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Steve Levitt has a new working paper: “The Role of Skill Versus Luck in Poker: Evidence from the World Series of Poker,” with University of Chicago colleague Thomas J. Miles.
Using data from the 2010 World Series of Poker, Levitt and Miles found that high-skilled players earned an average return on investment of over 30 percent, whereas all other players averaged a 15 percent loss. This finding has serious implications on the legality of online poker, as that debate is heavily dependent on whether the game is based on skill or luck.
The press has gone to town on Levitt’s timely paper, as the executives of Full Tilt Poker, PokerStars and Absolute Poker – three online poker companies – were indicted by federal prosecutors last month for “tricking” banks into processing gambling profits. Check out the coverage on the Times‘s Economix blog, The Huffington Post, and the U.K.’s Daily Mail.
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What happened to the Pokernomics project, which was supposed to analyze millions of on-line hands played and captured electronically? That would have a much more scientific sample.
We wrote a response to the paper here:
http://statspotting.com/2011/05/is-poker-a-game-of-skill-or-chance/
Our summary is this: the paper is a classic case of getting fooled by randomness.
Good work Levitt, but the skill vs luck argument is a red herring as far as online poker’s legal status goes.
Here is a fairly simple proof that Online Poker is skill.
There are many low to mid stake cash players out there with super long winning streaks. Dusty Schmidt is a famous one with a 5 year plus streak of never having a losing month.
The chances of never having a losing month for 64 months if poker is chance is 2 to the 64th power. So the odds if not skill of a winning streak this long is 1 in 18,446,744,073,709,551,616.
That number is in the quintillions if you weren’t sure.
Your conclusion comparing a head to head match up of poker players to that of MLB seems flawed. You discuss the poker match up being skilled vs unskilled, yet clearly in the case of MLB, it is highly skilled vs highly skilled. Anyone with a bankroll can enter into a poker tournament, fall under the “unskilled” category, and based on your analysis, has a little worse than a coin flip chance of beating the pro. Do you think I have a chance of even making contact if taking batting practice with Josh Beckett?
Yes, it is generally accepted that MLB is a skilled game, but if you were to compare a ball player skilled vs a ball player unskilled (like you did with poker), skilled would win 99.99% of the time.
Can you do one for Magic: the Gathering?