Positively Fifth Street: Murderers, Cheetahs, and Binion's World Series of Poker
is the self-told story of Chicago-based reporter and amateur poker-player Jim McManus. In 2000, McManus was sent to Vegas to cover the World Series of Poker for Harper's Magazine. One thing leads to another, and the author ends up in the tournament, at the final table. Pretty unlikely, but also pretty good reading.
The cool economics in this book comes because poker is a game of asymmetric information. It's a more complex version of the Spence signaling model, or the Market for Lemons, or hundreds of other games that economists have studied over the past 30 or so years. (My recent Lake Wobegon Effect paper models CEO pay as a game of asymmetric information.)
What I try to emphasize when teaching MBAs to think about games with asymmetric information is this: Think always about what you can infer about your opponent's information by observing his actions. And think about what your opponent is going to infer, in the other direction.
And this is exactly what great poker players do. So it's really interesting reading --- from this non-poker player, but trained game theorist's perspective --- to think along with a poker player as he does this. The best such story starts on page 293, where McManus wins $400,000 from one of his poker idols, TJ Cloutier. Cloutier is a celebrated author within the poker world, having written Championship Pot-Limit and No-Limit Poker. McManus, who has studied Cloutier's books in detail, is constantly thinking through what Cloutier's actions must imply about his cards. McManus gets it right, and also manages to confuse Cloutier's inferences by making some unexpected choices.
I do have one beef with the book --- By my count, there is only one Tiltboy in this story. How can that be?
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4 comments:
The Tiltboys are a bunch of pussies, that's why.
If you like asymmetry and game theory (which I know you do), you'll love how Parrondo's Paradox can be applied to poker. The paper referenced therein (by Derek Abbott) also goes into financial arbitrage and volatility pumping. Cool stuff.
Here I give you this huge opening to link to your Tiltboys book and make tons of money by selling it to all my readers.
And you blow it.
So I read a bit of the Abbott article.
Economists think about these "lose in order to win" strategies as follows: Every choice you can make has both direct and strategic effects. The direct effect is the effect of your choice on your own payoff assuming the choices of all other players are unaffected by your choice. The direct effect of a "lose" strategy is always negative. But sometimes your choices will affect the choices of others, and sometimes they'll affect the choices of others in ways that benefit you. We call these effects "strategic effects." If the direct effect of a strategy is negative but the strategic effect is positive and bigger than the direct effect --- that's a "lose to win" strategy. They're common.
One of my Stanford GSB professors (Jeremy Bulow) wrote a paper way back in 1985 outlining these effects, and giving guidance into when the strategic effects will help you and when they won't.
If you won't plug your book, I'll plug mine.
Direct and strategic effects are discussed in Economics of Strategy. See the section on tough vs. soft strategic commitments.
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