The Merits of Poker

"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 u2018Em 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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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?
  6. 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