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The Poker Face of Wall Street
Wall Street is where poker and modern finance?and the theory behind these "games"?clash head on. In both worlds, real risk means real money is made or lost in a heart beat, and neither camp is always rational with the risk it takes. As a result, business and financial professionals who want to use poker insights to improve their job performance will find this entertaining book a "must read." So will poker players searching for an edge in applying the insights of risk-takers on Wall Street.
371 pages, Kindle Edition
First published January 1, 2006
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Displaying 1 - 19 of 19 reviews
February 16, 2018
Look. He tells you up front what this book is about: “Finance can only be understood as a gambling game, and gambling games can only be understood as a form of finance.” A nice video tl;dr I can recommend is his guest lecture at MIT called “Poker Economics”. In about sixty minutes at 1.5x, you’ll have gotten a nice sparse projection into this book.
Look. It took me almost exactly nine years to finish this book—and I’ve had it this whole time, and thought about it this whole time. I started (by way of Nassim Taleb’s introduction, before Taleb became a fascist apologist) when I was a young whippersnapper who wouldn’t recognize the real world was if I bumped into it on the street—because the ideas presented here did bump into my over the years, in terms of risks, lifestyles, and choices, and it recognize them as such only now, as a slightly wiser whippersnapper who still could walk past the real world without noticing.
Look. Unless you are Aaron Brown, this book will be a melange of topics that are very rarely combined. So don’t expect it to follow some genre-guided format! There’s poker, which I knew nothing about—and it is a vast new world for me. There’s probability. There’s game theory and it’s misapplications. There’s finance. There’s trading. There’s economics. (These three are very different.) There’re also his memoirs. The resulting combination is important and relevant but I think it might take a few years for that to become clear.
I leave you with two lessons a young Aaron Brown learned from poker: (1) information costs money, and (2) mistakes cost money.
Look. It took me almost exactly nine years to finish this book—and I’ve had it this whole time, and thought about it this whole time. I started (by way of Nassim Taleb’s introduction, before Taleb became a fascist apologist) when I was a young whippersnapper who wouldn’t recognize the real world was if I bumped into it on the street—because the ideas presented here did bump into my over the years, in terms of risks, lifestyles, and choices, and it recognize them as such only now, as a slightly wiser whippersnapper who still could walk past the real world without noticing.
Look. Unless you are Aaron Brown, this book will be a melange of topics that are very rarely combined. So don’t expect it to follow some genre-guided format! There’s poker, which I knew nothing about—and it is a vast new world for me. There’s probability. There’s game theory and it’s misapplications. There’s finance. There’s trading. There’s economics. (These three are very different.) There’re also his memoirs. The resulting combination is important and relevant but I think it might take a few years for that to become clear.
I leave you with two lessons a young Aaron Brown learned from poker: (1) information costs money, and (2) mistakes cost money.
March 20, 2020
Brown's view on risk, on the markets, on poker is a revelation. This is his basic thesis: You can have a nice middle class life taking calculated risk, but it is a crowded space because others can calculate them too, so real opportunities, on the poker table and the trading floor as well as in life, come from taking strategic but uncalculated risk. Along the way he cuts down some basic tenants of standard game, economic, and poker theory and tells the tale of how a bunch of ne'er do wells in the 19th Century Middle West created poker, futures markets and the modern economy.
As a former futures trader, I had been aware of this book and of Brown's ideas, and I wish it hadn't taken me so long to read this. I always knew the hoary notion that the futures exchanges were created so farmers could hedge their crop risk was a little goofy, so it was nice to read it in black and white: The futures exchanges exist so that commercial ag firms can trade spread risk, to create capital for people outside the traditional banking world, and most elementally because people like to gamble. I also knew that the really good poker players had an aggressive, unpredictable style, but all the previous poker books I'd read were all about the math of making the right choices. Here for the first time a real poker player told me his secrets: It is all about making the seemingly wrong choices in such a way that you confuse the rest of the table, keep them off balance, to get them reacting to you in such a way that you control the game, about how to vary where you stand within the loose-tight, aggressive-passive matrix without losing your edge. Even in life, Brown's ideas speak to me. Poker, trading, punk rock, music, dancing, tennis, God: all my passions seem at the surface so disparate, and here is someone telling me that they all come from the same psychic space, from a desire to escape a middle class life, to find an edge that really matters.
