HOW BAD LUCK WORKS: OR WHY YOU ALWAYS LOSE GAMBLING (PART II)

Not only gambling, in real life, people also prefer the thought of a less likely event that makes themselves rich, rather than a process of accumulating wealth in the long term.

Poker (Texas hold ’em variation)

The biggest problem a skilled poker player has when playing online, isn’t because they can’t guess their opponent’s face or stuff like that (because that’s also not what they care about when playing in the real world like outsiders think), but for fear of having to deal with computer software. Based on Bayes’ theorem in statistical probability, Nash equilibrium theory in game theory, computer programs have long been invincible opponents in poker. This means that, the more you play rationally like the machines, the higher your chances of winning, especially when facing “green” opponents. “Green” here means placing heavy emphasis on the element of chance or playing emotionally.

Again, just like blackjack or other things that I mentioned above, poker strategies seek a certain edge to guarantee an eventual victory, rather than lead to a specific outcome. Therefore, it only works in the long term instead of a single match or round.

As for the rules of the game, a group of 2–10 players uses a standard 52-card deck. Hands begin with each player being dealt 2 cards (hole cards), and 5 community cards dealt to the center of the table. Whoever finds the most valuable 5-card set from 7 cards including their own and community cards wins. The values of the combiners are shown in the following table:

However, this is a game with imperfect information because each round is often divided into stages and each stage the player is allowed to make a number of choices that affect the overall game. From the first round, the player places the minimum bet and looks at his hand, then is allowed to make selections:

- Fold: discard your hand and accept to lose your current bet.
- Raise & bet: increase the bet. When a player “raises”, all other players must “call” if they want to continue playing or “fold” and accept to lose their bet.
- Call: follow, drop the amount equal to the current “raise” level.
- All-in: raise with all the money you have.

After agreeing on the amount of bets, players continue playing, the dealer will deal 3 more face-up cards to the center of the table to continue the next round. The remaining players will base on the new information and continue to take the same actions as above. At the end of this round, the dealer will start round 3 by dealing one more face up card and starting a new round, the player repeats the same actions. Then the dealer deals the last face up card, the player repeats the same actions, then the rest of the people on the table show their hands to see who has the highest set of cards and wins the pot.

What are the main takeaways from this rule of the game?

- People aim to maximize profits: not only win, they need to win big.

- You can win with stake pressure: if all opponents fold, you win instantly. Assuming all players are rational, a player who chooses “raise” will be based on the fact that his hand has a higher chance of winning than his opponent and wants to win big, while the player who chooses “fold” believes that he is less likely to win than the opponent and wants to cut his loss.

- To win with stake pressure, you must have a solid foundation. If your hand is weak and you raise, then other players choose to call or even raise higher, you are putting yourself in a position to lose a lot more money.

- To determine the potential of other players, you can base on their actions in each stage and based on the face-up cards on the table. Take a closer look at why someone who didn’t raise in stage 3 would raise in the next. For example, 3 face up cards is 7 Q 2, the fourth card is 7. So, if any player is holding one or two 7, they have a high chance of winning because there is a possibility of a set, full house or four of a kind. In addition to considering the possibilities, the player can also eliminate the impossibility. For example, if the hand on the table is 7 Q 2 7 not suited, then there is no possibility of a straight and a flush.

- Players don’t always tell the truth. A master will calculate the frequency of bluffing so that it does not negatively affect himself even if he fails, and at the same time disrupts information for opponents. For example, in a particular round, and having a specific advantage, bluff once every 4 times. It’s different from emotional lying.

- The game will be divided into several stages, and each stage will have different amounts of information, as well as different strategies. The 5-player phase will be different from only 3 players, and different from when there are only 2 players left against each other.

- You can know your ability to win from the first 2 hole cards.For example, if you have AA, KK, QQ, JJ or have an A and a face card, you have a higher chance of winning than other players. You can have detailed statistics on whether to continue playing or fold from the beginning when being dealt any 2 cards.

- You don’t need to worry about too high hands, because they rarely happen. Matches are usually the most competitive when player’s hand value in rank #5 and below.

- You don’t need your hand too high to win, you just need your hand to be higher than others. You don’t need to raise too big immediately to attract bets, there are smarter ways to attract bets and one of them is not raising too high.

- You can quantify the habits of other players. For example, a player may raise even though he has a weak hand, in what can be called a bluff, but you can observe and recognize the frequency he uses this strategy. For example, every 4 games, he bluffs once. So this information can also be quantified in the form of probabilities and used for calculations.

- Not all players play rationally, but they are not only your opponents, but also the opponents of others.

