Finances at the Poker Table
November 27, 2007
How much are you willing to invest? This is the age old question of financiers through time. When it comes to the game of poker, the questions still holds. If you have two pairs on the flop, how much more money are you willing to invest in your cards? The same question is asked and the results will be very similar in the real world as it is on the poker table.
One of the basic principles in finance that you have to remember is that for anything that is high risk, a high return must compensate you for it. For example, if you are going to invest in stocks that are risky, the company must give you a commensurate amount of return if the stocks increase in value. On the poker table, the principle still applies. If you have an ace and a king on the pre flop then you can ask yourself the same question, if I put my heart out and go all in on this hand, there are high rewards at the end of the day. Although there is a chance for me to lose, there is also a high chance of me winning. If you ask yourself that question before you go all in then you are thinking of the principles of finance. If you are ready to go all in and take the plunge then you are a high risk high return player.
Another basic principle in finance is never to put all your eggs in one basket. In other words, you have to diversify your risk. You have to make sure that all your bets aren’t in one place. In essence, this principle tells you never to go all in. But does this make any sense? Sometimes you have to go all in, right? What finance is telling us is that when you are about to go all in, you might want to rethink your odds. If you go half all in on this hand then may be you can try your luck on another hand in the near future. Finance is telling us that two chances are better than one. You may agree or disagree with this but at the end of the day; any added knowledge will help you.
A principle in finance is never to bet the farm. What the finance books are trying to say is that you should never bet the lifeblood of your business. You should never allow your business to be exposed to total risk. If the farm is gone, where will you get the resources to make money? In poker language, this is translated to never bet a substantial amount of your chips if you are unsure of a reasonable return. This makes a lot of sense. You should not be betting half of your chips if all you have is a two three off suit and you only have a paired three on the turn card.
Finance is something great to learn. In the world of business, it is one of the most powerful tools. If you apply this knowledge into poker then you are going to go very far.