretty simple – to avoid boring everyone they can be found in
many reference books – and are enforced by all participants in an
unequivocal way in much the same ways as golf rules are enforced
by the American Golf Association. There are no extenuating circumstances
and genuine mistakes are regarded as acts of remarkable stupidity,
and penalised accordingly.
The
game featured most on television is called Texas Hold ‘Em and is
the most elementary (and the most boring) of the many variations
of poker such as Omaha, 5 card stud, 7 card stud, draw, baseball,
and so on. Texas gives each player 2 cards face down, and 5 common
cards that are dealt face up so that the best combination of 5 cards
wins the pot. Players bet on their hands, and in the final analysis,
unless he folds (gives up) or is bluffed out (is fooled by the actions
of other participants) the player with the best hand wins although
occasionally two players may end up with identical hands in which
case they share the pot (the money in the centre).
Why
would poker appeal to supporters of the free market economy? Well
I can think of at least 20 reasons, but listing them can be tedious,
and may lead to many (probably 80% of you who think you are above
average) switching off and going on to read about the glories of
the Iraq War.
Let
me just mention six. But before doing so, allow me to emphasise
at the outset that poker, unlike the free market economy, is a zero
sum game. Participants who win are exactly matched dollar for dollar
by those who lose. In economic exchange, both buyer and seller gain
something otherwise no exchange would take place. Against the zero-sum
game argument is the fact that five or six hours of poker is exciting
entertainment that may well be worth any sum lost.
- Competing
against seven hardened veterans of poker means that the risk of
failure is pretty high – at least 7 to 1 against. Unlike a job
in the civil service, the monetary rewards from playing poker
are not predictable and it therefore does not provide a guaranteed
income. There is the obvious risk of ending up penniless, and
there is always uncertainty. In the free market economy, unless
you serve the consumer at least as well as your competitor you
will end up broke. In poker, unless you are consistently better
than your rivals over a five hour period you will end up with
a nil or negative income and there is no government welfare office
to bail you out. It is you versus the rest, and in the poker world,
there are only two types – winners and losers with the latter
being the more numerous species. It is a game of immense skill,
not luck, although in the short-term luck can temporarily overcome
skill just as it can in economic life. But as most people know,
luck comes in two packages – good luck and bad luck – and no one
knows in advance which will apply.
- The laws
of the game are fixed and inflexible, and stated in language that
is precise with no emotionally loaded terms. You play for money,
cash money, and not for tokens or for buttons. It is not possible
to allege that after a year of playing the distribution of income
is unfair, and that because you find yourself in the bottom decile
someone should bail you out. There are no affirmative action policies
for bad poker players, no unemployment insurance, no subsidies,
no tax write-offs, no pension after 40 years for having played
the game sportingly. You make your bed and you have to lie in
it. Just as people can trade freely with everyone irrespective
of age, sex, race, national origin, income or any other irrelevance
poker players have no objection to anyone participating in the
game provided he plays by the rules and does not complain if he
loses. Indeed, any televised poker game provides a representative
sample of society, although your grandmother might think that
there is more than a fair number of shady characters wearing dark
glasses and baseball caps with odd nicknames like Amarillo Slim.
Poker is a great equaliser. It is rare for someone who wants to
borrow to be denied a loan from another player; and it is equally
rare in my experience for a debt not to be repaid in full.
- Poker is
not a team game. You have personal responsibility for all your
actions and conspiring with other players to rig the market is
not good form; in fact, it is, as it is in the business world,
cheating and depending on the character of the players in the
game can be a one-way ticket to oblivion. If you are good you
win, and if you are not good you lose. This game does not provide
camouflage for misguided decisions. The consequences are immediate
and easily calculated in hard cash. You are on your own baby with
no one to depend on except yourself. If you win, you keep your
winnings and can gloat over them in private – it is not good
form to count your winnings in front of the losers, or to congratulate
yourself in public for having come out ahead. If you lose, there
is no sympathy – at best, you can count on some bromide like "better
luck next time" but that is only mentioned because the rest
of the players love to have a loser in their midst. Indeed, one
of the unwritten rules of poker is that if you sit in on a game
and cannot immediately identify the loser (aka a rabbit) it is
you.
- Despite
the flow of money from one pocket to another, poker players are
congenial types. Unlike Western movies, no one pulls out a gun
when he loses unexpectedly, or keeps the ace of spades under his
shoe. Most games are held in private houses between friends and
jokes and booze – the lubricants of a good life – are usually
available in abundance. Even in casinos, there is remarkable conviviality
and spontaneous order, just as there is in a fish or vegetable
market. People are friendly and laugh a lot. The atmosphere is
quite unlike that of the post office or immigration department.
The problem with casinos is that the house, just like the government,
takes a proportion of each pot. The house commission tends to
be high which means that pots are substantially reduced. It should
come as no surprise that the luxury hotels in Las Vegas or Atlantic
City are not built from the winnings of the players, but from
the rake-off of the House.
- Poker, like
economics, is a game of incomplete information. It is possible
to calculate the odds of drawing a king to make a full house,
or making a calculation of whether the amount in the pot is sufficient
to risk calling a bet. A good poker player just does not play
the odds he also plays the people. Is a bet of $100 a bluff, or
is it a warning that your opponent holds four aces? Is the sweat
on the hands of your opponent a result of the air conditioner
not working, or does it arise from the fact that guy across the
table is playing you for a sucker? All the information that you
need to make a correct decision is not available and never will
be (unless your opponent drops his cards and reveals his hand
– unlikely). Like an entrepreneur, you need the skill to see into
the future. As Ludwig von Mises puts it: "What distinguishes
the successful entrepreneur and promoter from other people is
precisely the fact that he does not let himself be guided by what
was and is, but arranges his affairs on the ground of his opinion
about the future. He sees the past and the present as other people
do; but he judges the future in a different way." (Human
Action by Ludwig von Mises, page 582) I wonder if
he ever played?
- Most of
all, poker is a game of incentives. It has been said of economics
that it is only a question of incentives, the rest is merely detail.
No one in his right mind would play if, at the end of the evening,
the money won and lost had to be re-distributed for the purpose
of ensuring fair shares. Any poker game run on that basis would
be a complete flop. In real life, an economy that seeks to ensure
that losers are compensated from the earnings of the winners (those
who cater to the wishes of the consumer) would not be a place
that winners would like to frequent.
The
next time a poker game is shown, please do not switch channels.
Be aware that this is capitalism in action, and learn from the game
even if you do not wish to be part of the action.
 May
2, 2006
Bob
Stewart [send him mail] has
lived in Bermuda all of his adult life, and was chief executive
of the Royal/Dutch Shell Group of Companies in Bermuda until his
retirement in 1998. Subsequently, he was President of Old Mutual
Asset Managers, Bermuda, and retired from there at the end of 2002.
He is a director of several Bermuda companies and investment funds,
and the author of A Guide to the Economy of Bermuda.
Copyright
© 2006 LewRockwell.com
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