Poker Musings, Vol. 2 - An Illustration of Poker as a Game of Skill

Question from one of the guys I play regularly with who was playing a 80 player multi-table tournament (MTT) at the track --

I had 11.8K chips when the blinds were at 1,000/2,000. With AQ I was sixth to act. The third guy to act limped in and everyone else folded to me. I decided to take a shot and I went all in. The limper, with about 14K chips, took a very long time but decided to call w/55. A king hit on the river but I missed my cards. I am still trying to figure out if he made the right call?

A typical poker situation here, but one that requires some thought. Not all of the variables are in accounted for (his image at the table, how the game was running, etc.) Here's a purely mathmatical response from moi...

"I think your opponent made the right call. He open limps 55, putting $5000 in the pot. That's usually a bad move unless the table was really passive, but that's not at issue here. You push $11.8K. It costs him $9.8K more to win $16.8K, for about what 1.7-1 odds? Is a call correct?

Depends on the range your opponent put you on. With an M<4, so less than 4 more rounds before being blinded out, your range of hands should be fairly broad. Hypothetically say you push with any pocket pair, AK-AJ, KQ, KJ and AT. That's not unreasonable I don't think.

There are exactly 6 ways to make any pocket pair (9c9d, 9c9h, 9c9s, 9d9h, 9d9s, 9h9s, for example). Your opponent's got an 80% chance to lose to 54 pocket pairs (AA-66), and 80% to win against 18 pocket pairs (44-22). He can tie with exactly 1 pair (if you have 55, there is only one way for him to have 55), but I'll throw that out because it clouds the water.

You have exactly 16 ways to make each of the overcard hands (AcKc, AcKd, etc.) So he's roughly 50/50 with 96 possible hands.

So call that (54+18+96)= 168 possible hands that it would be reasonable to put you on, pushing late-ish in an Multi-Table Tournament with an M<4. I might widen the range if you were first to act, but with a caller already I think the range is reasonably optimal. Additionally, calling really isn't an option for you, so if you are tempted to call you have to push. Your opponent probably knows this, in case you were saying to yourself "I'd fold AT." I don't think that's a good move against a single limper, so I'm including that in the range he could reasonably put you on. You might even be lighter than that-- e.g. QJ, QTsooted, JTsooted?. I'll start by sticking to the first range above.

So these are what appear to be your opponent's percentage of winning the pot. Study carefully and ask questions if you don't understand the percentages, 'cause this is important stuff to understand why he correctly called and you should too in his position (based on long term Expected Value and ignoring tournament chip vs. cash payout equity because I don't fully understand the math on that yet).

You have overpair. Opponent's chances--
80% loss = 54/168*(-$9,800)*.8= (-$2,520 expectation)
20% win = 54/168*(+$16,800)*.2= (+$1,080 expectation)

You have 2 overcards. Opponent's chances--
50% loss = 96/168*(-$9,800)*.5= (-$2,800 expectation)
50% win = 96/168*(+$16,800)*.5= (+$4,800 expectation)

You have underpair. Opponent's chances--
20% loss = 18/168*(-$9,800)*.2= (-$210 expectation)
80% win = 18/168*(+$16,800)*.8=(+$1,440 expectation)

Total expectation for your opponent calling with 55 against your range is $(-2,520 + 1080 - 2,800 + 4,800 - 210 + 1,440) = +$1,790.

So he can expect to make an additional $1,790 every time he makes that call making that firmly a + Expected Value move by him against that range.

But taking your hypothesis even further and "he should assume 50% of the time I'm on a higher pocket pair."

To get to that, let's say you call any pocket pair, AK, AQ or AJsooted. Again ignoring pocket 5's for you because they muddy the water.

As above, 54 pairs are ahead of your opponent, 18 are behind and 36 hands are 50/50 (only 4 sooted AJ hands). 108 hands total, 50% of which are an overpair like you said.

You have overpair against your opponent.
80% loss = 54/108*(-$9,800)*.8= (-$3,920 expectation)
20% win = 54/108*(+$16,800)*.2= (+$1,680 expectation)

You have 2 overcards against your opponent.
50% loss = 36/108*(-$9,800)*.5= (-$1,633 expectation)
50% win = 36/108*(+$16,800)*.5= ($2,800 expectation)

You have underpair against your opponent.
20% loss = 18/108*(-$9,800)*.2= (-$327 expectation)
80% win = 18/108*(+$16,800)*.8=(+$2,240 expectation)

Total expectation is $(-3,920+1,680-1,633+2,800-327+2,240) = +$840.

Your opponent is still +EV to call against the range you identified, which again is pretty darn narrow and most player's ranges will be greater than that in your position if they're pushing late with an M<4.

You seem to get caught up with there being 9 pocket pairs that he's behind, 3 he's ahead of and only 3 overcard hands, so 9>6 and he should have folded. It's just much more likely to be dealt an overcard hand than a pocket pair hand (16 ways vs. 6 ways), so it distorts what seems to be an intuitive bad call."

