Freakonomics Radio - 93. Why Online Poker Should Be Legal

Episode Date: September 19, 2012

The data show that poker is indeed a game of skill, not chance, and a Federal judge agrees. So why are players still being treated like criminals?

From APM, American Public Media, and WNYC, this is Freakonomics Radio on Marketplace. Here's the host of Marketplace, Kai Risdahl. Time once again for a little Freakonomics Radio, that moment every couple of weeks where we talk to, this time, Stephen Levitt, the co-author of the books and the blog of the same name. It is The Hidden Side of Everything. Dubner is, I guess, out of town. Levitt, how are you? I'm doing great. So listen, I have a little piece of paper in front of me. It says we're going to talk about

poker today. And I am shocked to find out there's gambling going on at Freakonomics World headquarters. Oh, well, poker is one of my all-time favorite things. Seriously? All gambling. Yeah. Yeah. Well, 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. Yeah. And if he won, he would leave a $5 bill in the keyhole of my door.

No way. And if he lost, he wouldn't leave anything. And so I very early on developed positive associations with gambling, that you only won and you never lost. But here's the thing, and I'm a little shocked to discover that you are a poker player because really it's like a game of luck, right? I mean, you deal some cards and boom, you're done. If poker were a game of luck, I definitely would not be a fan. You wouldn't catch me anywhere near a craps table or a roulette table. But poker is so obviously a game of skill.

That's like a declarative statement. Prove it, right? I mean, how do you know? You kind of know if you've ever played poker that some guys are good at it and some guys are bad at it. I have to say here, I have to say here,

I'm a horrible poker player. I'm just a really bad gambler. Really? Well, that's good to know because I think you and I are going to have to sit down at the table the next time we're together then. But beyond just experiencing poker,

we've actually written a couple papers. One was a simple paper that just looked at outcomes in the world series of poker. So every summer, the best poker players in the world convene. And the great thing about poker tournaments is if you pay your entry fee, you get to play. You don't have to qualify. You don't have to be any good. And a lot of bad players play along with the good players. And so not surprisingly, really, to someone who plays poker, that the good players did very well and earned positive returns. And the bad players, the guys like me who show up and think it would be fun to play with the good players, end up losing a lot of money.

Now, all right, so if that was the simple paper you just described, what's the complicated paper in layman's terms? So this is a special data set with 12 million hands of online poker. And what makes it special is that we actually get to see the whole cards, the hidden cards that the players have, because it was given to us by the online poker site. And so we can analyze the skill of the play in a way that others never have been able to. And indeed, we show on every single test that we can think of doing that skill really predominates over luck when it comes to no-limit hold'em poker. So what are we supposed to take away from this? That it's okay to do this if you know what you're doing, but it's not if you're not?

Well, it's a crazy politicized issue now, which is hard to understand, which that Congress has made it more or less illegal to play games of luck over the Internet for real money. And so there's been a lot of litigation going on and the biggest poker sites got shut down in what was called Black Friday. For those of you in the game. Exactly. And so there's an interesting decision handed down in a recent case by a legendary judge named Jack Weinstein, who has really turned over a lot of the existing legal thinking by judging that poker is a game of skill and looking at it in much the way an economist would look at it. And so we've been thrust into this

new world where no one really knows what's going to happen next with online poker. Well, what should happen next? I mean, should it just be legalized? Because there are people who have problems with this stuff, right? I mean, there are gambling addicts and all that. Well, what's funny is that 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. So it doesn't seem really 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 it seems to me if the government wants to be in the business of controlling and monopolizing gambling,

then the government should do a better job of putting together some good internet poker sites so that the people who want to play poker are able to play. You know what I think? What do you think? I think you actually just did this research so you can play more poker. That's what I think. Stephen Leavitt, Freakonomics.com is the website. He's back. Probably not him, actually. Dubner's probably back in a couple of weeks. Stephen, thanks a lot.

Thanks, Kai. It's been great. In our next Freakonomics Radio podcast, you'll hear Steve Levitt talk about the time he grew cherry tomatoes at home at a cost of about 15 bucks a pop. Why do so many of us love to do so much low-paid manual labor at home that we'd never do for somebody else? That's a question I think that really an economist can't answer. That's a question for a psychoanalyst, I think. That's coming up on the next Freakonomics Radio podcast.