…

Basically, it’s generally possible to calculate everything, including random factors like a player only playing emotionally. I can be sure of this because the computer played really well, and it didn’t even care who it was playing with. However, a good player still makes mistakes because of miscalculations. Now he can console himself by looking at how many percent his mistake contributed to his loss? Losing a poker hand won’t matter if he always wins 70% of the hands he plays.

In general, poker can be approached as a game of chess, the difference is that poker has imperfect information, i.e. moves are not visible to all players, but it is hidden as %. You definitely have to fold when the 3 cards on the table have a pair of Aces, if your hand has nothing to do with them, because there is a high chance someone will hold an Ace and you can’t compete with the strongest “three of a kind” on the table. More specific cases have also been presented as a series of specific theories, helping one who grasps them always know when to do something, especially in tie situations (i.e. the information on the table doesn’t favour anyone explicitly), while the average player is always confused like they are guessing two sides of the coin (and thinks everyone else is the same as them too). Here I will briefly cover two popular theories: Pot Odds and Combinatorics.

Pot Odds basically refers to deciding whether to bet or not, and how much to bet, based on the amount in the pot (total bets on the table) and your ability to win.

For example, you are holding cards like this, and only have one player left:

- You hold: Ace and 5 of spades

- Flop: 3 of spade 8 of hearts 10 of spades

Pot has 100 USD, your opponent bet 20 more USD. So what should you do?

You need the next card, a spade, to get the “flush” set. At this point, the deck has 47 cards, 9 spades and 38 other suits. So, your probability of winning is about ¼. Compare it with the amount in the pot and the amount you have to “call”. There is currently 120 USD in the pot, if you follow your opponent, spend 20 USD and win, that means 1 to 6. So, let’s call. Since the odds of winning are 4:1, but the odds of winning if the bet wins is 6:1, it is a statistically profitable decision in the long run.

Another method is to compare % win with % of money spent compared to pot. For example, if your odds of winning are only 15%, then you should only accept bets equal to or less than 15% of the pot (including the amount you would have spent if you accepted the bet). For example, if the pot has 100 USD, don’t bet more than 17.25 USD if you have only a 15% chance of winning. Never bet more than you can win, because in the long run it will lead to loss.

Pot Odds is a basic technique that should be mastered by anyone who wants to play poker, while Combinatorics is a more advanced and complex technique that focuses on calculating how many different combinations of a hand are possible, in a given case. Based on the number of hands you are holding, based on the number of cards on the table, you can calculate the cases where you win, the cases where you lose and consider their odds. Combined with Pot Odds, only bet less than or equal to the winning % you just calculated.

For example, if you have a pair of 6, and on the table is. So you own “three of a kind”. Since you’ve made it all the way to the end of the round, you believe your opponent is holding an Ace and a random card that matches the number of cards on the table (because it creates a “two pair” with a pair of Aces, safe enough for your opponent to your continue to go to this stage). So, you would calculate the combinations your opponent might hold:

(Because a set beats two pair)

(Because the opponent set is higher)

So, there are 33 cases in which you win (79%) while only 9 cases lead to your loss (21%). The ratio is 4:1. Raise as long as the pot is not higher than your odds of winning.

All the techniques mentioned above are just the basics and are meant to show how important math is in some gambling games, you need to learn more if you want to apply them for real gambling purposes [5]. In addition to the most basic and general strategies, there are many specific strategies used in each specific situation.

Besides, note that not the professional players do not need luck, they also have to learn how to turn their luck into a big win. At the same time, the results may still be unsatisfactory even if they have done everything right, but more importantly, a player need to see that if they keep this form, can they win in the end, not whether or not the current game in play is won — based on monthly statistics.

II. Lost: never put yourself in a position of being forced to solve increasingly difficult math problems.

1. When you lose half your bet, you need to double up to break even.

One of the reasons why it’s hard to become a professional gambler is not because it is technically difficult, but because when you do, you are no longer gambling. When you have above average skills, still according to the law of statistical probability, you are already in the group that always wins if you know how to choose your venue, participate in gambling games with individuals below average. However, the biggest barrier to a below average gambler starting to play rationally is that the gambling experience is now gone. Aim for small profits, moderate and stable rewards, invest a lot of reason and limit emotions… gambling is more like a form of money-making labor than entertainment.

Poker is all about going all-in, and then waiting for your seemingly unlucky hand to form a straight flush when the last card is dealt, instead of constantly folding. Similarly, gambling is attractive thanks to the extremely high rewards received even with a small bet, and “a little bit” of luck. Not only gambling, in real life, people also prefer the thought of a less likely event that makes themselves rich, rather than a process of accumulating wealth in the long term.

Hope is fine and all, but unfounded hope only brings misery and leads you into an undesirable situation. I’m not saying this as consolation or pointless advice, I’m just talking about a math-based fact. There are two main stakes problems that cause people to “accidentally” lose everything in the end, even after winning big first.

