Sunday, July 19, 2009

Don't Trust the House

Following up on my last post about online poker, I'd like to begin a series of posts on why online poker is risky business.

This post will focus on the house, and why you shouldn't trust that the house will not cheat. My poker friends usually respond to my warnings by stating that the house only takes a rake, a small percentage of every pot, so their incentive is for fair play, and a lot of it. However, remember that the "house" is really a set of computer servers that are programmed by people. There is nothing stopping those people from entering the casino as well. These people can play in poker rooms with you, and they have access to all of the cards in the deck before they are dealt. That's a pretty big advantage.

If you think this example is far fetched, then see this
about a 60 Minutes investigation that led to the discovery that a former World Series of Poker champion was behind exactly this kind of scam at the site Absolute Poker, stealing over $20 million. Due to the fact that online poker's legal status is ambiguous in the US, and that the poker companies were managed in Costa Rica and run on an autonomous Indian reservation in Canada, the players who lost tens and even hundreds of thousands of dollars have had very little recourse.

The cheaters in the 60 Minutes story were discovered because they were greedy and were not trying very hard to hide. As the article describes, whenever a player was bluffing, the cheaters would go all in. When another player had a good hand, they would fold. The cheaters' winning percentage was a whopping 15 standard deviations away from the mean. They were almost asking to be caught.

I believe that wherever and whenever there is an opportunity to cheat for big money, there are people who will do so. It would be naive to think that the Absolute Poker scam is the last of its kind. But, next time, the cheaters will be smarter and more careful. It would not be too difficult to program a bot, armed with knowledge of all the cards, to play at some small percentage of the poker tables, and to win just a little above average. The bot could be programmed to lose some and to only win within the expected norms of a good player. Over time, the author of the bots will win millions.

The next time you sit down at a poker table with real money, ask yourself how confident you are that the other "people" at the table are human, and that none of them is in cahoots with the house. Remember, that in the case of Absolute Poker, the company running the servers was not an accomplice. There was just a malicious insider.