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Impact Investing

IPE special report May 2018

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Martin Steward: The numbers game

Everyone knows about the spectacular growth of online gaming over the past 10 years. You probably have companies making money from this business tucked away in your portfolio. Less well-known is its effect on some venerable casino-based games. It hasn't drawn players away from casinos - quite the opposite - but it has changed the play in subtle and interesting ways.

Take Texas Hold 'Em, a simple form of poker. Each player gets two cards; there is a round of betting; then the dealer turns up three more cards which the players share; there's another round of betting; then the dealer reveals another two cards, with the players betting again with each turn. In a tournament, everyone starts with the same amount of money and plays until the winner has it all.

Traditionally, Hold 'Em has been a strategic game. A professional could enter perhaps 30 tournaments each year, so if he got stuck with a marginal hand he would keep his powder dry - folding or checking but certainly not raising - to survive long enough to go ‘all-in' when Lady Luck drops that straight flush in his lap.

Then Hold 'Em went online. Now players can hit 30 tournaments a night. Where the traditional game was about calculating the odds that your hand could beat the others around the table, this new game analyses betting patterns to choose the right moment to go all-in, combined with the law of large numbers. It is almost agnostic about what's on the cards. You just got bounced out of a tournament going all-in on a pair of eights? You still have 149 shots at the big time before the weekend. The most aggressive practitioners have mined the millions of data points generated by online gaming to model players' behaviour, taken this style of play to ‘live' tournaments and left the old guard flummoxed by their apparently eccentric betting patterns.

This is not a case of upstart maths whizzes taking innumerate old dinosaurs to the cleaners. Hold 'Em was always a numbers game. Entire books have been written on its probabilities and successful players have always deployed tightly-honed mental arithmetic or extraordinary memories for the odds associated with key hands. But that was a comforting world in which each hand had an objective, rational value, defined by the probabilities of a 52-card deck and the number of players around the table - a world irrelevant to the Young Turks.

The pioneers of this new style tend to straddle the two traditions. Chris ‘Jesus' Ferguson, 48, who helped found online giant Full Tilt Poker in 2004, has won almost $10m during his career. His was always a ‘mathematical' style - he holds a PhD in virtual network algorithms from UCLA, where his father teaches game theory - but today it is very much the game theory, backed up by computer simulations mining online poker data, that powers his play.

The ‘rational', statistics-dependent old guard grumble that the nature of Hold 'Em has fundamentally changed - forgetting that their game itself superseded a style more reliant on behavioural ‘tells'. The Young Turks maintain that they merely exploit the reality of tournament play - irrationality and all. In any case, the old guard has had its ‘tail event' and is now having to adapt. The poker world waits, intrigued, to see what synthesis emerges.
 

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