Sunday, February 12, 2006


Variance vs Expectation

Mason Malmuth may be a bit of a dork (which is pretty good coming from someone who titles a post "Variance vs Expectation") but one thing he said that rings 100% true is that most players have no idea what their variance is, even though the variance is in many ways more important than the expectation !

I have been surfing a few blogs and forums to try to assess what kind of return I can reasonably expect from the Sit and Goes I'm playing. Somewhere around 20-25% seems to be the consensus at the $50 level where I am at the moment. You may well say, what's wrong with the 200s you big wuss ? What's wrong with them is that the variance is too high.

Now, it's not as though I'm in any danger of going broke. My bankroll is many times more than sufficient provided I have a positive expectation. If you have a negative expectation, bankroll becomes irrelevant because you're going to do it all in the end. The problem in the real world is that we can't just sit down and say "ah yes I can expect a 10% ROI here" because without a lot of results to back it up we're just pulling numbers out of the air (or somewhere else beginning with A).

While we are though, just suppose that we did estimate that we could make $70 an hour playing $200 Sit and Goes, or $60 an hour playing $50s. It does not follow that the $200s are the game to play. My two reasons for saying that they aren't are : 1) the variance is much higher and 2) it will be less satisfying because you don't win as often. There's not much need to expand on this. When we factor in the tremendous uncertainty as to what our expectation actually is, the extra stress involved in playing $200 would not be worth the extra money. After all, all we have to do to earn the same wedge is play 10 minutes more in the hour.

I'm more sensitive to downswings than I should be. Much more, considering that I am self-sufficient outside of poker. But if I am sure that I am a winning player at a particular level, that helps a great deal. When I can see people making terrible plays on a regular basis it is a consolation, even when it hurts me in a particular coup. I would find trying to eke out a 10-12% edge playing for $200 very difficult indeed. The swings and the doubt as to whether I was actually winning would play on my mind. And if I was playing at less than 100% I'm sure that would cost much more at $200 than it would at $30.

So you're unlikely to see me in these bigger games. Does that make me less of a player ? I think you'll find I can spend the money just as well wherever I make it.

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