There are times when Brown devolves into self-absorbed wanderings. I could have done without all the name checks of people he knows, or the long explanation of how he out-smarted all the Wall Street traders in their game of liar's poker. But the value of the ideas in this book are incalculable.
As a former futures trader, I had been aware of this book and of Brown's ideas, and I wish it hadn't taken me so long to read this. I always knew the hoary notion that the futures exchanges were created so farmers could hedge their crop risk was a little goofy, so it was nice to read it in black and white: The futures exchanges exist so that commercial ag firms can trade spread risk, to create capital for people outside the traditional banking world, and most elementally because people like to gamble. I also knew that the really good poker players had an aggressive, unpredictable style, but all the previous poker books I'd read were all about the math of making the right choices. Here for the first time a real poker player told me his secrets: It is all about making the seemingly wrong choices in such a way that you confuse the rest of the table, keep them off balance, to get them reacting to you in such a way that you control the game, about how to vary where you stand within the loose-tight, aggressive-passive matrix without losing your edge. Even in life, Brown's ideas speak to me. Poker, trading, punk rock, music, dancing, tennis, God: all my passions seem at the surface so disparate, and here is someone telling me that they all come from the same psychic space, from a desire to escape a middle class life, to find an edge that really matters.
There are times when Brown devolves into self-absorbed wanderings. I could have done without all the name checks of people he knows, or the long explanation of how he out-smarted all the Wall Street traders in their game of liar's poker. But the value of the ideas in this book are incalculable.
December 8, 2008
Check out the flashback sections at the end of some of the chapters to get some perspective on the author's experiences. Generally I liked the book, but I was struck by the fact that there wasn't a lot of advice for finance/risk professionals. Basically his take is that they should be good at risk related games such as poker, but this doesn't say much more to me than that you should be good at math.
Sections I liked :
The Games People Play - General information about game theory and poker. Not really much on finance in this section. Of particular interest to me was the breakdown of why game theory doesn't work with poker. The gist of it was that focusing on one opponent in one game was silly. Players need to be looking at the entire table and play over longer periods of time than one game in order to maximize their profits.
Who Got Game - On how to win using game theory. There was some cool stuff on an early psychology experiments with poker players.
Sections I didn't like/agree with :
Pokernomics and Son Of a Soft Money Bank : Draws some big conclusions about the role of poker and other games of risk in the overall economy. I'm not sure if I know how to express my objections but I bet the author would probably not care about my middle class objections to his theory.
Sections I liked :
The Games People Play - General information about game theory and poker. Not really much on finance in this section. Of particular interest to me was the breakdown of why game theory doesn't work with poker. The gist of it was that focusing on one opponent in one game was silly. Players need to be looking at the entire table and play over longer periods of time than one game in order to maximize their profits.
Who Got Game - On how to win using game theory. There was some cool stuff on an early psychology experiments with poker players.
Sections I didn't like/agree with :
Pokernomics and Son Of a Soft Money Bank : Draws some big conclusions about the role of poker and other games of risk in the overall economy. I'm not sure if I know how to express my objections but I bet the author would probably not care about my middle class objections to his theory.
May 28, 2010
Aaron Brown is the quant equivalent of a rock star (well, to me at least). I loved this book - it provides historical context as well as real-world ideas and experience. All quants (and risk managers) should read it.
August 23, 2022
I’m reviewing my poker library after re-reading each of the books and formatting them for ease of reference.
Poker player experience level required: BEGINNER
Original publication date: 2006
Reviewed: 2022
Game: No Limit Hold‘Em
Book information is relevant at time of review: MARGINALLY
Content:
This book's primary focus is on finance and the evolution of finance. Using an ecosystem of relationships between stock options (put/call/futures etc.) and how those future buys and sells affect prices, Aaron Brown relates it to poker's ecosystem and relationships.
