Is Poker A Game Of Skill Or Chance?

[This post is a response to the paper "THE ROLE OF SKILL VERSUS LUCK IN POKER: EVIDENCE FROM THE WORLD SERIES OF POKER" by Steven D. Levitt (Freakanomics author) and Thomas J. Miles.

So is Poker a game of skill or chance?

For those of us who have tried the game, the answer seems to be clear - it is a combination of skill and chance. But here is the thing - what in life, isn't? That helps us rephrase the question - like so many things in life, is Poker just another test of skill, with chance playing a huge role as well?

The first time we came across a convincing argument that Poker is NOT a game of chance was this:

"Yet perhaps the clearest argument in favour of poker being skill- rather than chance-dependent comes from Mr Sklansky, and it has to do with losing rather than winning. Imagine trying intentionally to lose at a game of pure chance, like roulette or baccarat. It would be impossible. At the beginning of a deal or a roll you have to bet on something. You can no more deliberately play badly than you can deliberately play well. The same is not true for poker, which offers multiple opportunities to make sure you lose."

Source: The Economist, A special report on gambling - At war with luck - Is poker a game of skill or chance?

We were convinced with that logic - of course you cannot play Roulette to lose, and hence Poker is definitely a game of skill.

But here is the thing - You can actually play Roulette, or for that matter, Craps to lose. Thats the whole house advantage thing. The fact is,no matter how you play, for every roll of the dice or for every spin in roulette, you stand to lose.
In fact there is not a single game inside a casino that you cannot play to lose, and that includes Poker.

So that argument from the Economist went out of the window. Now we have this new working paper, that argues, based on WSOP data, that Skill plays a more important role than Chance in Poker.

The premise of the paper is very simple - skilled players (ranked before the tournament) performed better in the tournament than others. So skill has a big role to play, right? Here is the summary from the paper:

"Using newly available data, we analyze that question by examining the performance in the 2010 World Series of Poker of a group of poker players identified as being highly skilled prior to the start of the events. Those players identified a priori as being highly skilled achieved an average return on investment of over 30 percent, compared to a -15 percent for all other players. This large gap in returns is strong evidence in support of the idea that poker is a game of skill."

What is the flaw in this argument? Remember the concluding paragraph from our post "Roulette: After 3 Reds, Do You Pick Red Or Black?":

“A person believing in the “law of small numbers” thinks that small samples should “look like” the parent distribution, i.e. that the sample should be representative of the parent distribution. Thus, the person believes that out of, say, 6 spins 3 should be red and 3 should be black (ignoring green). If observed outcomes in the small sample differ from the 50:50 ratio, immediate reversal is expected. Thus, somebody observing 2 times red in 6 consecutive spins believes that black is “due” on the 3rd spin to restore the 50:50 ratio.”

Think about it – we all believe in the law of small numbers one way or the other. In all fields. We are just being stupid."

That exactly is the issue here - do the analysis with, say 1000 WSOP data, and you are still talking about small numbers. For a conclusion as big as this.

Let us close with Forrest Gump then. Life, like Poker, is a box of chocolates.You never know what you're gonna get.