The Podcast of the Lotus Eaters

00:00:00.400 Well hello and welcome to Brokernomics. So here I am playing poker with my good friend Mark.

00:00:07.280 Good afternoon. So Mark happened to be in the studio and we were bonding as men do about

00:00:15.360 their hobbies and poker came up. A game we both quite enjoy. I used to play a lot of the live

00:00:22.160 poker. Although speaking to Mark I came to realise how much of a fish I was when it came to the

00:00:31.440 online game. So Mark you used to run a poker business didn't you? I did. So I was the managing

00:00:38.400 director for a poker training site that I won't name as I don't particularly want to be associated

00:00:45.280 with it anymore. But yes I ran a poker training site. We took people, taught them how to play a

00:00:51.840 mixture between cash and tournaments, did coaching and things like that. And yeah I have a great love

00:00:57.600 of the game. I've played it profitably for a little while and very happy. Good, good. Well we thought

00:01:04.560 that we should, I've raised you by the way, I thought we should do a Brokernomics on poker because

00:01:10.160 it's quite an interesting game. There's quite a history to it. As far as I know we don't know

00:01:18.560 exactly where it emerged from. There's a variety of different games, most of them of European origin,

00:01:24.800 especially French of all things and then an English game called Bragg. But modern poker as we understand

00:01:31.760 it really emerged sort of in the late 20th century. So California in particular popularised

00:01:40.160 Limit Hold'em and then that developed into No Limit Hold'em which people

00:01:44.160 decided that they would enjoy a great deal more and that's where we are today. Obviously modern

00:01:49.760 technology, cameras, things which will show people whole cards and stuff like that makes

00:01:54.000 it more of a spectator sport. And of course huge jackpots with life changing amounts of money

00:02:00.640 always draw a crowd. Yes and you know

00:02:05.280 you might think poker is just a game but I mean actually we got a lot out of it. So that mid

00:02:09.120 mid sort of west region, that central region in America where poker really emerged. I mean that

00:02:14.880 was where the money was really made during that time. You got the you know the Rockefellers and the

00:02:20.880 Carnegies and you get a whole bunch of other sort of wealthy individuals emerge for this. But it's not

00:02:24.800 just that and they're all poker players but it's not just that. You also get the beginning of

00:02:28.560 financialisation. It emerges in the same region. So for example in Chicago they've had a commodities and

00:02:35.600 future exchange in Chicago for the last 180 years. Whereas basically everywhere else didn't get

00:02:42.480 that until the 70s, the 1970s. So there is something to this game that makes you think about

00:02:49.440 risk tolerance, uncertainty of information, understanding variance. There's a whole set of

00:02:56.480 skills that actually lends itself to the development of the financial system and that's why perhaps

00:03:01.120 perhaps why you see the beginning of financialisation in its most sophisticated form emerge alongside this game.

00:03:08.000 Well much like poker, the financial markets and things like that and the economy as a as a concept

00:03:15.600 is another game with incomplete information. That's quite opaque.

00:03:20.640 Poker is just a lot more transparent. It's a lot simpler obviously than a working fully functional national economy

00:03:26.080 or even a smaller scale economy. But a lot of the lessons that can be drawn from it are are similar

00:03:32.320 certainly when it comes to investing and investment markets. I'm raising 500 here by the way.

00:03:37.440 I am folding. You can take this one. Flop to flush. You flop to flush. What people don't see is that

00:03:45.840 before this we ran a few test hands and every single one Dan got a flush against me. So I'm pretty sure

00:03:52.640 that at some point you've learned to rig the deck. You've got to deal from the bottom.

00:03:59.040 It's an interesting point actually about sort of big hands because the popular conception of poker

00:04:03.360 they probably get from you know watching films. You watch Conceito Royale for example and the final hand

00:04:10.080 it's ridiculous isn't it? It's like royal flush versus quads and oh it's it's I believe it's two full

00:04:16.560 houses of flush versus a straight flush which is astronomical chances. Deeply deeply unlikely.

