Slade: How the hell did you know I didn’t have the king or the ace?
Lancey Howard: I recollect a young man putting the same question to Eddie the Dude. “Son,” Eddie told him, “all you paid was the looking price. Lessons are extra.”
? “The Cincinnati Kid” (1965)


There are only two great movies about poker — Rounders, which everyone knows, and The Cincinnati Kid, which no one knows. Steve McQueen is the Kid and Edward G. Robinson is the Old Pro, Lancey. When I was a younger man, I rooted for the Kid. Today … I’m pulling for Lancey all the way.

Slade: Six stacks, is that right, Shooter?
Shooter: Six.
Slade: Well, we’ve been playing 30 hours… uh, that rate, six thousand, that makes roughly, uh, $200 an hour. Thank you for the entertainment, gentlemen. I am particularly grateful to Lancey, here; it’s been a rewarding experience to watch a great artist at work. Thank you for the privilege, sir.
Lancey Howard: Well now, you’re quite welcome, son. It’s a pleasure to meet someone who understands that to the true gambler, money is never an end in itself, it’s simply a tool, as a language is to thought.
?“The Cincinnati Kid” (1965)


Money is to gambling as a language is to thought. What a line!

Screenplay by Ring Lardner, Jr., one of the Hollywood 10 who refused to be rats for the House Un-American Activities Committee in McCarthy days. Lardner was blacklisted and sentenced to a year in prison for contempt of Congress.

True courage comes at a heavy price. Some will be willing to pay that price over the next four years.

And some won’t.


[Shooter’s wife Melba is altering a jigsaw puzzle piece with a nail file]
Shooter: Melba, why do you do that?
Melba: So it’ll fit, stupid.
Shooter: No, I’m not talking about that. What I’m asking is … do you, uh, have to cheat at everything?
Melba: At everything?
Shooter: Yes. At … solitaire. I’ve yet to see you play one game of solitaire without cheating.
Melba: So what?
Shooter: Look, you’re just cheating yourself, don’t you understand? You’ll be the loser, no one else but yourself! … You’ve ruined the puzzle, now, that doesn’t go in there.
[She forces the altered piece into place]
Melba: Does now.
?“The Cincinnati Kid” (1965)

I’ve known more than a few economists who had more than a little Melba in them. Quants, too. That’s Ann-Margret as Bad Girl Melba, by the way, and Karl Malden as the cuckolded Shooter. ‘Nuff said.


Daring ideas are like chessmen moved forward. They may be beaten, but they may start a winning game.

Johann Wolfgang von Goethe (1749 – 1832)

A gambit risks a pawn for advantage later in the game. The word is derived from the Italian gamba (leg), from a wrestling move with a similar sacrifice.

In chess as in life — the only way to defeat a gambit is to accept it.


Berlin is the testicles of the West. Every time I want the West to scream, I squeeze on Berlin.

?Nikita Khrushchev, 1963


Without wishing to trade hyperbole with the Chairman, I do suggest that he reminds me of the tiger hunter who has picked a place on the wall to hang the tiger’s skin long before he has caught the tiger. This tiger has other ideas.

?John F. Kennedy, 1961

Sieges and blockades are game theory in practice, on both sides of the wall.

epsilon-theory-the-art-of-the-probe-december-8-2016-general-giap epsilon-theory-the-art-of-the-probe-december-8-2016-general-siege

Photo of North Vietnamese General Giap, taken during the siege of Dien Bien Phu in 1954. In anticipation of a full-scale assault, the French took up positions (marked in green on the map) on a series of fortified hills. Rather than attack en masse, however, Giap set up artillery positions east and north of the French fortifications and wore the French down with artillery fire combined with constant probing skirmishes. In investing, I always try to think: WWGGD?

I’ve written a lot about The Common Knowledge Gamehere, here, and here – because it’s the game of markets, i.e., it’s the central contribution of game theory to understanding how markets work. I’ve also written a lot about new technologies and new perspectives – here, here, and here – that help us see The Common Knowledge Game in action. Today I want to take a different cut at this topic: how can you be a better game-player? What are some specific strategies one can adopt to play the game of markets more effectively?

Probing Bet
Image source: Pixabay
Probing Bet

There’s a concept in poker that’s a useful introduction to what I want to talk about. It goes by lots of different names, but I’ll call it The Probing Bet. The idea is that you make a raise or otherwise take the initiative in a signaling interaction because, as you’ll hear time after time if you talk to good poker players, you need to find out “where you stand” in that particular hand. The betting behavior of the other poker players sitting around the table from you is like the betting behavior of the other investors sitting around the market from you: it’s over-determined, which is a $10 word that means there are far more possible explanations of what actual cards might be driving that betting behavior than are required to explain the behavior fully (see “The Unbearable Over-Determination of Oil” for an investment example).

In other words, there might be six different basic card combination categories that an opponent might hold, each of which — if you were playing that hand — has some percentage likelihood of prompting you to duplicate that opponent’s betting behavior. But if you add up those percentage likelihoods across the six different categories, you get a number way higher than 100%. As a result, if you’re trying to reverse engineer in your mind what cards your opponent might be holding, it’s really difficult to come up with anything interesting or informative. It’s difficult and not terribly fun, so most poker players don’t even try. Most poker players only play their own hand. Period. They know their own hand’s strength in an absolute or non-strategic sense, and they know what cards need to show up for them to have a really killer hand. But that’s all they really know, so their betting behavior is directly connected to the non-strategic strength of their hand, coupled with some loose sense of whether they want to play “tight” (bet per the book odds of hitting that killer hand) or “loose” (bet more than the cards justify in an absolute sense in order to set up a bluff or maybe just get lucky).

The average poker player is fascinated by his own cards. Every deal unlocks a world of seemingly endless potential, and almost all of the mental energy at a typical poker game is consumed by thoughts of “how am I going to represent my hand to my opponent?” In sharp contrast, precious little mental energy is spent asking “how can I learn more about how my opponent is representing his hand?”, even though the

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