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PokerMoments Interview with Aaron Brown, Author of The Poker Face of Wall Street

A few months ago, I came across an article about The Poker Face of Wall Street, an interesting new book which says poker skills are good for the real world! Written by Aaron Brown, now at Morgan Stanley by way of Harvard, the book says all those late nights playing poker can serve you well in investing. I mentioned the book in my post Poker… Preparing You for the Real World ?! and who should post an insightful comment but the author himself. That comment eventually led to this interview.

After reading his comments below, you’ll see why Harvard welcomed this very smart and funny man. And hold on to your seat when reading about his favorite stakes (Question 3). We hope you enjoy!

1. Tell us about your book, The Poker Face of Wall Street.

'theI set out to write a scholarly book connecting the economic ideas of Scottish gambler John Law with the modern derivatives economy. John was a professional faro dealer who took over the French economy in the early 1700’s and exported gambling ideas to New Orleans to stimulate the French colonial economy. These melded with the river network exchange economy of the natives, and produced both the game of poker and the great commodity futures exchanges of the 19th century, and eventually the modern derivatives exchanges that control the global economy.

They say no one writes the book they start out to write, and I am no exception. The ideas started spilling over and I ended up with a decidely non-scholarly book covering how to play poker, how to take risk, how to make money in finance and why it matters. It’s got some history, some math, some finance, some game theory, some poker and some autobiography. It’s been very popular among financial traders and people who like popular economics like Freakonomics, with slower acceptance among poker players. I expected to appeal to mathematically-minded players, but at least according to my emails, the serious poker fans are ones who say, “my parents finally understand, and I finally understand, why this game is so important.” I take a lot of pride in that

2. What poker games do you like best?

That’s a little like asking, “what’s your favorite color?” I like different kinds of games for different things. I treasure some fast-paced, low stakes games with a bunch of friends and a lot of conversation; I wouldn’t give up some high-stakes, tense games with experts; and I certainly love an easy game where I figure to walk out considerably richer than I walked in. But in general l like switching games, like HORSE or just dealer’s choice, any one game gets boring after a few hours, and I don’t like playing with one-game specialists in their specialty. I like pot limit better than limit or no-limit, I think it presents the most interesting situations. I like to play face-to-face in comfortable surroundings, I only play on the Internet for casual recreation or to get a game with someone I can’t meet in person. I’m not much of a tournament player, I hate being ordered around by a casino, in a game organized for the convenience of the house and spectators rather than players.

3. You sound like a wealthy New York Wall-Streeter… when you play poker, what sort of stakes do you play for?

I am a New Yorker and Wall-Streeter (although, like most Wall-Streeters these days I actually work in midtown). “Wealthy” depends on your reference point, but I can afford to play at the stakes I like. The interesting thing is my poker has been played at about the same inflation-adjusted stakes for over 30 years, regardless of my wealth and income level. In college in the mid-1970’s, when I was often broke, I generally brought $1,000 to $2,000 to a game. That’s about $5,000 to $10,000 today, which I can actually afford to lose. I have a regular $25/$50 no-limit game that players bring $5,000 to $25,000 to (I usually bring $10,000). I find that very comfortable. The stakes focus my mind, I care about winning or losing, but they don’t blind me with fear or greed. One of the differences between poker players and gamblers is gamblers always want to ratchet up the stakes, while poker players seek the right level.

I still enjoy playing for lower stakes if the game is good, and I’ll move up to get in games with certain top players. I applied for High Stakes Poker, the only television show I’m interested in, but was rejected this year (I heard that if I had actually shown up with the money, I would have had a place, as some players failed to show). If I got on that show, it would be the largest stakes I’ve ever played for, but I’ve come close in the past. There’s also a $1 million buy-in Wall Street game that I’ve been tempted by, but never played.

4. Any interesting poker stories you’d like to share?

I have to be careful about that. After my book came out, I started getting calls and emails from people who claimed to have been present. Now I don’t remember everyone who was at every table, but I do know more people have claimed to have been at each game than there were chairs at the table. One guy told me I made a mistake, I had the betting wrong, also the stakes, the state, the year and the other players. I asked why he thought there was any connection at all between my game and his, and he said because the hands were exactly the same down to the suits. Unfortunately, I didn’t remember the suits (only that there were no flush possibilities).

5. You’ve written that your favorite online sites for poker are www.twoplustwo.com, www.pokerstove.com, www.twodimes.net and www.betfair.com. What do you like about these sites? Have you read PokerMoments?

