Game Theory
Regardless if your playing poker, black jack or betting on sports it is
important to have some basic knowledge of game theory. If you have the right
knowledge you can also make the right decisions.
Skill or Luck
To succeed with your game play you need a combination of knowledge, skill
(applying knowledge) and to some extent luck. (Knowledge and skill will get you
there but luck makes life a bit easier). Your knowledge of game theory in
combination with your skill will help you identify profitable situations and
play correctly. If you are unlucky you can still loose a lot of money in the
short perspective but rest assured, in the long perspective, the person with the
most skill and knowledge will get the money. This is also true for poker.
Expected Value
(EV)
Expexted value (EV) is probably the most central concept in game theory. In principal all combinations of a certain game (or wager) has the total expected value of 0. However depending on knowledge and skill you can find situations where you are able to play for a positive EV. In other situations the games a rigged so that you never can play with positive EV.
If you for instance are
playing roulette at a casino you will not be able to play for a positive EV.
Since the table has 37 numbers and you only win 36 times your money when you win
the EV will always be – 2,7 % (1/37). This is how casinos make their money by
always having games which in the long run bring in the money.
When it comes to poker this differs from other casinos games. Here your
knowledge and skill (like in most other card games) gives you the ability do
discern when to play and when to fold. Each decision should be made depending on
if you can continue with the hand and still have a positive EV. In other words
you should only play a hand if it has positive expectation otherwise fold. The
player who can identify such profitable situations gets the money.
Taking Advantage of Positive EV
Sometimes when you play poker you will find yourself in a profitable
situation. You now realize that you have a positive value and you should try to
make as much money as possible. An easy example of this is when you just hit the
nuts. Then you should try to maximize the amount going into the pot which also
requires your knowledge and skill.
Another non poker example would be if your bookmaker gives you very good odds on a game where you are sitting on knowledge that the team you hope to win have a substantial advantage over their opponent. This situation also has a positive EV so you should bet as much as possible. In the long run such bets will get you the money.
You should never play for negative EV. If you make sure your games have positive EV then you bankroll will also show a positive growth.
EV and Poker
Poker is in a way special since it is a
casino game where you don´t play against the bank. This gives you the
opportunity to play when the odds (EV) are right and at the same time taking
advantage of your opponents mistakes.
Some people say that poker isn´t gambling.
This isn´t true. The difference is that you in poker have the advantage of
playing with positive EV. This also means that the skillful poker player can
make money in the long run and most often also in the short perspective. This is
also why poker is a game of skill and not a game of luck. Even so one should
acknowledge the “luck factor” in the game. You can be a great favorite in a hand
and still loose. For instance you might hit trips on the flop only to loose to a
runner runner flush on the river. Very unlikely but it does happen. Since you
undoubtedly will be unlucky at times it is good to have a solid bankroll (see
also money management below).
Since poker is gambling
it´s a game of incomplete information. You often don’t know exactly where you
stand. Even so it’s important to try playing as correctly as possible using the
information about the cards on the table and what has happened so far in the
hand. If you are sure you have the best hand it´s often correct to raise or bet.
However, if you have a hand that is not the best at the moment and needs
improving to win, you need to calculate your odds to know if you should
continue. If you have the right odds to play then you should continue with your
hand since you then also have a positive EV.
For example you might be sitting on a flush draw. You are certain your opponent has AA and he has just made a bet that will put you all in on the turn. By looking at the cards you can calculate that you have 9 cards that help your hand and 37 that don´t. That gives you approximately 20% chance to win so you need the pot to be at least four times bigger than bet your about to call. If the pot is four times bigger you will have a positive EV and you can call profitably.
Exceptions
Yes there are some instances when you should not play even if you have a
positive EV. Most often it is extreme cases but we have noted an important
exception below.
If you for instance are playing in a tournament it can sometimes be
better to lay down a hand when you can win more money by staying alive a bit
longer in the tournament. In other words the money gained by staying in the
tournament is larger than the expectancy of the current hand. If you knocked out
in a tournament you can´t add more chips from your bankroll as you would at a
cash table. This will change your play and a hand with positive EV should be
thrown away for better place in the tournament.
Money Management
To survive a streak of bad luck and be a winner in the long run it is
important to have enough money. Enough money will sustain you when the cards are
against you and ensure a long term profit. In other words you should not wager
all your money on one bet. You should instead only use a small part of your
bankroll for each bet and by doing so ensure that you can take advantage of the
times you have a positive EV. At the same time you should have enough money so
when you have a positive EV you can bet the maximum amount. If you playing poker
this translates into a bankroll much larger then the buy in at your current
table. We recommend you have at least 20 times the current buy in when your
playing.
Further reading
If you want to game theory more carefully we suggest you pick up David Sklanskys book The Theory of Poker which also covers the subject thoroughly.
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