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.”


someguy

The host doesn't seem too bright. He thinks that poker is a game of luck, that he himself is a bad poker player and that there are degenerates who lose all their money. Seems like contradictory statements to me. What makes a mathematically unsavvy talk show host qualified to disagree with a freakonomics figurehead?

Joe

There seems to be flawed logic here. Why do you have to be bad a gambling to be addicted? Cant addicted gamblers lose money slowly as well as quickly? If a website is scamming, arent people free to stop playing that site and go to a different site and if they are all scamming arent they free to stop playing online and go to a non-virtual casino/tournament? If online poker affects anything its that it is more convinient than going to a local tournament or taking a trip to a state to play in a casino with legalized gambling. This could have effects on their business and tourism in general, but then that's free markets working. A benefit of online poker, is if they allow private poker rooms so that friends who are geographically seperated can still enjoying a poker night together. The only real arguement is what if someone loses all their money gambling and now becomes reliant on social programs that our taxes pay for. Without putting to much thought into this and researching a lot of alternatives, I'd say that finanical advisors need to be assigned to people seeking these social programs to help them with their budgets. Once that step is completed it can be determined where these families need help and funds allocated approriately. If it comes up during the budget review that all their money is spent on gambling (drugs, prostitutes, shopping, or other areas of consumption) they should be assigned a counsler as appropriate. However, anyone with the means to pursue gambling and can do it within their budget should be able to do so, regardless of whether or not it is a game of chance.

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Matt

Government has taken a hard line against online gambling, and yet at the same time, there are state-run lotteries, and there are state-approved casinos. It doesn't seem that the government is morally against gambling, it seems more like the government is morally against gambling that doesn't lead to direct revenues for the government. So if the government wants to be in the business of controlling and monopolizing gambling, then the government should do a better job of putting some good Internet poker sites, so that the people who want to play poker can play.

casino-pa-natet

Once the blinds become significantly larger in the later periods,stealing blinds is extremely efficient in building a stack.This is why so often players in late position raise the pot normally with marginal hands to accumulate the blinds.

Jeff

Well I am getting more and more upset with our government as every moment passes. We are going backwards in time to a communist country. I thought we were land of the free but yet we are just land of the you can't do this you can't do that. The government wants to go as far as regulating what we drink by raising prices on pop because people are fat. Maybe they should say if you don't use a treadmill everyday you will get a ticket. If you can play poker in a casino you should be able to play online. What about people who are crippled? Do they not deserve the right to play poker? In my opinion it is even more unconstitutional to not allow online poker. Right now in our government half of the Supreme Court are all getting "arrested or in trouble" for tax evasion and many other crimes, as well as giving themselves raises in the time of a huge recession...... WTF is wrong with this country we need some people to stand up against these crimials.

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robert tippett

Things were shut down because gambling online meant fewer trips to the casino. Fewer trips to the casino meant unhappy NAs and industry bosses. Unhappy NAs and bosses meant less money in lawmakers' pockets.