Yes, I have read PokerMoments, and like it. TwoPlusTwo has some good poker theory discussions. PokerStove and TwoDimes are great poker calculators. BetFair is a fascinating idea that I think will have broad effects in the future.

6. What do you think about the recent anti-internet-gambling legislation?

I’ve been working on this issue for a long time, and not just with respect to the Internet. There are two huge problems in gambling regulation, regardless of whether you think gambling is good or bad. The first is the government has not been clear, meaning that people who want to obey the law can’t be sure what to do. I think different government officials are pursuing conflicting goals: some want to stop gambling, some want to tax it, some want gambling companies to make a lot of money, some want to protect players and some want to prevent follow-on problems like bankruptcies and money laundering. You can’t do all of these at once.

The second problem is that legislation has been dominated by lobbying from the existing land-based gambling industry. Their interest is in maximizing industry income, not making things fair for players. They are generally hostile to poker. The casino model is “we win what you lose,” casinos have always been uncomfortable with the idea that someone in the building is losing money, and the casino isn’t getting it. They’ve accepted poker temporarily as a fad to get traffic, but they immediately started trying to wean people to video poker, three card poker, bad beat jackpots and other poker-flavored entertainment.

Now that they dealt a legislative karate chop to on-line gambling, I see land-based casinos planning for on-line qualification within local areas for bricks-and-mortar tournaments. This will be their entry into offering on-line gambling. The “local areas” will expand, and be forgotten, the bricks-and-mortar tournaments will expand and be forgotten. Soon we’ll have all the big gaming companies owning Internet sites. They will be less player-friendly, and they’ll be designed to move people from poker to casino games.

For years I’ve been telling on-line gaming executives that it was inconceivable they would be allowed to avoid paying taxes forever. Therefore, they should find a state to regulate and tax their activity. It would not have been hard, some state with a small population would find the money handy and figure any problems would be felt and solved elsewhere. This would have freed the sites from having their executives arrested and business outlawed without compensation. It would have reassured their investors. We would have had a negotiation instead of unilateral government strikes. But all I heard was “why should we pay taxes to anyone if we don’t have to?”

Back when David Carruthers was arrested last summer, I wrote a blog entry comparing him to John Matthewson. John invented the offshore trust debit card business in the mid-1990’s, for which people made all the same legality arguments as on-line gambling. They also said the business was so profitable, the Cayman Island banks would never betray their customers. Then John changed planes in Texas, like David, and was arrested. He did a quick deal with the government, he kept his millions from a decade of running the business, and turned over all his banking records to the IRS (in defiance of Cayman Island banking laws). The government told all the customers they could pay taxes on all the money, whether or not taxes were actually owed, plus interest and a penalty; or face criminal charges. Even innocent people are likely to pay up under that deal. The industry remains shut down to this day. So people should not assume that online poker will take care of itself.

There’s plenty of blame to go around. The on-line gambling industry made no efforts to work with anti-gambling forces by putting in protections for minors and problem gamblers. It ignored the need for credible independent regulation for fairness, financial stability and freedom from crime. The founders made millions or billions, too many of them were happy to take the money and run. Gamblers and anti-gamblers can form sensible compromises, so we get to play, but agree to make some minor compromises to prevent problems. It’s like drinking, I can drink all I want as long as I don’t mind not buying alcohol on Sunday mornings, age limits on purchases, not driving drunk and warning labels on bottles. But gambling legislation is being shaped by political grandstanders and land-based casinos, neither of whom have players’ interests at heart. We have to reach out to anti-gamblers if we want good laws.

7. I understand you were a math undergraduate at Harvard. Some students from a rival school, MIT, did card counting and won millions in Las Vegas (written about in the fun-to-read Bringing Down the House: How Six Students Took Vegas for Millions, by Ben Mezrich). Ever think of doing this with math buddies at Harvard?

MIT a rival to Harvard? In what?

I’m generally skeptical of the I-Beat-the-Casino books. This stuff isn’t audited, and we know how unreliable even audited numbers can be. There’s a lot more money in writing books about beating casinos than in beating casinos. I don’t say this group didn’t win, but my guess is the real profit was less than the book suggested.

