Review of Poker Face of Wall st., Aaron Brown

I just finished reading The Poker Face of Wall St. by Aaron Brown, by a professor of finance and ex trader who graduated from Harvard and University of Chicago in Applied mathematics and Finance. For anyone who is into statistics, poker, game theory, and trading; this is an excellent book.



I've always been fascinated by the game of poker, and not for the drama where people put millions on the line for a single hand. I find the way that people interact with each other given uncertainty is a bit mesmerizing.

In most gambling games, black jack, roulette, craps, etc; people bet against the house, there is no uncertainty and only odds, and over a large number of hands, you will more than likely lose money. Poker is the only game which combines both uncertainty of people and odds to make a wonderfully unpredictable game.

The human involvement in the game brings ways to make money and make it consistently. Why do you think the house never have their dealers play poker? They aren't sure if they can win over a large number of hands. Even if they give themselves an edge, its not certain as there are so many unknowns. They only get a cut of the winning pot. This isn't the best way to make money for casinos.

First, the book talks about how almost every economic activity takes on a gambling twist. The author gives examples and dispels common notions about securities and investments that they are mainly a gamble, and not the safe instruments we are spoon fed by sales people. He even asserts that major stock market crashes were more of an unpredictable event, there were no real big news events before or after that just caused the plunge. This lends credence to the unpredictability in markets. He then talks about how gambling played a pivotal role in providing capital to those who needed it in business such as Bill Gates who used poker money to start up Microsoft.

He talks about trading, poker, bluffing, and game theory and asserts some major pitfalls of practitioners of game theory. He thinks that knowledge of game theory is more useful as a way to win over people who use game theory. I think so too. Game theory works better in one on one games but horribly in Poker games which involve groups of people. People who use game theory will generally lose over time especially when they continue to meet people who are better than them.

He also says that people need to take risks to make real money in the world. When you've got a good hand, you have to have the guts to take risks. I believe he doesn't say that people should take dumb risks. For me, a person who thinks he should run a business when he sees so many successful people running a business is a dumb risk. Most people fail. Don't believe me, believe in the statistics.

On the other hand, if they got nothing to lose, yes it may be a worthwhile risk much like a lottery ticket or a business. For those with money it's a horrible bet. Humans also have this false confidence that say "I will make it work" which is a fallacy. They read all these books which give them confidence that they too can do it, they follow the advice to the letter, and fail. In running a business, a lot of it is luck. Don't believe all the hype out there about the Warren Buffetts or Bill Gates and their stories.

Definitely, this book is food for thought. I also read Nassim Taleb's Fooled by Randomness, which is an excellent complementary read to Poker Face on Wall st. Reading both will give you a greater understanding than if you were to choose just one as both books talk about fairly difficult abstract concepts.