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Risk VS Reward

 

   In order to make quality decisions at the poker table, you must learn to properly assess your risk (the amount of money you could lose) and your possible reward (the pot) and then compare the two. Here are some non-poker examples of the risk vs. reward ratio.

   In roulette, there are 36 numbers plus 0 and 00 for a total of 38 possibilities. If you were to place a wager of $5 on the number 17, the odds of you winning are 1 out of 38 or 37 to 1, however the casino is only going to pay you 35 to 1. The expected value (e.v.) of the wager is figured like this - 37 times you lose the $5 bet for a loss of $185. One time you win for a gain of $175 plus your bet is returned to you. You now have $180 after having wagered a total of $190 for a $10 loss or -5.26%. Since we only placed the one bet, $5 x -5.26% is $4.74. Thus our e.v. is -26 cents. The fact that in reality you will never lose .26, you will either lose $5 or win $175, is what keeps people gambling. If every time someone made a $5 bet at the roulette table, the casino handed them back $4.74, no one would play. You now know that this is exactly what is happening (long term) and can avoid this negative e.v. play.

   Now for a positive example. Suppose you know that your favorite team will win against this weekend's match up of the time and the local odds maker is offering +120 meaning that for every $100 you wager, you will win $120. Sticking with the $5 bet for simplicity's sake, let's say you make the same 38 wagers as in the above example. 19 times you will lose $5 for a loss of $95. 19 times you will win $6 ($5 x 1.20) for a gain of $114 plus each time your bet is returned to you ($95). You now have $209 ($95 + $114) after having wagered $190 for a $19 profit or 10%. Again since we only made the single wager, $5 x 10% is $5.50. Thus our e.v. is +50 cents. This positive expectation is known as an overlay and is why sports betting can be beaten.

   Now let's see what an overlay in poker might look like. Here's a simple example. In Texas holdem, you have pocket tens and you opponent has pocket eights. There is no one else in the pot. You are both "all in" for $100 each before the flop. It is obvious to see that you have an advantage, but how much? The tens will win about 80% of the time. So, eight times you will win $100 and your $100 will be returned to you and two times you will lose $100. You have wagered a total of $1000 and now have a total of $1600 for a $600 profit so that each time you find yourself in this situation, you can expect to make $60 (long term regardless of the individual outcome).

 


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