The book reads like a collegiate graduate dissertation, where there is a lot of research and validity to the content. But, the narrative is not always fluid or connected arriving at a thesis central point.
The book is a finance beginner's starter book, allowing the reader to understand a small facet of the stock market. Overall though, it is more of a conglomerate historical piece, explaining some financial concepts with the occasional poker anecdote thrown in.
While it is ambitious on comprehensive the book as a whole is a dense read; as a financial book it is marginally instructive but somewhat educational, with poker dynamics it is neither instructive or educational.
Poker player experience level required: BEGINNER
Original publication date: 2006
Reviewed: 2022
Game: No Limit Hold‘Em
Book information is relevant at time of review: MARGINALLY
Content:
This book's primary focus is on finance and the evolution of finance. Using an ecosystem of relationships between stock options (put/call/futures etc.) and how those future buys and sells affect prices, Aaron Brown relates it to poker's ecosystem and relationships.
The book reads like a collegiate graduate dissertation, where there is a lot of research and validity to the content. But, the narrative is not always fluid or connected arriving at a thesis central point.
The book is a finance beginner's starter book, allowing the reader to understand a small facet of the stock market. Overall though, it is more of a conglomerate historical piece, explaining some financial concepts with the occasional poker anecdote thrown in.
While it is ambitious on comprehensive the book as a whole is a dense read; as a financial book it is marginally instructive but somewhat educational, with poker dynamics it is neither instructive or educational.
May 19, 2016
Lines i liked:
- Many short-term price movements are neither random nor caused by economic fundamentals. They're caused by investors buying and selling. This leads to predictable effects, such as stock prices being "pinned" to option exercise prices near option expiration, or sometimes forced away from them if the option holders have stronger hands than the option writers. These short-term movements affect the volatility and liquidity of securities, which affect their economic appeal to both issuers and investors.
- Several billionaires got their first stakes in poker games. Kirk Kerkorian funded his first business, the charter airline Los Angeles Air Service, with poker winnings. H.L. Hunt bet everything he had in a poker game and won his first oil well. Bill Gates, John Kluge, Texas oil mogul Clint Murchison, and corporate raider Carl Icahn all played poker for large stakes before they got rich. It's not just billionaires: Richard Nixon paid for his first congressional
- If you don't know who the sucker is at the table, it's you. I don't know who said it first; I've seen it attributed to dozens of people.
- Watch the pennies and the pounds will take care of themselves. It
- The extreme example of this was October 19, 1987, when the stock market fell almost 25 percent in one day, with no significant news. In less than three weeks, from the highest to the lowest point in October, the market fell by 40 percent. It's hard to explain that as inherent economic risk, and equally hard to tout the benefits of diversification when 1,973 stocks on the New York Stock Exchange go down and only 52 stocks (and mostly small, obscure ones) go up. None of the largest stock market crashes on record were associated with any obviously significant economic news, either before or after the fact. Five of the top ten declines to date happened in the second half of October, with one more on November 6.
- Great Britain insisted the pound was worth 3.2 German deutschmarks. George kept selling pounds at that price until the country gave up on Black Wednesday, September 16, 1992. George made several billion dollars, England lost 10 times that amount, and the pound fell to 2.9
- Eventually he was entrusted with running the economy of France. He did this so successfully that the word millionaire was invented to describe all the people he had made rich. Before Law, there were not enough of them to require a word. The boom was followed by a stunning crash. Law was blamed for this, as well as for the contemporaneous South Sea Bubble in England.