00:04:26.160 We talk about you know straight flushes and things we're talking orders of magnitude you know hundreds

00:04:31.280 of thousands to one basically to to have that situation and then to have that situation come

00:04:37.600 up against other rare hands even rarer. So it's yeah. So for viewers who aren't that familiar with

00:04:45.360 the game, what game are we playing here? So we're playing No Limit Hold'em. There are various other

00:04:50.800 types of poker, five cards, five card draw, pineapple, Pot Limit Omaha is probably the second most popular

00:04:59.360 after No Limit Hold'em. That's with four cards but it could be five cards or six cards but No Limit Hold'em is

00:05:05.440 the most popular one. That's the one everybody thinks about. That's the one all the films are sort of

00:05:10.800 placed around. Well apart from Maverick, that one with Mel Gibson where he was on a steamboat,

00:05:15.440 they were still playing the five card stud I think then. Five card draw yeah. Yeah five card draw.

00:05:19.600 That fell out of popularity because obviously if every player has five cards it's quite an upper limit

00:05:26.000 on to how many players you can have in the game whereas Hold'em everybody's only got two hold cards

00:05:33.280 so you can fit a lot more players in the game. I've already raised you.

00:05:40.640 Yeah take it. You want my small blind then? I'll take your small blind. Thank you very much.

00:05:45.280 Okay yeah so take us through. In fact we've got the camera set up on the on the desk so just talk

00:05:52.000 us through how this game is played. You've got a stack of cash, I've got a stack of cash.

00:05:57.040 What happens then? Well in order for the game to be played there needs to be some money in the pot.

00:06:02.160 For however many people that are playing you want to be playing after some money and so we have

00:06:06.640 a system called the blinds. There's a small blind which in this case would be 50 monopoly bucks

00:06:12.800 and a big blind which is twice the small blind and that's 100 monopoly bucks.

00:06:18.480 In a game where there are more than just the two of us as well there's a button that moves around

00:06:24.080 behind the small and the big blind that tells people where the blinds should be and that's how you

00:06:30.720 ensure that there's always some money in the pot to be won. At this point every player is given two

00:06:36.960 cards. Right. And at this point we get to look at them. So let's do this poker tv style. That's what

00:06:44.720 I've got. And that's what I've got. You tell me if it's better than what Dan's got in the comments.

00:06:50.080 Yeah. At which point we make a decision. Who's going to bet and how much. As the small blind I act

00:06:57.600 first. So I say I'm making this 200 to play. So then I have to look at my hand and think oh

00:07:05.360 do I want to exit out here and forfeit my 100 or do I want to play on? Well as the audience knows

00:07:12.480 I definitely want to play on at this point so I'm going to match your bet. At this point this money

00:07:17.840 goes to the side and it's called the pot. We burn a card and then we put down the flop. The first of

00:07:23.840 three streets with three cards. At this point we get to choose whether or not we're going to check

00:07:32.320 or bet. And I'm going to choose to check. All right keep it interesting I'll check as well. At this

00:07:38.720 point we burn another card and the turn comes. This is getting exciting isn't it? Which is a queen. Lots

00:07:44.720 of big picture cards here. Yes. And then the decisions are made again. I will check once more.

00:07:50.720 All right then I'll check. And finally we reach the river. The final card has been burned

00:07:56.000 and our final card comes down which in this case is the eight of hearts. And a decision can now be

00:08:01.280 made. A final round of betting. So I say 100 sir if you want to play. And you have a choice to call

00:08:09.600 that bet or to raise or to fold. I don't know maybe I should raise but I get the sneaking suspicion

00:08:18.080 that my ace high might be good. So I'm going to match your bet and I'm going to find out. So

00:08:23.040 down here has ace deuce. Now it's showdown. I have pocket sixes that I've dealt so I win this pot.

