Andrew (perspectivism) wrote,
Andrew
perspectivism

Our poker morality blogosphere

All-too-typically lashing out against freedom in a world it knows nothing about, the U.S. House yesterday passed an anti-online-gambling bill (exempting the state lotteries...and, um, horse racing, why not).

The Senate is unlikely to make time to vote on it this year, so it will probably die on the vine and start over in the House next year. Even if it does become Law(TM), there will be strong legal challenges to its enforcements -- especially that it violates WTO agreements (the rights of other nations' freely operating gaming industries, oddly enough; I love it when other nations incidentally uphold our individual rights too!). The biggest online poker company in the world, traded on the London Stock Exchange, actually gained 4% on news of the bill's passing (despite or because of half their customers being Americans); I've not seen a good explanation of that, but it sure sounds like the savvy are betting that the bill as passed cannot go the distance on changing the world.

Earlier this month, Slate printed the harrowing Lifetime movie of a respected 2+2er supporting his wife and family online. Inspired, a Libertarian economics professor at Harvard blogged the rather obvious Why I Hate Gambling. What's supercool, and the only reason I mention him, is that some REALLY interesting comments rolled in at his place. Here they are:

The best is when Aaron Brown, the author of my beloved The Poker Face of Wall Street(!), swoops in:
Gambling is an older and more powerful economic stimulus than money. Periods of economic innovation are invariably accompanied by explosions of gambling. The legal gambling industry in the United States today is roughly the size of the commercial banking industry. Toss in illegal gambling, gambling in financial markets and non-monetary gambling (e.g. risking one's life) and it would appear to be a significant economic force worthy of study.

Or, consider that H. L. Hunt bet every penny he had and won his first oil well. Kirk Kirkorian won the money for his first business in a poker game. Bill Gates, Clint Murchison, John Kluge and Carl Icahn all played high stakes poker before getting rich. I can't think of six billionaires who got their starts from bank loans or stock issuance. There are few enough billionaires that this is impressive statistical evidence for the economic importance of poker.

Consider the basic economics of a casino. In a competitive market, casinos pay back about 75% of losses. The form varies, low-stakes slot players get it in discount coupons, high rollers get it in forgiven credit, medium rollers get it in the form of comps. You could argue that the comps are 33% overpriced, but in my experience medium rollers enjoy themselves more then they would buying the same services at restaurants, sporting events and resorts. Part of that is the entertainment value of the gambling, but most is that casinos are very good at creating a aura of generosity, fun and enjoyment. A lot of fancy restaurants make patrons feel inferior, a lot of entertainment events treat specatators like cattle, a lot of resorts put the customer last. You'll never see any of those sins at a casino; yet some economists seem to feel only stupid people would patronize the casino, while getting bad service at a nongambling establishment is just part of life. Another advantage of a casino is the comps are bankruptcy proof and, under certain circumstances, tax advantaged.

I'd also toss in that casino gamblers are better educated, more involved in their communities, more generous with charity and happier than nongamblers. So it can't be completely destructive of happiness. It's a near-universal human activity, maybe there's a reason for that.

The next most interesting, from one The Superfluous Man:
The highest-paying straight job Cero had ever had was managing an independent video store, for which he made about $300 in take-home pay every week.

HUGE market inefficiency, the only job this very bright and motivated individual is able to obtain is a crappy $300/week retail job. Reasons?:

1. IQ, on average, predicts about half of productivity, the most greatest predictor. "This meta-analysis found that the validity of GMA [General Mental Ability - IQ] for predicting job performance was .58 for professional-managerial jobs, .56 for high level complex technical jobs, .51 for medium complexity jobs, .40 for semi-skilled jobs, and .23 for completely unskilled jobs. " .51 is listed as the average. With an integrity test, it's about .65.

2. Employers cannot administer tests to determine either of these traits among job applicants, due to Griggs v. Duke and its bastard offspring.

{ http://www.owlnet.rice.edu/~psyc231/Readings/schmidt.htm (a review of all such research - 85 years of it) }

This is one of myriad clefts between the knowledge of experts and the general public. Larry Summers was impaled for trying to bridge one such cleft. It's astounding (and sadly indicative) that such bright lights as Professor Mankiw do not know it.
Then, a little food for thought from one cpurick:
Winning players' actual consumption is only a fraction of the pot. They do other consumers a favor by tying up a bunch of worthless cash. The gambler's true skill is not risk management -- it's the ability to foresee what the other players are going to do. Using that skill in a game against similarly-skilled opponents is more honorable than using it to fleece investors and clients in the real world.
Finally, to my amusement patrissimo gets quoted to drive home a judgment that winning poker is immoral:

What matters is that smart, talented people are wasting their time transferring wealth instead of creating it. Whether or not you are a libertarian or a utilitarian, that is waste. It's waste just like any other kind of rent-seeking.
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