Risk management and you

Life in the Streets

By Vincent Olmos

After years of waiting, we finally made it to Universal Studios in Orlando, Florida, to play “Deal or No Deal” with none other than Howie “Bobby’s World” Mandel. We have one briefcase left and two possible outcomes—either $100,000 or zero dollars awaits us soon.

But wait! Another possibility emerges as a shadowy accountant offers us another option. The mystery man on the bright phone says we can leave the case and walk away with $40,000 in cold, hard cash.

Do we acquiesce and take the guaranteed income? Isn’t it better to leave with a guaranteed something rather than potentially nothing?! Is there really a right or wrong answer? Hey Vicente, is this a gameshow blog all of a sudden?

The answer to these questions is one we hear ad nauseum in poker—it depends. First and most importantly, one needs a plan because if we do not analyze our situation, we are doomed to fail in our decision.

One frame of thought would be to maximize our expected value, so we make a quick EV calculation. If Howie presents us with a truly fair game, our net gain is +$50,000 on taking the leftover case. Fifty percent of the time it will be $100,000, and the other 50 will be $0. In the long run it doesn’t matter what it is. We will gain $50,000 on the choice equally. We slam the No Deal! button and live with the consequences.

In our next scenario, we are in a life or death position financially. Any amount of money would provide us with sustenance. Since we are in these dire straits, it would be devastating to walk away with zero dollars. Even if this is technically not a net loss of income (“Deal or No Deal” being a freeroll), we take the guaranteed $40,000. This is a net loss of $10,000 from our previous calculation, but we eat the $10,000 because we want to put food on our table in the morning. We submit to the cunning banker and live to fight another day.

When playing poker, these types of choices are flying at us constantly. On a final table bubble, do we risk our tournament life to give ourselves a better chance to win, or do we tighten up to improve our chances for a min cash? It depends.

Playing poker professionally usually means giving yourself the highest expected value at any given time. For one to be able to do this, you will need A LOT of info and the ability to be completely honest with yourself at all times. If you’re at the WSOP Main Event and find yourself at the final table completely outclassed, this will affect your strategy.

Say in this same tournament, you somehow cooler all the better players and wind up second in chips. Against eight players of greater skill, should you be opening more frequently and making decisions, or should you be content to watch some short stacks bust out so you can ladder up the payout structure. Once again, it depends.

Even playing hands and making a specific decision should affect your thought process. In a cash game, we hold Kd-Qd on a Jx-Tx-3d board. We know we have eight cards to make our straight draw. Our opponent, Tight Tim, bets 40 percent of the pot—$40 into $100. Yikes. We have only an 18 percent chance of making our flush on the flop, so we save the $40, cower and fold, right? Heck no, techno! We use all our information to make the best decision possible. See? It depends.

How much do we have behind? What are the chances we can get Tim’s entire stack if we call? What are the chances of hitting a king or queen? Aren’t there an extra six cards that could help us win? If you think that half the time you will be good after hitting your K or Q, you could guestimate you can count those other six outs. Let’s not forget our 23:1 or so chance of going runner-runner diamond. Suppose our opponent holds the top of his range here, has $1,000 behind and will give it to us every single time we make our flush. It depends.

Lastly, what about raising? Could raising ever add to our expected value? You bet your sweet “No Deal” button it can. For example, Tight Timmy was just continuation betting to “see where he was at.” In this case he has a fairly high fold percentage if he is priced out of the pot. Do we raise the size of the pot? 2x pot? Double his raise? Okay, now we’re talking. But what if he calls? Once again, we are hit with that ageless poker maxim—it depends.

If we raise and he calls, we are building a bigger pot for us to win. We are effectively raising the stakes of the “Deal or No Deal” choice. If we know our opponent makes worse decisions in bigger pots, this is a slam dunk. If we know the opponent owns a 24/7 calling station on fifth street, maybe we slow down when we miss. It depends.

Additionally, we must also consider what could happen if we decide to be conservative and just call the $40 bet on the flop. Will we get paid when we hit the turn? If Tight Timmy is perceptive, he may realize that we never raise the turn and bomb the river unless we absolutely have it. If raising the flop is not part of our game plan, he can play perfectly against us and we lose out on the expected value when we make our hand.

I may not be a risk management wizard like George Costanza, but I suggest gathering as much info as possible. This way, you can make the best-informed decision despite what may befall you. Alas, but will it work? It depends.