00:08:30.480 You slow rolled that one. All this money comes to me. I have third pair on the flop set. It's not

00:08:36.800 that dramatic. Yeah right. Okay. Yeah so that point about films the way that films show it. They always

00:08:43.840 show a massive hand inflation on stuff they get. Actually the mark of a good player is somebody

00:08:51.200 who's able to make a call with a weak hand. So the example I'm thinking of is Stu Unger. I think it was in 1991.

00:08:57.920 He won the World Series of Poker with a 10 high. He pushed all in with that hand. And there were

00:09:05.280 numerous examples of this. It's always the most dramatic hand amongst actual players. It's not

00:09:11.520 people who won with quad aces or something. Of course you're going to win with quad aces. It's

00:09:15.920 people who win with garbage. Well just to correct you there he didn't move all in but he did call an

00:09:21.280 all in with 10 high. And his opponent happened to have five high at the time. Four or five suited I

00:09:28.240 believe. But yes these sort of moments where the money is made is in playing hands better than your

00:09:37.280 opponent. And less to do with necessarily the direct odds. Although the direct odds do matter.

00:09:43.920 But to give you an example everybody knows pocket aces. Pocket aces are the strongest pre-flop hand

00:09:49.920 in poker. And then the second strongest pre-flop hand is kings. And usually in a showdown versus

00:09:58.160 aces and kings all of the money in No Limit Hold'em will go into the pot or a large amount of it

00:10:03.520 before any of the community cards have come down. And over the course of many many iterations and all of

00:10:12.320 the hands that you're going to play over your lifetime as a poker player you're going to have

00:10:16.240 roughly the same number of aces and kings as the next guy. So in a sense aces versus kings is a

00:10:25.840 non-hand because you're going to lose as many times as you're going to win and you're going to

00:10:33.200 basically end up with the same statistical distribution. That was the thing you said this

00:10:37.520 morning that really made me think because you know you always remember those dramatic hands where

00:10:41.120 you got like aces pocket aces at the beginning of the game. But as you say yeah it's kind of

00:10:47.600 predetermined if you get a really strong starting hand like that because the money is going in the

00:10:52.080 pot. Well you'd hope so but there are situations where of course if I have pocket aces and you

00:10:58.000 have a hand like pocket fives if I try and shove all the money in your face before pre-flop you're

00:11:03.200 going to go he's got pocket aces and then fold. Making the decisions by reading what your opponent is

00:11:09.840 saying and in a live setting that can come down to a number of things. That's not just what the bet

00:11:16.480 size is but it's your opponent's mannerisms, it's your experience of how they've played throughout the

00:11:21.920 rest of the game. Poker players pay a lot of attention to the hands they're not in. Most of the time in

00:11:27.360 poker you're folding you're folding maybe two-thirds of the time three-quarters of the time depending on

00:11:34.800 how loose you are so the reality is is that you're you need to be paying attention to what your

00:11:41.280 opponents are doing even if you're not playing so that you can understand them and once you have a

00:11:46.160 good read on someone and you understand the range of hands that they play in this particular way you

00:11:50.560 can make decisions that uh hopefully are to your benefit. Yes so I mean let's finish this hand

00:11:59.040 and then and then and then we give a basic example so so what do you want to do what do you want to

00:12:02.960 do here you calling my bet? Sure I'll make it I'll call the bet. Right I will um I'm gonna um raise it

00:12:12.640 another hundred. For the sake of the show and for entertainment value I will call you here

00:12:19.120 and I'm really hoping for a particular scenario.

00:12:25.840 All right actions on you sir? Um I'm gonna put the 500 in this is I think this is getting spicy.

00:12:34.960 Absolutely spicy why not I'll call for the sake of things. For anyone who's marginally familiar with

00:12:41.200 poker this is an enormous bet that Dan has just made that I've just called with almost no hesitation

00:12:46.880 but for the sake of entertainment we'll carry on. Um I'm gonna I'm gonna back off here I'm just gonna

00:12:55.600 check see what you do. All right well we'll check as well. All right. Well that's a lively board isn't it?

