Your Risk Level By Jared Lunsford (jdl22)

[Dan Mezick]

This is a great article. I believe it is one of the best (if not THE best) in the April issue. Has high utility and is very thought-provoking.

[jdl22]

Thank you I'm glad you liked it.

I would like to thank Dr. Al Schoonmaker for his help with the article. Some months ago, before Mason had posted anything about the magazine, I decided to write an article on risk preferences in poker. I sent a pm to Dr. Schoonmaker asking if he would read it and give me his thoughts once I wrote it to which he agreed. Mason asking for articles gave the incentive needed to get it done. I sent Dr. Schoonmaker an early version of it and we discussed over pms some of the points. His views and editing help were certainly beneficial. In the past some have accused Dr. Schoonmaker of disliking economics and economists. His help on this article and a fairly long phone conversation we had to discuss a research idea of mine have indicated otherwise.

[Ghazban]

I greatly enjoyed this article as well. I play a lot of low-stakes live no-limit and correctly identifying who is risk-averse and who is there to gamble it up probably accounts for a fairly large percentage of my winnings.

[StoneAge]

"In ring games, risk averse players should avoid playing no limit or pot limit."

"(If you are risk loving and)... your goal is to make money, you should stick to limit poker."

Who should play no limit or pot limit ring games- only those who are perfectly risk neutral?

[jdl22]

[ QUOTE ]

Who should play no limit or pot limit ring games- only those who are perfectly risk neutral?

[/ QUOTE ]

A player who is risk averse or loving and equally skilled in both will in theory make the most money in limit. The problem is that big bet games exploit these players tendencies to do things that don't maximise their EV.

That doesn't necesarily mean you should avoid them if you're risk loving or averse. As I said you probably have more fun in big bet poker if you are risk loving. Also, this is the type of "all else being equal" comparison that us economists like to make. In otherwords all else being equal risk averse players make more in limit poker for the reasons mentioned. However, if the NL games are particularly good and the limit games aren't in the local cardroom then a risk averse player would probably end up making more money in the NL game despite her tendency to fold "too much."

[jdl22]

Thank you for the kind words.

I will shortly begin writing a follow up article on how to play against non risk neutral players. Unfortunately because I waited too long it won't be published for some time.

[StoneAge]

Ten people are playing 1-2 limit hold'em, one player is perfectly risk neutral and playing very profitably, one is risk loving and playing profitably, one is risk averse and playing profitably, the other seven are a mixture of risk loving and risk averse playing unprofitably.

We switch the game to 1-2 no limit with the assumption that everyone stays at the same level of risk loving/adverseness and that their relative skill level at limit and no limit is the same. If I understand you right this would mean that the risk averse/loving player's profitablility would go down and the risk neutral player's profitablility would necessarily have to increase.

So if you are a risk neutral profitable player, equally skilled at no limit and limit, no limit is more profitable(assuming the limit and no limit game are just as soft).

Am I overlooking/oversimplifiying?

[StellarWind]

[ QUOTE ]
This is a great article. I believe it is one of the best (if not THE best) in the April issue. Has high utility and is very thought-provoking.

[/ QUOTE ]
This is an interesting article on a subject that is rarely discussed.

1. It is important to distinguish between people who are risk-loving and people who value things other than money. For example calling stations are generally risk-adverse rather than risk-loving. That's obvious from their unwillingness to risk money on profitable aggressive actions. What many calling stations want is not risk but rather the fun of continuously playing poker and being with people. They buy these intangible benefits in the cheapest way possible by investing the smallest amount that allows them to stay in the pot.

The point is that risk level is just as much a money concept as any other discussion of EV. It can miss the mark at times because money is not the only motivating factor at poker and for many players it is not even an important factor. The first step in applying risk concepts to other players is recognizing which player styles even care very much about risk.

2. When considering your own risk attitude, the most important thing to realize is that you need to play within your bankroll. The next thing to realize is that you should not play in any game where you are unable to be risk-neutral. Scared poker is bad poker and all the plays that cater to fear are leaks. For some players the opposite problem can arise with stakes that are so small that the player doesn't care. This can lead to risk-loving behavior out of boredom.

3. The bottom line is that ambitious players need to expand their range of risk-neutrality. Very few of us are naturally unconcerned about losing large amounts on one pot even if we are easily within our bankroll. But unless we strive to get over this problem, there are good games that we will never be able to successfully play. Inability to be risk-neutral is just as much a poker flaw as tilt or not understanding semibluffs.

[jdl22]

[ QUOTE ]

1. It is important to distinguish between people who are risk-loving and people who value things other than money. For example calling stations are generally risk-adverse rather than risk-loving. That's obvious from their unwillingness to risk money on profitable aggressive actions. What many calling stations want is not risk but rather the fun of continuously playing poker and being with people. They buy these intangible benefits in the cheapest way possible by investing the smallest amount that allows them to stay in the pot.


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You make a valid point about the other factors, especially in a casino setting. Online it's less valid. In any case I think that part of the reason they play is still the chance element. They call when the odds don't justify it because they like to gamble.