- like Poker for Dummies by Richard D. Harroch and Lou Krieger. When you've mastered that, pick up a good theory bookDavid Sklansky's The Theory of Poker is the best-and a computer simulator. You don't need books on how to play specific games; you get that much better from a computer program. You can pick up 100,000 hands' worth of experience in a few months. Of course, you don't get the emotion, psychology, or tells, but that's an advantage at the beginning. You need the card play situations and strategy to become second nature, you need a feel for
- Ed Thorp, Myron Scholes, Robert Merton, and Fischer Black all had almost the same formula, but each had a different reason for believing it was true. Ed showed that it was a way to make money, Scholes that it was required for market efficiency, Merton that it had to be true or there would be arbitrage, and Black that it was required for market equilibrium. Black's insight turned out to be the most important, although it would take him 20 more years to work out its full implications. Merton and Scholes shared a Nobel Prize for their work; Black had died by that time or he certainly would have been included. Thorp missed out on the Nobel, but he got rich using the formula, while Merton and Scholes had disastrous personal financial results. Black's dislike of risk kept him from either extreme.
- But when the first car rolls off the assembly line, it takes only one consumer to say, "I don't like it." The whole 20-year project comes to a crashing halt; all the value created for that period is written off. Maybe some assets can be salvaged. Maybe the car can be redesigned, or bicycles can be built instead. Maybe the steel can be used for buildings. But none of these restructurings are certain, and all involve significant loss in value. Almost all of the million workers will be laid off in the short term, and many of their jobs will not exist in the restructured system.
- The Renaissance philosopher of science Francis Bacon told a fable about a conference of philosophers, at which they argued for weeks about how many teeth a horse had. A young stable boy, tiring of the interminable debate, suggested looking in a horse's mouth and counting. The enraged philosophers beat him for his stupidity. Whenever anyone gives you poker advice based on game theory, ask whether they've counted the teeth. The medieval philosopher of science Roger Bacon (no relation) acknowledged that theory was the only conclusive guide to truth, but it could not remove doubt in people's minds:
- President John E Kennedy's handling of the Cuban missile crisis is often held up as an example of masterful poker play. It has risker written all over it. Nixon's duplicity, paranoia, and ruthlessness were more characteristic of a winning poker player. But when people say they want a good poker player as president, they are thinking of Kennedy, who played badly (and some of his relatives were among the worst players, and biggest riskers, at Harvard), not Nixon, who played well.
- To strong players, nerves are not an issue; the correct play is the correct play....
- Many short-term price movements are neither random nor caused by economic fundamentals. They're caused by investors buying and selling. This leads to predictable effects, such as stock prices being "pinned" to option exercise prices near option expiration, or sometimes forced away from them if the option holders have stronger hands than the option writers. These short-term movements affect the volatility and liquidity of securities, which affect their economic appeal to both issuers and investors.
- Several billionaires got their first stakes in poker games. Kirk Kerkorian funded his first business, the charter airline Los Angeles Air Service, with poker winnings. H.L. Hunt bet everything he had in a poker game and won his first oil well. Bill Gates, John Kluge, Texas oil mogul Clint Murchison, and corporate raider Carl Icahn all played poker for large stakes before they got rich. It's not just billionaires: Richard Nixon paid for his first congressional
- If you don't know who the sucker is at the table, it's you. I don't know who said it first; I've seen it attributed to dozens of people.
- Watch the pennies and the pounds will take care of themselves. It
- The extreme example of this was October 19, 1987, when the stock market fell almost 25 percent in one day, with no significant news. In less than three weeks, from the highest to the lowest point in October, the market fell by 40 percent. It's hard to explain that as inherent economic risk, and equally hard to tout the benefits of diversification when 1,973 stocks on the New York Stock Exchange go down and only 52 stocks (and mostly small, obscure ones) go up. None of the largest stock market crashes on record were associated with any obviously significant economic news, either before or after the fact. Five of the top ten declines to date happened in the second half of October, with one more on November 6.
- Great Britain insisted the pound was worth 3.2 German deutschmarks. George kept selling pounds at that price until the country gave up on Black Wednesday, September 16, 1992. George made several billion dollars, England lost 10 times that amount, and the pound fell to 2.9
- Eventually he was entrusted with running the economy of France. He did this so successfully that the word millionaire was invented to describe all the people he had made rich. Before Law, there were not enough of them to require a word. The boom was followed by a stunning crash. Law was blamed for this, as well as for the contemporaneous South Sea Bubble in England.