00:13:04.480 There we go. I'm gonna I'm having backed off I'm now going to come back with a with a uh 750 bet.

00:13:13.760 750. This is this is gonna break me if this goes wrong. Marvellous. Well I'm very happy with that

00:13:19.520 um and I'm going to raise all in. Oh sod it oh dear this has gone wrong isn't it? Um

00:13:29.840 I kind of think I kind of think my queens aren't good here. Yeah kind of would be the reasoning wouldn't it?

00:13:35.840 Yeah so I'm gonna I'm gonna I'm gonna let you take it. I'm folding. Fabulous. Well you've given me

00:13:41.840 a wonderful example to prove that bluffing does work. I have pocket twos counterfeited on the river

00:13:49.600 by the three and there we are. But I have all of the money. Right okay. But thanks for that extra 750.

00:13:59.600 I think I'm quite happily in the black. Oh dear that that's awful isn't it? Because you you showed

00:14:05.920 hesitation at the beginning um you could have easily been representing sort of suited connectors

00:14:11.840 and one of those could have been like a a six or an eight or something and um oh well oh well.

00:14:18.400 Never mind. Let's get to let's get to the first sort of example that I wanted to get to. In fact we

00:14:23.200 got yours which is ducks. Yes for people who don't know every single hand in poker has its own

00:14:29.840 particular kind of slang. Deuces or twos are called ducks. So what do we think about these two hands at

00:14:38.560 the beginning? Okay in terms of absolute hand strength every pair is better than any suited hand.

00:14:46.080 However when we're thinking about the way hands interact um so for example here pocket twos if

00:14:53.120 with nothing else we put all of our money in the middle every single time then 50 point something

00:15:00.320 percent of the time I'm going to win with my pocket twos. Yes. Another smaller percentage of the time

00:15:07.120 you're going to uh we're going to tie and then 49 percent of the time uh pocket kings uh sorry ace king

00:15:15.440 here is going to is going to win. It's basically as close to a flip which is what we call a 50 50

00:15:22.960 as possible. However when we think about what's called implied odds ace king here which in this

00:15:30.240 case is suited has the opportunity to make a flush it has the opportunity to make a straight

00:15:37.760 and of course aside from its top pair and second top pair holdings. So realistically ace king is going

00:15:46.480 to over realize its equity versus a hand like pocket deuces which will be forced on future streets

00:15:54.000 to fold assuming a normal rate of play. So that's why people play ace king and they're not just

00:16:00.880 exclusively playing pairs because ace king has higher potential whereas pocket twos don't get me wrong

00:16:07.840 as a pair it's already strong but it can be counterfeited as we saw in the last hand there the

00:16:13.680 board came down with one pair on it and then a pair of eights and a pair of threes which counterfeits

00:16:18.400 the twos so they don't play and at the same time uh they can make strong hands but they're reliant on

00:16:25.680 hitting a fewer number of cards. So if we hit a another duck another two we have a set of twos we could hit

00:16:34.320 two of them we could have quad twos um but realistically that's not going to happen very often.

00:16:40.560 So let's use this as an example of um you know because there's this whole thing is is poker gambling

00:16:48.640 or is it is it maths and I'll make it I'll make a case as to why it's maths and um I'll keep it basic

00:16:56.480 and then you can disabuse us if you want to get into the complications afterwards but we've got this

00:17:00.800 situation and like you said it's effectively a coin flip but it's not actually a coin flip because you've

00:17:06.800 got 53% and I've got 47% so let's yeah is that way around yeah so 47% so let's so let let let let's

00:17:14.640 break into where that is so why that is is because you're actually winning but I've got another six

00:17:23.680 cards in the hand in the deck that are going to help improve my position and put me in a stronger

