The Efficient Frontier Comments

Excellent post. Let me know if this is in concert with your thinking: The more +EV a hand is, the less risky it is (as opposed to investing, where risk and return are usually positively correlated). However, where you can add EV, if you are willing to take on more risk/varaince, would be by playing marignal hands where you can win big/lose big (speculative hands like SC). People are who willing to tolerate more risk (greater bankroll swings) should play these hands, whereas those who like to keep varaince to a minimum should avoid them.

I wonder if these other correlaries b/w poker and investing work:

The "average" investor will sell a winning stock too early, and hold on to a losing stock too long. Or, in poker, the "average" player loses value on winning hands, and stays in losing hands too often.

Curiously, as an unrelated aside, why would we expect Art, Collectibles and Gems to have a higher expected return than, say, the US stock market? Greater risk is obvious, but shouldn't the utility that one gets from owning Art/Collectibles/Gems reduce the expected returns? (Almost like a continuous dividend).

Originally Posted by yorib

Let me know if this is in concert with your thinking: The more +EV a hand is, the less risky it is (as opposed to investing, where risk and return are usually positively correlated).

I would say that is generally correct, but your risk is actually how much of your stack you are putting on the line. To keep it simple, let's compare pushing a/i preflop with AA to pushing a/i with 720. As the highest +EV hand, AA is the least risky hand to do this with, whereas 72o would be among the most. Using the efficient frontier concept, with AA you would be taking on the most amount of risk (pushing a/i) with the hand closest to the efficient frontier (actually, I think it would be on it - or would it, considering it gets cracked 20% of the time?), while 720 would be one of the farthest away.

Originally Posted by yorib

However, where you can add EV, if you are willing to take on more risk/variance, would be by playing marginal hands where you can win big/lose big (speculative hands like SC). People are who willing to tolerate more risk (greater bankroll swings) should play these hands, whereas those who like to keep variance to a minimum should avoid them.

Also true, although again I think you also have to corellate your risk level with how much of your stack you're putting on the line. I think it can be argued that your risk increases as the hand proceeds - preflop, flop, turn and river, so how far you take your hands is also a factor.

In designing portfolios, even for an aggressive investor, I usually limit speculative/high-risk investments to a maximum of 10% of their portfolio, while for a conservative investor I won't include any high risk investments at all. The more aggressive an investor you are, the bigger the ups and downs in your portfolio, or variance in poker terms, while conservative investors experience the least. What if you limited your play of SCs, AXs, to 10% of your hands...? There are some nits that play these 0% of the time, while an uber-aggressive LAGG might play them...?

Originally Posted by yorib

I wonder if these other correlaries b/w poker and investing work:

The "average" investor will sell a winning stock too early, and hold on to a losing stock too long. Or, in poker, the "average" player loses value on winning hands, and stays in losing hands too often.

Not taking hands far enough (underbetting, folding too soon, for example) and taking hands too far (overplaying TPTK/GK/NK, chasing without odds)...I think that works. We either fold/bet too much or not enough, right?

Originally Posted by yorib

Curiously, as an unrelated aside, why would we expect Art, Collectibles and Gems to have a higher expected return than, say, the US stock market? Greater risk is obvious, but shouldn't the utility that one gets from owning Art/Collectibles/Gems reduce the expected returns? (Almost like a continuous dividend).

Art, collectables and gems are considered high risk because of their limited liquidity and the fact that they are subject to fluctuating tastes. Sports memorabilia (collectables) are probably a good example. There was a huge market for that stuff a number of years of ago, but the bottom fell out. While buying a Picasso is probably a good investment, buying the work of a relatively unknown artist because he/she is the 'next big thing' is pure speculation in financial terms.

Very nice post. Chard get to work stickying and splitting this

{Stickied and split}

Wow, my first sticky!

Good Job