Steve Marcus/Reuters
Is poker a game of luck or skill? That’s the question the economists Steven D. Levitt (of “Freakonomics” fame) and Thomas J. Miles explore in a new working paper published with the National Bureau of Economic Research.
Their research may interest more than the usual band of professional economists. Last month, the Justice Department indicted executives of the three leading online poker sites that allow Americans to play, charging them with a variety of crimes including bank fraud and running an illegal gambling operation. The department is seeking $3 billion in compensation. As a result, the sites stopped accepting American players, estimated to number 1.3 million to up to 15 million.
The economists contend that according to both state and federal law, “the single most important factor in determining the legality of poker is whether poker is a game of skill or a game of luck.”
To determine how important lady luck is, Mr. Levitt and Mr. Miles analyzed results from the 2010 World Series of Poker that was held in Las Vegas and computed the net loss or gain for each of the more than 32,000 players who competed for a total of $185 million in prize money.
The tournament’s entry fee ranged from $1,000 to $50,000, for which a player receives a certain amount of chips.
The pair found that the 720 players rated as highly skilled won an average of more than $1,200 each per event, or received a 30 percent return on their initial investment. All other players averaged a loss of $400 per event, 15 percent of their investment.
The differences are “far larger in magnitude than those observed in financial markets, where fees charged by the money managers viewed as being most talented can run as high as 3 percent of assets under management and 30 percent of annual returns.”
The paper is available at the bureau’s Web site. A full explanation of the federal indictments of online poker sites can be found on Nate Silver’s FiveThirtyEight blog.
Tell us whether you think poker is mostly skill or luck. And how much did you win or lose the last time you played?
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