00:17:29.760 position I've given I've given myself suited but ignore that so flop comes so actually I know so

00:17:36.800 let's do the message okay so 52 card deck yes I already know two of them so there were 50 cards

00:17:43.920 that are unknown to me and I'm looking for six of them so I'm looking for six out of 50 so any one

00:17:51.280 particular card gives me 12% however the flop is not uh one card it's three cards and it's not um

00:17:59.360 it's it's a dependent odds rather than independent odds because they're all coming out at the same

00:18:03.360 time so if you want to do the maths on that it's actually you've got to calculate out um six over 50

00:18:09.760 times six over 49 times six over 48 you count you multiply that out and that gives me 22% chance

00:18:18.160 so I've got a 22 chance of getting to where I need to get to on the flop so flop comes out

00:18:26.160 oh dear that's not what I was looking for um but we got the turn now now I've got I'm looking for

00:18:34.000 six out of 46. You say that but it's actually six out of 44 because you know that I've got two cards

00:18:41.600 well no because your cards are unknown to me very true yes so I'm looking for I'm looking for the for

00:18:46.320 the unknown variables so um I've got 12 percent um chance of getting it on the next card and then

00:18:54.720 it goes down to six out of 45 meaning that I've got a 13 percent chance on the river so you add those

00:19:01.920 up the 22 percent the 12 percent and the 13 percent and that's my 47 chance of getting there in the end

00:19:08.080 so very simplified example of why you can look at this as a maths game as a maths exercise and implies

00:19:16.320 that there is at least a mathematically perfect way of playing the game albeit we've given ourselves a

00:19:22.640 fairly simple example so I'll then go on to talk about expected value and stuff and then you'll you'll

00:19:30.880 explain this much better in a more complicated environment next card comes down it's an ace

00:19:37.200 yeah you're absolutely nailing me I have two outs I've hit I've hit one of I've hit one of my

00:19:41.840 outs so let's say in this particular scenario there's um let's say there's oh you've got all the

00:19:47.920 money now yeah you gave me all of your money yes well that is true let's say there's there's um

00:19:52.400 um 300 in the pot now now it's turned around a bit for you because you've only got two cards that

00:20:01.200 are going to help you so you're doing was it two are we down to two out of 45 two out two out of 45

00:20:07.360 so two out of 45 so you've got four and a half percent chance of winning so this is where the

00:20:14.800 expected value comes in if I make a bet against that 300 pot because you're only going to win

00:20:22.720 four point five percent in fact let's make it easier let's let's let's stick it let's stick a

00:20:26.400 thousand in the middle if I'm going to make a bet now yes because you've only got four and a half

00:20:35.120 percent chance of winning you don't want to call any bet higher than 45 monopoly bucks that would be my

00:20:42.640 direct odds yeah yes however then we've got the implied explicit um expected value because you

00:20:52.000 could look at me and see how much I've got sat there behind and let's just say oh I'll give myself

00:20:57.120 some more money to uh there we go to illustrate your point I I I've got several thousand here behind

00:21:04.720 you might now look at it and think well I've only got four and a half percent chance of winning

00:21:09.040 a thousand monopoly bucks and therefore I don't want to put any more than 45 monopoly bucks but if

00:21:14.800 you look at the rest of it and you you're pretty sure that your read is that you or my well not that

00:21:22.000 my read is that you've got aces otherwise I'm completely dead but if my read is that you have

00:21:26.240 an ace yes a strong ace yes and that you are the kind of person to be particularly sticky with that ace as

00:21:32.960 in yes you're not going anywhere and if my deuce flies off on the on the river yes and you bet big

00:21:39.200 again and I can just put all the money in there and you won't be able to get away from it then I'm

00:21:44.080 making way more money so all of a sudden you're you're looking at my entire stack over here and

00:21:50.400 you're thinking well let's say I bet 200 here for whatever reason you're thinking okay well straight