[ QUOTE ]

2. When considering your own risk attitude, the most important thing to realize is that you need to play within your bankroll. The next thing to realize is that you should not play in any game where you are unable to be risk-neutral. Scared poker is bad poker and all the plays that cater to fear are leaks. For some players the opposite problem can arise with stakes that are so small that the player doesn't care. This can lead to risk-loving behavior out of boredom.

[/ QUOTE ]

Again you make a valid point. This is not, however, always true. For most players moving up involves playing "scared poker" and being risk averse for the given stakes. That's a normal part of the game. Even if you are fully bankrolled it's frightening to see the amount you can lose. Once you get used to it you become risk neutral. I would improve your statement by saying that a player should not play in a game where she will be risk averse for an extended period of time. That's why I personally have switched from NL to limit. For reasons I cannot explain I became risk averse and that led to problems. I'm sure at some point I will be able to switch back should I desire to play NL. As for your point about playing too low it is certainly valid. I wrote the line about a 2+2er in a quest because BisonBison had just finished his 24 hours of 8 tabling .5/1 and there was a table full of 2+2ers playing ridiculously loose for fun, some such as SFer lost over 100 big bets.

[ QUOTE ]

3. The bottom line is that ambitious players need to expand their range of risk-neutrality. Very few of us are naturally unconcerned about losing large amounts on one pot even if we are easily within our bankroll. But unless we strive to get over this problem, there are good games that we will never be able to successfully play. Inability to be risk-neutral is just as much a poker flaw as tilt or not understanding semibluffs.

[/ QUOTE ]

I agree if your goal is to maximise your EV. As you pointed out, people play for a lot of reasons not just to make money. For a player not all that serious, just looking to have fun not being risk neutral isn't really a problem. For those of us trying to maximize our winnings it is.

Thank you for your well thought out points. I'm glad you found the article interesting.

[jdl22]

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So if you are a risk neutral profitable player, equally skilled at no limit and limit, no limit is more profitable(assuming the limit and no limit game are just as soft).

[/ QUOTE ]

This along with what you said above is correct. The reason it is correct is that the other players, whether they play well or poorly will be more prone to mistakes in big bet if they are not risk neutral. I should have mentioned this in the article, I didn't think to because I was focused on the RA/RL players.

Thank you for the insightful comment.

[BillC]

Thanks for introducing the topic of utility. It is true that utility and risk aversion should be factored in to poker theory. I hope to address this in an upcoming article.
I just want to point out here that risk neutrality means that you totally ignore variance (=risk) and only consider EV. No rational player is risk-neutral, except those with infinite bankrolls. Risk neutrality would mean that you would equate a risk free return with a bet with the same EV. If there is (and there is) another definition of risk neutrality, it should be clarified.

Another question: Is NL and PL poker really riskier, if you choose games with similar EV? You have to compare apples to apples. E.g. compare 10-20 limit to 200, 2-4 NL. I have heard it said that in the NL game, the bad suckouts are fewer, which decreases risk.

[jdl22]

Thank you for your comments.

With respect to the definition of risk neutrality you are correct. In poker books it is generally assumed that a player will choose a sufficiently small game for her bankroll so that she will be risk neutral when playing that game. If considering which game to buy into there are many players here, myself included, that would have a higher EV playing bigger games but don't have the roll. While we are making a rational risk averse decision in this essay I was considering risk preferences during actual play at the tables. So if you choose a level your bankroll can sustain then you are likely risk neutral if you play according to what is written. It may not be the case for various reasons which is why I wrote the article.

I struggled a bit with the NL part for risk averse players. The problem is that it's well established on these boards and based on experience that the ratio of win rate to variance is much higher for NL games. The reason most often given is that skill is more important in NL relative to luck. If you have the poker essays books Mason writes a good deal on the topic of NL vs limit and skill vs luck in poker in general. It would seem that would be good for risk averse players. The problem is that as a poker player you are facing the swings one hand at a time and they can be much larger in any NL game of comparable size. In other words when deciding what game to play a naive risk averse player would probably decide on NL, but when it comes time to actually sit down she would prefer limit.

[grimel]

All I know is my stress level is much less playing NL. The bad math suckouts seem to be much more frequent in limit.

[WillMagic]

Very good article.

One nit: I would change "risk-loving" to "risk-seeking." I'm pretty sure it's the standard terminology (it was in the behavioral economics course I took a while ago,) and it sounds...better.

There are a lot of articles that can be written in this vein. Prospect theory might very well have a place in poker theory. /images/graemlins/smile.gif

Will

[jdl22]

Thank you for the comments. Risk-seeking is commonly used as well as risk-loving. I'm not actually sure what's the standard now, risk-loving used to be but perhaps not anymore. I'm currently taking a behavioral econ class from George Loewenstein at Carnegie Mellon and he indeed says risk seeking.

Prospect theory applies really well to tournaments, something I plan on writing about in the future.