The New York Times (this may cost you one of your monthly alloted articles) reports on a new article by Levitt and Miles that argues that poker is a game of skill and not a game of chance. The policy-relevant implications for the study deals with legalization – several prohibitions against poker are codified with terminology that prohibits gambling and randomized lotteries while allowing for skilled based gaming. The authors track a set of known players from the 2010 World Series of Poker (WSOP). The study indicates that "good" poker players do get returns on their tournament buyins (seen as an investment) while the unknown players are more likely to lose money during the event. The data includes 57 tournaments that run during the course of the WSOP (there are several side tournaments besides the main event).
Naturally, for those who are concerned about the endogeneity between the tracked players and their 2010 performance, the players are picked based on pre-2010 WSOP data – they were either ranked highly previous to the tournament (in poker magazines or online) or did well at the 2009 WSOP. Naturally, if poker was entirely based around randomization, your previous performance ought to have no influence on your next tournament. For those of us who are poker players, the results should not be too surprising; however, having evidence of skilled players doing well should be reassuring. Perhaps, also, it will allow us to hear less bad beat stories (stories about opposing players getting lucky against the story teller).
As an aside, footnote 10 indicates who not to be at the WSOP: "The biggest loser in the 2010 WSOP paid in $252,000 in entry fees, but earned only $24,000 in prize money."
In determining the legality of online poker – a multibillion dollar industry – courts have relied heavily on the issue of whether or not poker is a game of skill. 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.
The NBER paper can be found here.