00:21:58.160 up four and a half percent isn't worth 200 but I'm looking at the several thousand that he's got

00:22:02.880 behind me so now actually it's four and a half percent of five thousand well now you're perfectly

00:22:09.680 willing to pay 200 just in case you get your your your duck and there we go quack quack up it turns

00:22:18.000 so that that's my butchered oversimplified explanation of um expected value and implied value but why

00:22:26.480 don't you do a better version of that for me uh i mean expected value is uh is this idea that's linked

00:22:35.600 to to equity uh so expected value is the average value of your hand over the course of the played

00:22:44.320 hand now it's important to note as well that because of the nature of the game uh and the number of

00:22:50.640 different iterations uh that there are essentially every hand is unique uh and your opponents are

00:22:57.200 certainly almost always going to be unique unless you play against the same person every single day

00:23:02.080 of the week so there are multiple different factors coming in and this is what makes it a dangerous game

00:23:08.720 a difficult game uh and the luck element means that uh you can get absurdly lucky such as hitting a

00:23:14.960 deuce on the river when you absolutely should not be there um or if uh you know in in that case uh a

00:23:21.840 bad beat is good for a a whale player a bad player but they've got too much money uh because occasionally

00:23:28.640 they win and that's good for professionals because the professionals keep the whales interested yes and

00:23:35.600 and the professionals can can milk that player for longer um so you you have this idea of evie now

00:23:44.080 across each street your ev changes and your ev uh there's certain decisions you can make because you

00:23:51.280 always have a choice on every street you can either assuming you've got the chips there you can raise

00:23:57.600 you can call you can uh or bet in the case of uh if you're first to act or you could fold and the ev

00:24:03.680 of folding is always zero but uh if you're making these other decisions there are other calculations

00:24:09.040 that go into it so if we're bluffing we have percentages uh that we go through in order to do

00:24:15.520 it so if i bluff for a hundred percent of the pot then i have to win uh a third of the time for example

00:24:25.360 and if my opponent is bluffing into me and they bet a hundred percent of the pot i have to win a quarter

00:24:32.000 of the time to make that uh make sense in terms of raw ev but as we've mentioned there's also this

00:24:38.000 concept of implied odds and implied odds is what are my odds that if i make my very strong hand i can

00:24:46.960 get paid on a future street because all bets in poker are exponential the more money that goes in the

00:24:53.440 earlier on in the game or the earlier on in the hand the more that that pot will be on the river

00:24:59.840 because you're always betting in terms of always cumulative yes yeah so you're always betting in

00:25:04.560 terms of the pot so if i if if we have our game of 50 100 and uh so the pot on the flop is only 200

00:25:14.880 and we start betting you know we're thinking about that 200 we're betting in terms of that and

00:25:20.080 professionals have certain conventions that they do a third size a third pot size bet is quite common

00:25:27.120 for instance on the flop at the moment that's changed over time used to be close to half

00:25:32.640 sometimes the opening sizes change but generally there are conventions within the space so a one

00:25:38.640 third pot bet size will be typical in which case the pot on the turn is only sort of 200 and uh sorry

00:25:48.320 322 and then it kind of goes from there whereas if we raise uh pre uh pre uh pre flop that is then

00:25:57.040 the size of the pot might be 500 when we reach the flop in which case instead of betting 66 i'm betting

00:26:04.240 200 you know into the size and that's an enormous difference in in changing values uh and uh so that

00:26:12.080 inflates the size of the pot so when you have in a very basic sense when you have strong hands you want

00:26:16.480 to bet big when you have weak hands you want to bet small yes so what what what about my my idea here

00:26:23.680 that um i i i just worked through a maths example as to how you could work it out i'm kind of implying

00:26:31.040 that there is a um a way of playing the game which is mathematically correct to watch the full video

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PREVIEW： Brokenomics ｜ Poker

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