Tuesday, March 15, 2005

Drawing to an inside straight

Have you ever wondered when it might be advantageous to try to draw out?

Yes in limit poker you can predict the risk/ reward based on pot odds.

In no limit you can try to discern implied odds based on the stack size
and aggressiveness of your opponents.

What about at the final table of a tourney? Most players have lots of chips,
and with big blinds, few options.

One of your options is to go for a killer draw if the price is cheap.

Hit it, and you are a genius. Miss it and fold or bluff bet.

Here is a snippet from N.N. Taleb about the implications in Finance of similar situations.

Taleb's book is highly recommended; investigate it from the Amazon link on the right side.

Quotes from A World of Randomness by Nassim Nicholas Taleb

Let us assume that the reader shared my opinion, that the market over the next week had a 70% probability of going up and 30% probability of going down. However, let us say that it would go up by 1% on average, while it could go down by an average of 10%. What would the reader do? Is the reader bullish or bearish?

The best description of my lifelong business in the market is "skewed bets," that is, I try to benefit from rare events, events that do not tend to repeat themselves frequently, but, accordingly, present a large payoff when they occur. I try to make money infrequently, as infrequently as possible, simply because I believe that rare events are not fairly valued, and that the rarer the event, the more undervalued it will be in price. In addition to my own empiricism, I think that the counterintuitive aspect of the trade (and the fact that our emotional wiring does not accommodate it) gives me some form of advantage.


ood stuff.

Now get out there and enjoy life.

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