- like Poker for Dummies by Richard D. Harroch and Lou Krieger. When you've mastered that, pick up a good theory bookDavid Sklansky's The Theory of Poker is the best-and a computer simulator. You don't need books on how to play specific games; you get that much better from a computer program. You can pick up 100,000 hands' worth of experience in a few months. Of course, you don't get the emotion, psychology, or tells, but that's an advantage at the beginning. You need the card play situations and strategy to become second nature, you need a feel for
- Ed Thorp, Myron Scholes, Robert Merton, and Fischer Black all had almost the same formula, but each had a different reason for believing it was true. Ed showed that it was a way to make money, Scholes that it was required for market efficiency, Merton that it had to be true or there would be arbitrage, and Black that it was required for market equilibrium. Black's insight turned out to be the most important, although it would take him 20 more years to work out its full implications. Merton and Scholes shared a Nobel Prize for their work; Black had died by that time or he certainly would have been included. Thorp missed out on the Nobel, but he got rich using the formula, while Merton and Scholes had disastrous personal financial results. Black's dislike of risk kept him from either extreme.
- But when the first car rolls off the assembly line, it takes only one consumer to say, "I don't like it." The whole 20-year project comes to a crashing halt; all the value created for that period is written off. Maybe some assets can be salvaged. Maybe the car can be redesigned, or bicycles can be built instead. Maybe the steel can be used for buildings. But none of these restructurings are certain, and all involve significant loss in value. Almost all of the million workers will be laid off in the short term, and many of their jobs will not exist in the restructured system.
- The Renaissance philosopher of science Francis Bacon told a fable about a conference of philosophers, at which they argued for weeks about how many teeth a horse had. A young stable boy, tiring of the interminable debate, suggested looking in a horse's mouth and counting. The enraged philosophers beat him for his stupidity. Whenever anyone gives you poker advice based on game theory, ask whether they've counted the teeth. The medieval philosopher of science Roger Bacon (no relation) acknowledged that theory was the only conclusive guide to truth, but it could not remove doubt in people's minds:
- President John E Kennedy's handling of the Cuban missile crisis is often held up as an example of masterful poker play. It has risker written all over it. Nixon's duplicity, paranoia, and ruthlessness were more characteristic of a winning poker player. But when people say they want a good poker player as president, they are thinking of Kennedy, who played badly (and some of his relatives were among the worst players, and biggest riskers, at Harvard), not Nixon, who played well.
- To strong players, nerves are not an issue; the correct play is the correct play....
May 29, 2020
Surgeon's guide to history and fundamentals of gambling and derivatives trading. Great many poker variants described (not only NL Holdem, but also Omaha, Stud, variants with wild cards etc), as well as evolution of Wall Street's intellectual technology (with some advanced concepts from options trading such as volatility smiles etc.). All told in easily digestible form, intertwined with stories and real life anecdotes told by a practitioner both in the domain of quantitative trading, as well as high-stakes poker. Fun read.
October 9, 2019
Classic
May 5, 2020
Fantastic. Confusing. Novel and insightful.
September 16, 2020
Excellent read. If you are not a calculated risk taker, you'd want to become one.
February 20, 2010
As someone who never gambles as a past time, this book is way outside my comfort zone and has significant sections on how to win at poker that I assume I will never need. The author does share my reservations about game theory and he did teach me poker fundamentals! Nevertheless I learned quite a bit from it about why people go looking for risk, how they handle it and the role of risk in the economy. The author sees little difference between the modern financial economy and poker and thinks this is a good thing, while I guess I agree with him and think it is bad. One of the more interesting sections that could have been larger was on the origins of the Mississippi economy in the 18/19th century. He suggests the trading economy grew on Native American foundations, intermixed with African experience from another great river system: the Congo and on this basis, gambling was a way to concentrate resources in fewer hands to get trade rolling, towns built, businesses created. Not sure if this is accurate but it is an intriguing hypothesis. The author thinks America was doomed to economic senility until in the 1970s a casino economy based on stock options and gambling on them arose to shake up sleeping companies. Again interesting, generative and unwelcome!! So if you are a political liberal with puritanical aversion to gambling and like having your preconceptions shaken, Aaron Brown can help.
