Lotteries, Poker, and Other People’s Money

Braving odds of 176 million-to-1, scores of otherwise sensible Americans, including several of our intelligent friends, were infected with Lottery Fever this past week, standing in lines of up to three hours to buy a ticket at “lucky” liquor stores and gas stations.

The prospect of a $640 million jackpot and the assurance that some of the money would go to our schools made throwing away hard-earned wages seem like an altogether fun thing to do. At $1 a pop, the lottery is a cheap fantasy while it lasts.

Like any fixed-odds proposition, a category that includes almost every casino game, including slot and poker machines, roulette, craps, and baccarat, lotteries are unbeatable. There’s no such thing as a professional lottery player; it’s not a viable way to end up with more than you started with. Sure, someone has to “win” the Mega Millions or Powerball, or the progressive slot jackpot in Atlantic City. But the house – in this case, our State Governments – always pays out less than it takes in, gifting the minority with some of the majority’s money and keeping the rest for themselves. In a state lottery, the percentage returned to gamblers is usually 50% or less; casinos, which no one has ever mistaken for bastions of kindness and charity, usually return more than 90% of the collected wagers to their customers. And serve free drinks. And miraculously pay the electric bill.

Having written a few books on the twinned subjects of risk and reward, we’re in the unusual position of knowing a little bit about how all this gambling stuff works. We’ve found that people who genuinely want to win, who put money at risk not for fleeting thrills nor to reinforce perpetual self-loathing but to profit, don’t gamble. They find games and situations where the player occasionally has the advantage, such as blackjack, which is sometimes beatable because the odds are dynamic, changing slightly as the composition of the deck changes.  After learning all that can be learned about gambling – a quest that really doesn’t take very long, given the dearth of long-term winning opportunities – most sharp people turn to games in which their superior skill (in calculating, in deciding, in acting) produces an edge, an exploitable advantage that gives them an improved chance of winning.

The most popular and easily understood of these games is poker. It’s the one game in a casino in which players compete against each other, not the house. (The casino makes its money by renting out the table and dealer). Over time, when short-term fluctuations get ironed out by long-term mathematical constants, the better players end up with the money and the weaker ones go broke. Along the way, the losers cash a figurative lottery ticket or two, improbably triumphing when the odds are stacked against them. But with proper bankroll and emotional management, the superior poker player gets rich. He builds his endowment on the mistakes of those less clever, less disciplined, less prepared, less capitalized, and less educated.

If this sounds to you like a pretty good description of how capitalism works (or is supposed to work in its most gloriously unregulated form), then you can understand how being a wildly successful poker player is in many ways like being a wildly successful arbitrageur, bond trader or stock picker. You’re a winner. You’re rich. You’re a predator, not prey. You buy automobiles whose advertising tag line is, “Aggression in its most elegant form.” You[re an achiever.

Huzzah and hooray. Even in 2012, knowing what we know about the winners of our economic game, knowing how the banking, housing and political sectors were conquered by those who gamed the game, many of us still celebrate the champions. (Or give them multi-billion-dollar “bailouts.”) They accomplished the main thing: they won.

Never mind that most of these winners create nothing. Forget that even a lowly toilet-cleaner or lettuce picker or house painter (or school teacher) does something useful with his labor, something that benefits others. Like poker players, masters of money play a zero-sum game better than most people. They earn their prizes legitimately. They deserve to prosper while others suffer. Thems the rules.

In a previous chapter of my life, I admired great poker players. I wanted to be one. I thought it was cool to earn a living by playing a card game, getting rewarded for being better. Telling lies and getting paid. But the more time I spent around serious poker players, culminating in several years serving as a commentator on TV broadcasts of poker tournaments, I realized that what I had been aspiring to was a peculiar kind of sociopath.