The first is the meaninglessness of the numbers: the money you win won’t mean anything if you use them to continue gambling. For example, when playing stocks, if all your money is still in your margin or futures wallet in order to seek as much profit as possible, the risk remains the same. 100 USD or 10,000 USD at this time are still just symbolic numbers, ready to disappear completely at any time. Therefore, even if you were lucky to win 9 times in a row, if you keep the same bet method on the 10th time and then get unlucky, the whole account will still be liquidated. This is why these high-risk leveraged investment options will almost certainly result in a loss if the player invests gambling style. No matter how many times you win, one loss wipes them all out. Similarly, in poker, because the mechanism is that the last winner takes all, just as gamblers are only allowed to leave the casino when they have lost their entire buy-in, the amount you won in rounds doesn’t matter if you’re still clinging to your bad cards.

Second, even if you don’t lose everything, the % of money lost will put you in an increasingly difficult situation and eventually, lose it all. Take for example the futures feature in stock exchanges, where players can increase leverage by tens or even hundreds of times, increasing profits and increasing risks to unimaginable levels. For example, you choose a “Long” order (believe the price will increase) for stock A and choose a leverage of x30, with a capital of 100 USD. If A increases 10%, you will get x300% profit, which is 300 USD. Conversely, if A falls, combined with leverage, when the profit % crosses the liquidation threshold, you will lose all (usually the account will be liquidated if the profit is -80%). Assuming A drops 1.5%, your account will now lose 45% of its value, for fear of liquidation, you cut your loss and keep $55. At this point, to recover your capital, your next bet will need to achieve +81% profit.

Similarly, if you lose 50%, half of your capital, to get back to your original level, you need to achieve 100% profit. If you lose 80%, you need to get 400% profit. For details see the table in the comments section.

Therefore, in betting games, after each turn of losing money, the player is putting himself in a more difficult situation, having to solve a more difficult problem, entering a path with a narrower door and less chance for profit, even needing more time and luck to be able to recover your original capital. In poker, winning the first hand is very important, as it gives your capital a little more, while the others a little less, which creates a double advantage. However, if you do not play disciplined but completely depend on luck, the outcome will still return to the problem above: the numbers are just an illusion and hidden a high potential of losing everything.

Therefore, in long-term activities, like a game of poker, or more broadly, human life, practice being mindful of small numbers. Paradoxically, young people who have a low starting point, because of their low capital, are often insensitive to numbers like 5% or 10%, because $100 will only make $10 if a profit is 10%. Therefore, they tend to participate in high-risk games with attractive returns, dreaming of earning 10,000 USD from 100 USD. “High Risk” means a high probability of losing, meaning that if you play 100 high-risk bets, you can only win a few bets or none at all. Thus, the person who is constantly engaged in these options is also a frequent loser, as a matter of statistical probability. Because they constantly lose, they miss the opportunity to accumulate large capital to participate in low-profit but safe deals. This makes many people who have reached the end of their youth, but still, hold 100 USD in hand and only find inspiration in gambling their life.

Having less capital in hand, you will be more likely to become a victim of gambling, that is to lose more and maintain a low capital status, and then only be interested in high-risk games. A vicious circle.

Let’s accumulate to invest, not the other way around.

2. Emotions are not an exception, never were, never will be

One of the reasons why losing leads to discouragement and ultimately loss is because it also affects emotions. Holding $100 with the expectation of winning big and receiving $1000, then getting unlucky and losing 60% of your account, it is likely that the player will quickly push the leverage to many times more to shorten the time, meaning increase the risk by the same amount. When the capital drops to a lower level, he will probably give up and stop playing, because the expectation of making $1000 now becomes a problem of how to get back $100. And $100 is no longer attractive.

On the other hand, even with luck, while gambling or investing, you still tend to lose more, and gain less. For example, a study has shown that players who have won consecutively tend to bet safer, with lower stakes, because they do not believe they will continue to be lucky, thus playing more conservative, accepting a lower return and lower risk. In contrast, those who are losing tend to increase their risk by increasing leverage as mentioned above, to quickly recover their capital [6]. Your emotions are determined by events, namely the outcome of bets, and also indirectly affect events, namely the amount received/lost. In gambling games involving skill, like trading stocks, or betting with a lot of complexity, sometimes your winning has a “reason” behind it. Like in a poker session with a certain group, you keep winning, which means they play worse than you. Similar to when you play chess against opponents with lower elo than you. However, we often pass up this opportunity and think that we are “lucky”, that we should play more conservatively, and thus win less when we should have won more. On the contrary, there is a reason for you to continuously lose to an opponent on a given match day, but gamblers tend to be bitter and bet more to retaliate, and lose more when in a bad beat.

