At a poker table once, someone I respect said, “Everyone I know who’s ever bet on props has gone broke at some point.” I puzzled over this, because a prop bet, in poker terminology, is a bet on something where the odds are fair, such that there is no expected edge for either player. An example would be if players bet even odds on whether the flop would have more black cards or red cards. I realized that, strangely, my friend’s observation was probably right; betting on props is a potentially catastrophic decision, even though the expected financial loss is zero.
The reason for this is subtle and is beyond the scope of this book. There is a class of mathematical models called Risk of Ruin that examines the probability of going broke as a function of starting bankroll, betting edge, bet sizing, and number of bets. A good introduction to these models is provided in Bill Chen and Jerrod Ankenman’s book The Mathematics of Poker…
…In a highly competitive global world, you might reasonably expect to have a small edge on your competition when it comes to your specialty. However, it is also reasonable to expect that you are at a large negative disadvantage if you venture into new fields. A poker player might expect to earn one big blind per 100 hands in the game he specializes in, but lose ten big blinds per 100 hands in a game that’s relatively new for him. This is the danger of dilettantism; it might take you ten hours doing the thing you’re good at to overcome the losses from one hour spent doing the thing you’re bad at.
Think of sports gambling. Suppose you’ve been watching soccer your whole life and are an astute soccer handicapper who can bet profitably against sports books. The information embedded in market prices is so good that, if you are right about your abilities, your best expectation after paying juice is to make a small profit of perhaps 1 percent on every dollar bet. But if you are wrong about your abilities, and in fact have only average knowledge (this is likely the case), you are lighting your money on fire, losing perhaps 4–5 percent of every dollar bet.
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