Why Online Poker Should Be Legal: A New Marketplace Podcast

(Photo: Images Money, www.taxcreditscalculator.co.uk)

In our latest Freakonomics Radio podcast, Steve Levitt visits with Marketplace‘s Kai Ryssdal to discuss his poker research and his personal poker history. The episode is called “Why Online Poker Should Be Legal.” You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript here.

In case you haven’t been following the long-running legal story, here’s the gist. Online poker was growing fast in the U.S. until Congress passed the Unlawful Internet Gambling Enforcement Act of 2006, which pretty much shut things down. The ruling was based in large part on the government’s reasoning that poker is predominantly a game of chance as opposed to a game of skill.  But is this classification correct?

Levitt — an avowed poker devotee — says the data show otherwise. In the podcast, he touches on two recent papers he has written, with Thomas J. Miles as a co-author on both and Andrew M. Rosenfield as a third author on one paper. The first paper, “The Role of Skill Versus Luck in Poker: Evidence from the World Series of Poker,” has been published in the Journal of Sports Economics. The second, “Is Texas Hold-‘Em a Game of Chance? A Legal and Economic Analysis,” is forthcoming in the Georgetown Law Journal. An excerpt:

We develop four alternative tests to distinguish the impact of skill and luck, and we test these predictions against a unique data set of thousands of hands of Texas Hold ‘Em poker played for sizable stakes online before the passage of the UIGEA.  The results of each test indicate that skill is an important influence in determining outcomes in poker.

While academic research of this sort is often ignored by the courts, that hasn’t been the case here. In a recent Federal ruling, the venerable judge Jack B. Weinstein declared that poker is indeed a game of skill, citing the Levitt/Miles paper in his decision. For more, see poker writer James McManus‘s Times op-ed “No More Bluffing.”

During his conversation with Ryssdal, Levitt reveals how he came to think well of poker:

“My father introduced me to it early on.  When I was no more than five or six, he would go out and play poker with his friends and if he won, he would leave a $5 bill in the keyhole of my door.  And if he lost, he wouldn’t leave anything.  And so I very early on developed positive associations with gambling.”


frankenduf

My father introduced me to it early on. When I was no more than 5 or 6, he would go online and play poker with his friends and if he won, he would leave a $5 bill in the keyhole of my door. And if he lost, we lost the house. I haven't seen him since and so I very early on developed negative associations with gambling.

Dick

So because of your irresponsible father, the government should restrict my liberty? I almost screwed up my back going too hard in the gym, should the government outlaw gyms as well?

Mike B

What about others' liberty not to be exposed to gambling? The availability of gambling does hurt people and the communities they live in just like alcohol and drugs. This isn't a matter of some moral scold trying to tell you what to do, it is a conflict of two different and equally valid liberty interests.

The truth of the matter is that the most vocal about wanting to play online poker are the most skilled at it. The only way for someone to make money at online poker is if there is some large pool of unskilled persons willing to play it. Perhaps a more accurate way to phrase your position is that you don't want the government stopping you from hustling the uninitiated out of their money. Hey, while we're at it why not legalize ponzi schemes because that's all what Online Poker is.

Mike Hunter

Why online poker should be legal:

Because it's no one elses business if you decide to waste your money on gambling instead of other types of consumption. I never understood some peoples' need to control the personal lives of other citizens. I think gambling is a waste of money, so I don't do it. Easy solution.

James

True, and there's also the issue of jurisdiction. If I were foolish enough to gamble, and did it with a betting site located in Antigua, Britain, or other country where it is legal, then it is none of the US government's business.

Mike B

Actually it is exactly the US government’s business. Protecting US citizens from being scammed by foreign actors is a core government function. Thomas Jefferson sent in the Marines to stop the Barbary pirates from seizing US merchant ships. Just because modern criminals steam money with a mouse doesn't make it any different.

Eric M. Jones.

Ask yourself if civilization should impose ANY limits upon individual actions, or restrict the FREEDOM to do as you damned well please. Hell, why not just make EVERTHING legal.

Gambling, drugs, lower the legal drinking age to birth. How would that be?

ps: I don't have the answer.

JAM

It is not about making everything legal. It is about government not getting involved in personal decisions that don't affect anyone else.

Right now we have a society where a lot of people think that their own personal preferences should be imposed upon everyone else. This leads to the ludicrous situation of having laws that prefer beer over marijuana and the state lottery over poker.

Essentially these are the equivalent of having the government telling you the proper ways to get high and lose your money. And these are only a couple examples of many crazy government imposed constraints we have to adjust ourselves to every day.

People need to wake up and stop passing so many laws. We need to have a very high bar when we constrain our freedoms by passing law.

Just learn to live and let live.

Mike B

There is a reason that the most common word coming in from of gambler is "problem". Where an activity renders some or all people incapable of making a informed decision then some sort of regulation is essential. Gambling is a highly addictive activity and many people who play are unable to stop or moderate how much they spend. Gambling also has very low friction so people can find themselves in trouble faster than with more mundane activities like thrill seeking or eating or sex.

Addiction is the antithesis of freedom.

Statspotting

Here is one more reason :

http://statspotting.com/2011/05/is-poker-a-game-of-skill-or-chance/

Mike B

What matters is if the game, as currently designed, is addictive or not. If it is then players are no longer able to make an informed consent as to their participation and the game should be regulated somehow or the game tweaked to remove the addictive element. As far as I can tell most poker tournaments use a fixed buy in amount which is less vulnerable to compulsion than the open table system where players can continue to throw good money after bad. There is a strong case for being more permissive with the former, but more respective in regards to the latter, especially online where there is little to stop cheating or scamming.

James

Where - and how - do you draw a line between "it's addictive" and "hey, I just really love doing it"? For instance, I spend a goodly chunk of my disposable income & free time on horses (owning & riding them, not betting on horse races), and have friends who spend a lot more than I do. Are we addicted, or are we just having fun?

I could say as much for disposable (and not so disposable) time spent on hiking, biking, skiing, and all the other things I do for fun. Am I addicted to these things because I'd rather be out doing them than sitting at the computer making more money?

Mike B

Intermittent positive feedback has been shown in both human and animal studies to be both addictive and to lead to highly destructive behavior. For example in one study monkeys were rewarded with a dopamine hit after pressing a button or some other task if the hit is delivered regularly they will eventually meter their use of the button. However if they are only given the hit occasionally and randomly they will continue to hit the button even at the expense of taking care of necessary biologic functions like eating. Yes, poker has a strong skill element, but depending on how the game is set up it can also have play mechanisms that have the same effect as a slot machine.

Gambling is addictive / destructive because it exploits flaws in the human reward seeking mechanism. I'm not saying that people shouldn't be allowed to gamble, but it needs to be regulated properly to minimize the risk of self destructive behaviors. Making people physically go out and go to a casino is one such mechanism. Online games are also much more susceptible to collusion between players and scamming by the casino.

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