Re: Risk of Ruin
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Risk of ruin is a simple concept, but in practice you aren't sure of
[img]/images/graemlins/diamond.gif[/img] Your win rate.
Of course you may have an estimate, but small differences greatly affect the ROR. If you will change levels, you have to guess what your win rates will be at the other levels. You also have to guess whether games will get tougher or softer in the future, and what bonuses will be offered.
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By the way, in our upcoming book, we have a nifty RoR formula that takes a stab at accounting for the normally very high uncertainty surrounding win rate.
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So, are risk of ruin calculations useless? I don't think so. You can replace the bankroll with a session balance to get a session risk of ruin. You can use this when you are taking shots at a higher level or a different game. Your session balance can start at the amoutn you budget for trying the new level. You can use the session risk of ruin to determine how likely it is that you will have your balance cut in half, which might be the threshold you use for moving down in limits.
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Or you could just calculate your risk of ruin for that bankroll size and then calculate a different one for the game you'll move down to and multiply them together or something.
Risk of ruin is just a model. It doesn't mean "the risk that you will lose all your money playing poker." It means that if you assume:
--You play a fixed, single game forever.
--The distribution of outcomes from the game is fixed and known.
--You have a starting stake, and no other money will be added to that stake from external sources.
--All the money generated from the game will be put back into the bankroll.
Then you can find your chance of losing your stake before you win an arbitrarily large amount. But these assumptions aren't valid for any players that I know. So RoR is just a rough guide. I personally find it much more useful to do RoR calculations on amounts smaller than my bankroll as "what's the chance that I'll be down X at some point?"
If I lose half my bankroll, I'll certainly infer using Bayes' theorem that some assumption I'm making about the games that I'm in is wrong. The likelihood of that probably dwarfs the likelihood that I just happened to have a four sigma negative event for six months.
I don't think it's essential to attempt to know your precise risk of ruin, because most players I know who are interested in risk don't actually just play till they're broke at the same game. The concept of a half-bankroll is also useful here, especially as an off the cuff way of understanding how likely you are to be down N bets starting from X bets, which is the real heart of bankroll requirements. If your RoR is like .000001 or something, you probably have orders of magnitude more RoR from game conditions changing or your win rate estimates being wrong than you do of actually going broke given your assumptions are correct.
Jerrod
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