Illinois throws its hat in the ring…

Not to be outdone by Louisiana’s "I live in a city below sea level and am ignoring the order to evacuate" Katrina “victims”,

Illinois appears to be desperately trying to lay claim as the state who’s residents are most entitled to being compensated for being stupid.

Today the state declared that they were going to sue Countrywide Financial.

Read Here (Caution 80+ pages)

It’s really a fascinating (if lengthy) read. However, if you’re perusing blogs, you are probably the type that wants a summary. OK, first off, repeat after me—“No bank ever makes a loan hoping to foreclose on it at a later date.”

Feel better?

Me too.

I'll bore you with a little background on what led to the national mortgage “crisis.” If you have a working understanding, you can skip to the line of asterisks below.

Now, in this filing there’s some interesting historical context detailing how the home loan business became a security game (private-label security, not please-don’t-murder-me security.) The gist is that banks used to hold most of the mortgages. In the early 90’s there was a recession and banks got hurt. New rules were made linking the bank’s credit exposure to its value, so because they weren’t increasing value they had to shed risk (technically they couldn’t raise capital so they had to lose assets.)

Enter the Government Sponsored Entities (GSE’s). Since that time, a few major players, namely Fannie Mae and Freddie Mac, gobbled up most home loans made in America because banks don’t want to carry them on their books. The GSE’s mass-buy the loans by posting a set of rules that say “This is the type of loan, this is the type of applicant, etc. that we will buy.” If the loan fits in that “box”, Fannie will buy it at x% interest rate. This is called a “conforming loan” and through the mid-90’s, "non-conforming loans" were pretty rare.

Fannie puts a gazillion conforming loans into a pool and sells that pool to Wall Street. Interestingly enough, if you have a 401(k), an IRA, a pension, a money market account that pays interest, or even a savings account churning out 2% per year, you are Wall Street. The fingers of money are sticky. Your First Bank of Springfield makes you a loan for your house. They sell the loan to Fannie Mae. Your loan and a bunch of its friends get sold as a fund to Wall Street. Your First Bank of Springfield invests in that fund because it generates a safe 4% rate of return. Your bank then pays you 2% on your savings account, pocketing the 2% margin. Congratulations! Through your savings account you’ve just invested in your own mortgage.

**************************************************************

Back on task-- Wall Street has an appetite. It wanted more loans. You know what? There are plenty of people in America who can not qualify for conforming loans. Their assurance that they can repay the loan is not as solid. It usually comes down to credit rating or money-down. How do you quantify this new risk? By charging a higher interest rate and additional fees to offset the risk that a larger percentage will default.

From the Illinois Attorney General’s letter—

“Countrywide sought to place greater numbers of borrowers into loans laden with these premium-enhancing features.”

“The more loans its employees sold, the more money Countrywide paid them.”

EGAD! A company trying to maximize profit! Well dammit, let’s sue ‘em!

There is always a spoon bender (or team) in some office calculating the magnitude of additional risk and how much more you need to charge to offset it and still make money. Investors paid more for higher interest loans with high penalties for borrower non-compliance. Here’s a statistic to chew on: 21% of sub-prime loans are seriously delinquent (>90 days). I doubt you’ll see that number in any investor formula with a smiley face next to it.

Banks, investors, Wall Street—everyone’s getting creamed because they got that number wrong. It was an error. It wasn’t a crime! Countrywide’s stock is down 80% in the last 12 months and Bank of America will be acquiring them in the next week. Fannie Mae has written off billions in bad debt. Bears Stearns is gone.

You think they meant to do this?

Here’s another interesting factoid. In October of 2006 the unemployment rate in Illinois was 4.2%. In May of 2008 the number is 6.4%. That’s 156,800 additional jobless folks in case you’re counting. We didn’t have a mortgage crisis in October of 2006. All lenders combined only foreclosed on 64,310 homes in the state in 2007. Could the cause of the delinquency and foreclosure numbers in Illinois perhaps be linked to the loss of jobs during that time? Could Countrywide counter-sue Illinois for being a terrible steward of its employment market?

Not…bloody…likely.

And here’s the kicker. The argument is that the individual should never have been given the loan. So if I read into that correctly, someone got to live in a house they could not afford for a number of years and now at the end have to move out. With a ding to their credit. But their credit was dinged to begin with which is why they were in the non-conforming loan pool? And now they are entitled to recourse?

Companies made bad business decisions. The Countrywide approved lender villified in the Illinois AG's suit, with 5 felony convictions, should raise an eyebrow or two. None of the lender's charges appear to be related to any financial improprieties, which may or may not count. If the allegations against One Source are as written, and he made those verbal assurances contrary to what was in the contract, you have my permission to hang Mr. Mangold high. However, a business dealing with hundreds of affiliates can't be held to the standard of its lowest commen denominator as is the case here. And I suspect is the case in most under-investigated, over publicized, financial scandals.

