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Old 10-07-2005, 03:43 PM
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Default Wealth creation in zero sum games

In a zero sum game like poker, everyone who plays is on average a net loser, due to the rake. Those who overcome the rake and their opponents to become winners must always be the minority, in the end, even though there could concievably be nine winners and one loser at any given table. However, it seems to me that there are a couple of things that players can do to raise EV for EVERYONE, and these actions have corollaries in the stock
market. because they can make poker seem a non-zero sum game for a time.

the first thing to recognize is that the rake is an inefficiency in the game that causes loss of wealth to all players. Inefficiencies can be corrected with technology in the market, and similarly in poker. Given a time charge, installing a properly working shuffler will raise everyone's EV, just as the invention of the cotton gin raised EV in the stock market.

For a short time at least, poker is now a non zero sum game, because a shuffler means quicker hands, which means more hands per half-hour per charge, and a higher expected earn. However, when the inefficiency is corrected, poker goes back to zero-sum.

The same may be also true with the stock market. Wealth is "created" at the moment due to increasing efficiency in production and implementation. However, in a closed system(poker table, earth) there is a limit to the creation of wealth.

In fact, both the poker table and stock maket may start out as worse than zero sum, and "create wealth" only until it reaches zero sum. think of the corallary between rake in a poker game and fees in a mutual fund. On average, when fees or rake go to zero, the poker player earns according to skill, and the mutual fund earns the market return.

there are some internal inconsistencies here which I'm sure you can see, but nevertheless it is interesting.
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