|
Parallels between online trading and
online poker
Are gamblers
and online traders one and the same animal? While there is compelling
evidence to support that view, we believe it is important to identify alternative
criteria, if any, that explain why such a small percentage of online traders
consistently win.
We need to know more about the zero-sum game.
To this end, we draw
upon substantial research into trader analysis by Lawrence Harris
(Professor of Finance at the School of Business Administration - USC, and Board
of Advisors - USC Marshall CIS).
Harris submits that
"...Trading is a
zero-sum game when measured relative to underlying fundamental
values. No trader can profit without another trader losing. People trade
because they obtain external benefit from trading. These benefits
include expected returns from holding securities, risk reduction from
holding correlated assets and gambling entertainment."
Harris also provides a broad perspective on the
subject of positive-sum, negative-sum, and zero-sum games, and we are
invited to develop our intuition
for the zero-sum game by discussing poker, which he describes as a "good
metaphor" for trading.
Poker played between friends
is a zero-sum game. In other words, players profit at the expense of the losers. When an
online casino takes a percentage of the pot, poker becomes a negative-sum
game. However, when we consider the online casino as another type of player,
the game would again become a zero-sum game. Poker played at an online poker
tournament is a positive-sum game providing the prize money is greater than
the total entry fees. Net of the prizes, tournament poker becomes a zero-sum
game again.
When we look beyond the cash
distributions we see that there are other reasons why people play poker, especially, when on average they expect to lose. Harris tells us
that, "...Our definition does not explain why rational players play poker
when some players are more skilled than others. Unskilled players interested
only in cash winnings and losses will not play with skilled players to whom
they lose. Clearly people play poker for more reasons than just expected
profits."
|
.jpg)
.jpg)
.jpg)
.jpg)