But you know what? At the end of the day the contract governs the deal. I read my entire mortgage contract. Pretty boring stuff, and pretty damn empowering to the holder. But I know the rules and live by them. At the bottom of every mortgage sold by every bank to every investment house there is a signature. A person’s signature. That signature seals the contract and at that point the individual agrees to do something and the bank agrees to do something. In this case, only one side of the deal failed to perform.

And in Illinois, failure to do what you say you’re going to do makes you a victim.

Countrywide's gonna lose because people are stupid. They're going to lose because in America, citizens can vote themselves cake from the government pantry. Guess it’s about time to buy that hundred acres and a bunker. I think I’ll pay cash.

Troubled

I don't know.

Here's the deal. Do we give up the country to the US Deservists or not? I don't know.

Did the original immigrants who came to America, desiring to be free from oppression and excessive taxation, advocate unreciprocated support? I don't know.

We're heading into a recession. Either we're going to have to increase the tax on the earners, or ignore the increasing poor. Very difficult questions. Make no mistake, if you are among the few with the latitude to afford frivilous internet access, and the time to utilize it, you're in the gunsights. I don't know.

Should I spend what is going to be a huge amount of energy to oppose momentum that I think I can possibly outsmart in the short term, knowing that it will catch up with my children? Should I give up? I don't know.

Happy Monday.

Two In a Row!

Just because I'm always the one being accused of not contributing as much to the blog as the other two miscreants, I would like to note that I've now posted two in a row. I'm sure they'll counter with "you should have had this level of commitment all along." I counter with something along the lines of "F*, You" and then we wrestle. Clearly as I am the only real super hero among us, I prevail and thus continues the cycle of life.

Speaking of coming from different points if life and different places, I would like to comment on where I put the three of us in the overall cycle of life:

Me: Just trying to make it thru the children infant years. I view it as the time between married(no kids) and what I think will be labeled the "t-ball time". The only real question that I have is whether or not to slow the career down during any of these periods.

Max is just preparing for fatherhood. As it approaches, the easy going life of bars, beers, and an understanding wife are slowly slipping away. Good luck with the transition. and welcome to the infant years. Always remember, you don't have a 12 year old.

AB is the hardest to pin down as he is quite a few years younger and thus on a different life track. Currently dating a wonderful Mrs. AB and at the end of the day if he just listened to all the sound advice of myself and Max could probably be the most successful out of the three, but instead chooses to follow his own path and thus lose the knowledge that flows so easily from us.

Not sure that anyone cares or will even read this. Had a fabulous weekend, and have a long weekend at the beach coming up, so don't expect the trifecta from old Spaced Ghost.

Father's Day

Any father who says they want anything besides peace and quiet and no children crying, whining, or otherwise being a nuisance on father's day is full of it.

Don't give me anything but a pair of flip-flops, a cold beer, maybe or maybe not a pair of pants and let me sit on the deck and reflect on my life before the little rays of sunshine came into my life.

Bar Fly Banter, Vol. 3

Heard tonight--

"You notice how they're never showing the beach below the cliffs at Torrey Pines?" (currently holding the U.S. Open golf tournament)

MB - "Didn't notice."

"Well, the beach below the cliffs that act as a hazard for a number of holes is actually called Black's Beach. It's a fully nude beach, so you'll never see anything but a blimp view."

And there you have it...

It Works!

I drive a truck. 'Cause chicks dig trucks. Unless they dig guys who drive Prius's. In which case they're probably a little too hairy for me. Doesn't stop me from punching their Prius driving half-men in the jaw. But that's another story.

Now, as a truck driver I sacrifice certain, shall we say, efficiencies in gas milage. Couple that with an 80 MPH disposition and you have a guy that's not doing his part to battle Al Qaeda.

Or something.

So I was getting 13 miles to the gallon. Gets a little painful filling up the 23 gallon tank. First time I realized that my credit card cuts off at $75 on a gas purchase. To protect me. In the past month, they've upped it to $85. Apparently they got some complaints. I was too lazy.

I routinely got 290 miles +/- on a 22 gallon +/- fill-up. About every 8-9 days.

So I set a goal. 2000 RPMs. A not-to-exceed ceiling. No change in driving pattern except a not to exceed RPM. 0-60 in about 30 seconds. Sounds slow, but isn't bad if you time it. About 73 MPH max speed. You notice a huge increase in RPMs above about 60 MPH.

I left with a tank on June 3rd. Filled up today. 22.5 gallons. 336 miles. 2 miles to the gallon more.

I bought myself another day between fill-ups. About 13% increase in fuel milage. A little less than 3 gallons extra per tank. Call it $11.

Figure I fill up 30 times per year. Call it $330 a year in savings.

Stick it, Obama Osama!