Poker

Poker is an interesting card game involving aspects of risk-taking, skill, chance, probability and psychology. This game serves to illustrate two concepts we have discussed before – randomness and sunk-costs. The following discussion will refer to the “Texas hold ’em” version of the game, which is currently the most popular.

Lets consider randomness first. A significant component of skill in Poker lies in being unpredictable, i.e., appearing to be random. The two cards of each player being known only to him, the acts observable by the others are his bids in each round. Now, if a player bids exactly in proportion to his hand strength, i.e., folding and checking on poor hands, and calling and raising on stronger ones, then his hand strength is approximately known to his opponents through his bidding, and he will be at a disadvantage. For example, if he has a good hand, then any raise by him will cause his opponents to immediately fold, thereby reducing his winnings. A good player will sometimes play with poor hands and lose on a showdown. This puts doubt into the minds of his opponents. When he raises, they are not entirely sure whether he has a good hand or is bluffing. Further, he will also make money sometimes with poor hands, when his opponents fold, believing that he in fact has a good hand.

The second concept is that of sunk costs. There are several rounds of bidding in Poker, and in each round a certain amount of money has to be committed by players in order to stay in the game. The money committed upto the current round is a sunk cost. Let’s say a player has already committed 50 units of money, and has to put in an additional 30 units to stay in the game. Players usually take into account the 50 units they have already put in to calculate what to do. They consider that if they fold now, they lose the 50 units outright, which is hard to accept. The optimal calculation only involves weighing the further cost to stay in the game against the expected gains from the pot.

There are several other points of interest in Poker, which can be analyzed, such as bluffing (projecting more strength than one really has), all-or-nothing psychology (when a player has very little, he is willing to risk it all for higher gains), and decision-making under uncertainty (bids have to be made even when all cards have not been revealed yet).