Review of The Poker Face of Wall Street

Title:

The Poker Face of Wall Street

Author:

Aaron Brown

Publisher:

John Wiley & Sons

Date:

2006

ISBN:

0-471-77057-4

Pages:

368

Price:

$27.95

Reviewed by Nick Christenson, npc@jetcafe.org

February 25, 2010

Aaron Brown's qualifications as a Wall Street insider are unimpeachable. He also has a strong mathematics background and a lifelong passion with the game of poker. He brings all of these elements together in his book, The Poker Face of Wall Street. This is yet another of those books that has been sitting on my shelf for a while. I always found what little I knew about it to be intriguing, but I never quite got around to reading it until now.

What is this book about? That's not so easy to answer. There are many themes in the book and the author switches back and forth between them. I I would say that the three strongest themes are: (1) Gambling and poker in particular is a very similar activity to finance trading in function to society and in the temperament of its participants. (2) Gambling, including both poker and exchange markets, has played a critically important role in economic development than most people know, especially in the United States. (3) It takes special skills to be a winner at either poker or trading, and many of those who write about both topics don't quite understand their essences.

First, I want to talk about the parts of the book I really liked. I very much enjoyed Brown's discussions about financial systems. While I have some basic understanding of economics and finance, this is by no means an area of expertise for me, so I found the author's explanations, from a perspective likely to be accessible to a well-read poker player, to be very valuable. Moreover, many of his perspectives were new to me. I hadn't heard his particular explanations for why the financial collapse of 1987 occurred, nor his rationale for why the stock market malaise of the 1970s was finally broken. In general, I greatly enjoy hearing well-considered theories that are new to me, and The Poker Face of Wall Street contains many explanations that fit that bill.

It's not surprising that Brown would be a big proponent of market economics and financial exchanges. What's interesting is that he eschews the rationalizations that many have come up with justifying their existence. Instead he defends them, as well as other gambling activities, as intrinsic to the human condition. He also explains how it is that financial derivatives are beneficial for economic activity. Of course, these have a dark side as well. It would be interesting to consider how this book might have been different if it had been published in 2009 rather than 2006.

Another aspect of the book I really liked was Brown's discourse on the finance functions that poker played in the development of the United States. Again, this was a theory that I hadn't encountered before, and I found it to be intriguing. Some of these ideas are so novel that I'd expect them to be controversial. Assuming that these concepts are as unconventional as they seem to me, I'd very much like to hear a contrary viewpoint so I could evaluate them more fully. At the very least, I would have liked more support for these theories.

While there's a lot of poker material, it's clear to me that Brown's perspective on the game is very different than my own, and very different with most of the serious poker players I know. While he mentions the tournament poker circuit and provides several stories that include cash games in public card rooms, the author is very much focused on private games. In my experience, these play very differently than public games, and one should be careful about applying home game lessons to the generally tougher public games, especially at middle or higher stakes.

In my opinion, this preoccupation with what Brown perceives as the lessons of home games marginalizes the poker advice he provides in this book. I don't expect most serious players to learn much, if anything, about poker strategy from The Poker Face of Wall Street. Moreover, I think some of the ways in which Brown has come to think about private games has clouded his mind about greater poker truths.

As just one example, regarding these private games, he feels that in a typical session there will be one or two large winners, a few smaller winners, and a group of losers. That's probably a true statement, although I think it isn't very prescriptive. He also states that one should strive to be in the "small winner" camp. I think it's not so easy to make this fine a distinction, although I agree that in an especially lucrative private game if you're afraid of not being invited back, it's appropriate to consider restricting the extent of your wins in some sessions. Further, Brown seems to believe that playing in multi-way pots is the path to small winning sessions. Despite rereading his explanation multiple times, this still makes absolutely no sense to me.

What's a real problem for me, though, is Brown's excoriation of game theory as it is applied to poker. Starting in chapter 8 he sets up and knocks down a series of straw man arguments against the application of game theory to poker. The author is clearly well informed when it comes to mathematics in general, but it's my opinion that he has a blind spot when it comes to this particular branch. It's clear that he's studied it, and he knows it's application, but I am left with the feeling that he believes those that study this field have a much grander view of its applicability than I.

For example, at one point he states, "... since game theorists care only about disguising their cards and not their strategies, they don't think there's anything to be learned by watching. Next hand will have different cards, so there's no carryover of useful information." This is a ridiculous statement with absolutely no foundation. Frankly, given his statements in the book, if "game theorists" were considered to be a "suspect class" in the parlance of American law, Brown's condemnation of them would almost rise to the level of bigotry.

In my opinion, I think he just gets this wrong. He attributes claims to game theory that I've never heard its proponents make. Normally, I'd just recommend that readers ignore those sections where Brown goes off the rails, in this case I think the reader would be well served by stopping their reading after the conclusion of chapter 7, but I am concerned that this may be a symptom of a bigger problem.

Four topics in the book are given extensive discussion by the author: poker, game theory, the history of finance, and securities trading. I consider myself to have considerable expertise on the first two topics, and I think the author largely misses the point on poker and completely fumbles the ball on game theory. I'm not in a position to judge his knowledge of the last two topics, but given that I consider his opinions on the first two topics to be suspect, what am I to think about what he has to say in the balance of the book?

To be fair, Brown clearly has more expertise on financial topics, and he has the support of numerous people who have earned my trust. For example, the foreword to the book was written by Nassim Taleb, the author of the excellent book Fooled by Randomness. Once again, though, I would very much like to read a well-considered critique of the author's contentions especially regarding his assertions regarding the affect of gambling on our financial history.

That's not to say that I'm saying that people should avoid reading The Poker Face of Wall Street. While I think the book has some serious faults, it has still influenced the way I think about the financial history of the United States. While there isn't as much support as I might like for some of its assertions, the mere fact that they made me think is a great thing. Moreover, it has been a while since I've read a book on poker that took me this far out of my comfort zone, and I relish those opportunities.

The tougher question for me is identifying the proper audience for this book. Both because of the mixing of themes and because the author moves back and forth between two topics, finance and poker, that aren't often considered together, I expect that there are actually few prospective readers that have enough interest and background in both subjects to want to tackle this book. Those interested in finance who lack a grounding in poker will probably find little of interest here. Poker players without an interest in finance will find true insight in the game to be rare, if not lacking altogether.

So, with some caution I can recommend this book to those poker players who have an interest in finance and the history of finance. Those in finance with an interest in poker may find the book to be fascinating, but I would caution these readers that I don't think Brown's perspective on poker is all that sophisticated. Still, I can't completely fault a book that challenges the way I think, so I give The Poker Face of Wall Street a very qualified recommendation.

Capsule:

The Poker Face of Wall Street is an unusual book that considers aspects of poker play and finance. I have some problems with the poker aspects, and I have an especially strong aversion to Brown's characterization of game theory, which I think is unfair. However, I found the finance section to contain some interesting and challenging notions. It's a mixed bag, but I think the book works better for poker players who have an interest in finance than it does for finance folks who have only passing familiarity with serious poker. A reader almost certainly needs considerable interest in both of these topics to enjoy this book.