Paper from Freakonomics Author Finds Poker a Game of Skill

The battle over whether poker is a game of skill or one of luck has been one of the chief arguments over the legalization of online poker in many jurisdictions, including the United States. A new paper by Freakonomics author Steven Levitt has attempted to answer that question, and came to the same conclusion that poker players themselves have: that poker is indeed an enterprise governed more by skill than chance.

Levitt is known for doing rigorous statistical analysis on a variety of topics; his books and writings have been designed to allow those without a statistical background to understand the mathematical nature of the world around them. His latest paper, written with Professor Thomas Miles, is entitled “The Role of Skill Versus Luck in Poker: Evidence From the World Series of Poker.”

In the paper, certain players are classified as “skilled” based on previous results, and their results are compared to those of all other players. Using data from the 57 tournaments of the 2010 World Series of Poker, it was found that those skilled players made a 30% return on their investment during the series, while the remaining group suffered an overall 15% loss.

According to a report by the Huffington Post, the paper points out that this difference in Return on Investment (ROI) is much higher than that seen between different traders in financial markets, suggesting that skill is actually a much larger factor in poker than it is on Wall Street.

Levitt also took a secondary approach, comparing poker to other sports. By considering where skilled players finished in tournaments when compared to unskilled players, he found that a skilled player was approximately 54.9% likely to finish ahead of an unskilled player.

While this might not sound like a huge edge, it’s about the same edge found in Major League Baseball. According to the paper, baseball teams that made the playoffs in a previous season win 55.7% of the time against teams that failed to make the playoffs one year earlier.

“To the extent that baseball would unquestionably be judged a game of skill,” the paper concluded, “the same conclusion might reasonably be applied to poker in light of the data.”