But it is this tendency to “find excuses” that is harmful in games that are purely luck, not related to skill. For example, the gambler’s fallacy, when he sees a coin that has been tails for the last 10 times, thinks it has a high probability of heads on the 11th. A variety of other “self-narrative” ways also appear on gambling games where players link random events together thinking it is lucky or unlucky. People even play the lottery by interpreting dreams — a practice that is both practically meaningless and has the potential to associate oneself with gambling by inventing a culture that connects the two together. They will be motivated to gamble just because they dreamed of being bitten by a dog last night, or even feel the need to buy a lottery ticket when they hear someone else describe some random dream, a conditional response like Pavlov’s dog.

Although bringing a teddy bear to the casino as a symbol of luck, while relatively harmless as it can be just for fun or mental support, it creates a bad habit when approaching gambling. These people have overestimated the element of chance, also known as “green” as mentioned above, falling prey to casinos or professional players. They tend to view the loss of their own money as “bad luck”, while winning is “skill, acumen” and fail to learn any lessons from losing. Like guys who practice stock trading after winning a small amount, tend to write an analysis explaining why they saw the opportunity — which is a pointless analysis; while the loss of money later often consoles themselves by “unlucky” instead of thinking that their analysis is the problem.

Emotions are closely tied to gambling. Addictive substances such as dopamine are released when you win a gamble, and also make you feel happy, excited and refreshed, help you paint a more positive future, believe in a more unrealistic belief. On the contrary, losing will cause a player to quickly become anxious, overly pessimistic, or die-hard, as well as change your way of thinking based on this newfound negative emotion. So, a rational person who wakes up at 7 a.m., exercises, drinks coffee and sits down at the computer to start playing futures. It is very easy to turn into a gambling addict scratching his head in front of the screen when the results come out gradually turning in an undesirable direction. The world moves faster than you think, and chances are it hasn’t really changed, it’s just that your worldview has been influenced by emotions that in turn are influenced by events from the gambling games.

Besides, there’s a secret behind the fact that casino money often has to be converted to chips, and why you’re so inclined to push all $500 into a computer transaction without ever stopping to think. Because of their form, they cut ties with the true value of money, and prevent you from thinking rationally. 500 USD is equal to 500 cups of coffee, drank in 500 days, or almost a year and a half, it is easier to imagine if you hold 10 $50 bills in your hand, instead of a tiny number on the screen that says: $500. Similarly, it would be rare for anyone to be willing to go all-in with $100,000 at once if the action had to be done by pushing a heavy pile of cash forward, but it’s easier to simply shove the chip stacks of equally sized colored chips, printing tiny numbers. Although you want to win, because of the guidance of the chemicals inside your body, you don’t really have much emotion with the money you have in your hand. Therefore, the tendency to continue playing is more overwhelming than deciding to stop, regardless of whether you are winning or losing. Since the possibility of losing it all still exists, it will always happen as long as you keep playing.

Gambling teaches us more lessons than we think. But only if we can learn the lesson.

Usually, that’s not the case.

By the way, Archie Karas ended up losing all of his $40 million, a huge amount within 3 weeks and the rest in a few months. After that, he continued to play and had many small wins from a few hundred thousand to several million dollars, but in the end, he always lost. Finally got caught cheating in a casino blackjack table and received 3 years probation.

Winning in high-risk games seems meaningless as long as you keep playing, and failure here is not just about losing money.

___________

References:

(Part I)

[1] Wikipedia Contributors, “Archie Karas,” Wikipedia, May 27, 2021. https://en.wikipedia.org/wiki/Archie_Karas (accessed Jun. 26, 2021).

[2] “gambling | Definition, History, Games, & Facts | Britannica,” Encyclopædia Britannica. 2021, Accessed: Jun. 26, 2021. [Online]. Available: https://www.britannica.com/topic/gambling.

[3] “probability and statistics | History, Examples, & Facts | Britannica,” Encyclopædia Britannica. 2021, Accessed: Jun. 26, 2021. [Online]. Available: https://www.britannica.com/science/probability.

[4] Wikipedia Contributors, “Card counting,” Wikipedia, Jun. 23, 2021. https://en.wikipedia.org/wiki/Card_counting (accessed Jun. 26, 2021).

(Part II)

[5] G. Walker, “Poker Mathematics,” Thepokerbank.com, 2020. https://www.thepokerbank.com/strategy/mathematics/ (accessed Jun. 26, 2021).

[6] G. Smith, M. Levere, and R. Kurtzman, “Poker Player Behavior after Big Wins and Big Losses,” Management Science, vol. 55, no. 9, pp. 1547–1555, 2009, Accessed: Jun. 26, 2021. [Online]. Available: https://www.jstor.org/stable/40539221.