I did some card counting in the 1970s, including some team stuff. I did it for the experiment, not the money. I had some good nights but when you really add everything up, I broke even. I know lots of people who broke even, few that actually made significant amounts of money. I know lots of people who claim to have made significant amounts of money, but always seemed broke. The edge is very slim, even with the best techniques, and it only take a few mistakes, refusals to pay, thefts or other problems to wipe it out. I’m not dogmatic about it, I don’t believe that because I couldn’t do it nobody can, but I’m pretty sure they’re aren’t many people who could.

I do know people who did very well with comps. In the 70s, if you bought $10,000 worth of chips and played blackjack steadily, no one tracked your winnings or losses. You could get four different casinos to each give you two first-class round-trip airline tickets, which you cashed in and flew coach, all you had to do was stop by each one for a few hours of blackjack and to mess up the bed every day. Of course, you had all the food, drink and shows you wanted, plus other gifts. If you broke even on the blackjack, you still made a lot of money on the trip. But that’s embezzlement to me, not playing.

I get great joy from finding an edge and exploiting it. Some people are happy just finding the edge, they don’t have to prove it works for themselves. They’re academics. Others like to exploit edges discovered by others, like blackjack card counting. But I need both for real satisfaction. Otherwise it’s just for the money, and no one claims blackjack is a good way to make a living.

8. When you interview someone for a job, do you ask if they play poker? If they beat you after a few hands, do they get the job?

I’ll let you know the answer to the second question if anyone ever beats me.

Poker has come and gone on resumes. When I started out in the early 80’s, you needed a highly-competitive individual sport on your resume to have much chance at the best-paying jobs. Poker got a reputation as a fraudulent one. If you claim to be runner-up in the Ivy-League squash competition, or a professional boxer, I can check the records or watch you for two minutes to find out if it’s true. But there were no records for poker in those days (the World Series of Poker was still a casino publicity stunt, not a true championship) and poker is much easier to fake than, say, chess or karate.

Anyway, between the devaluation due to fraud and general increase in Puritanism, poker disappeared from resumes. I started seeing it again around 1999, always in the context of, “I made $X playing on-line poker.” Some did it with bots, some the old-fashioned way. Later people starting touting their tournament wins. It’s a good activity, it shows skill and nerve. Also, these days it’s possible to check up on the claim. In the 80’s, you could win all the poker money in, say, Milwaukee, without running into anyone I know. Today, it would be difficult to be a serious and successful poker player without ever placing in a tournament, having a screen name that gets respect on a major poker site or playing at a table with at least one professional I know. Plus, I can email successful players from your town or college and ask if they’ve ever heard of you.

9. Do you use poker analogies, or bring in poker topics, when you teach finance?

When I was a finance professor, I was semi-closeted. I didn’t make a secret of my poker, but I never brought it up in class or conversation. I later discovered that was a big mistake. One of my favorite (and most successful, both at poker and life) students was running tournaments all weekend out of an apartment not far from the school. Others were serious players who could have benefited from poker analogies.

Most poker analogies I see are both bad poker and bad analogies. But these days I use them a lot. I did an article for Kiplinger’s comparing investment strategies to starting cards in Hold’em. I often stress the similar feel of financial trading and poker.

10. I understand you’re a raccoon man. Myself, I’m partial to squirrels. Do you think the built-in mask gives raccoons an edge in poker?

I didn’t know there were squirrel people until recently. I complained that a squirrel had eaten holes in my sailboat sail, and a houseguest protested hotly that I had no proof it was squirrels, ‘they’re hard done by,” she insisted in her British accent.

I admit that squirrels have done me no damage, other than the alleged sail and destruction of my bird feeders, while raccoon’s slash my garbage cans and dig up my bulbs. But I love watching them, their paws are amazingly versatile.

I’ve played poker with plenty of rodents and procyonides over the years. Squirrels will steal blinds all night, and hide them for the winter. There’s no point in trying to fight it, they’re too determined and clever. You just have to make the money back when you have a good hand. Raccoons are experts at living off other people’s garbage, and they’re impossible to read. You never know what’s behind that mask or under that paw.

Find Out More:

Aaron Brown’s Website – eraider.com

4 thoughts on “PokerMoments Interview with Aaron Brown, Author of The Poker Face of Wall Street

  1. Nice interview.
    This isn’t hard data, but my father is good friends with the father of one of the MIT-blackjack guys. He made a ton of money.

  2. Mr. Brown,

    I enjoyed the interview!

    One of my friends told me that you have written on the “two envelope” puzzle. How do you formulate this puzzle? Or where can I go to see your forumlation of it?

    Thanks

  3. great interview

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