Your Risk Level By Jared Lunsford (jdl22)

[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. [img]/images/graemlins/smile.gif[/img]

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.