March 18, 2021
I practically never re-read books. I don't have the patience for it; there are so many good books out there to get to. This one is good enough to jump to the head of my queue -- for the second time.
Aaron Brown introduces the book by saying that one of the reasons he wrote it was to try to attract a broader range of people into finance. With me? Roaring success.
I had zero interest in finance beyond the knowledge I needed to put my savings into a low-cost index fund. This book opened the flood gates to my mind, and I'm now wading knee deep in diverse financial subjects such as the economic function of futures markets, E log X portfolio optimisation, Markov-switching multifractal market modeling, tail risk, superprediction, and it never ends. I go around and look for everyday arbitrage opportunities. I try to convert everyday events to derivative money. I see how it is all just built on promises. Nothing that matters is real.
It's all so fascinating and baffling and pointless and incredibly important and everywhere and nowhere and it reaches deep inside me and plays songs in my soul. But also makes a lot of noise.
I'm frightened of it, and morbidly curious. I have a desire to conquer it, and a firm understanding that I never will. Not even in the small. But damn it if I don't try.
And it all started with the Poker Face of Wall Street.
Aaron Brown introduces the book by saying that one of the reasons he wrote it was to try to attract a broader range of people into finance. With me? Roaring success.
I had zero interest in finance beyond the knowledge I needed to put my savings into a low-cost index fund. This book opened the flood gates to my mind, and I'm now wading knee deep in diverse financial subjects such as the economic function of futures markets, E log X portfolio optimisation, Markov-switching multifractal market modeling, tail risk, superprediction, and it never ends. I go around and look for everyday arbitrage opportunities. I try to convert everyday events to derivative money. I see how it is all just built on promises. Nothing that matters is real.
It's all so fascinating and baffling and pointless and incredibly important and everywhere and nowhere and it reaches deep inside me and plays songs in my soul. But also makes a lot of noise.
I'm frightened of it, and morbidly curious. I have a desire to conquer it, and a firm understanding that I never will. Not even in the small. But damn it if I don't try.
And it all started with the Poker Face of Wall Street.
January 9, 2016
Insightful but lacked a unifying theme. The chapters/flashbacks contain great anecdotes but most of the pieces were just a bit too long. I especially enjoyed topics such as people who are great at chess versus chess prodigies, how the quants won liar's poker, the fallacies of applying game theory to poker, and the author's response to gambling critics. The author's research is thorough and Scott Patterson's coverage in The Quants turns what might strike you as a "nobody" tooting his own horn into an authoritative account that you are privileged to be reading.
March 4, 2008
Good discussion about poker, finance, and economic history. Probably a more interesting book about the financing support for westward expansion of the American frontier rather than a "strictly poker" tale.
The discussion about "soft money banks" was insightful.
The book is hard to summarize. Lots of great content and anecdotes, but I didn't get a solid feel for the author's thesis, if in fact there was one.
The discussion about "soft money banks" was insightful.
The book is hard to summarize. Lots of great content and anecdotes, but I didn't get a solid feel for the author's thesis, if in fact there was one.
May 25, 2011
Being nice and giving this a three because if you are more foreign to the subject this would be more useful. Too much fluff in this book. The format of going between the 2 subjects, poker and then wallstreet... gets old. Content should have been cut in half.
December 8, 2009
One of the best books that I have read. Recommended for anyone who loves derivatives market and/or poker
May 12, 2010
Brown seems like a smart guy and there is some interesting stuff in here --- but not enough to make it a compelling read overall.
December 13, 2010
Good read for poker players but gets a bit dull at times.
He neither does complete justice to finance or poker
He neither does complete justice to finance or poker
September 30, 2011
Aaron opened my eyes to a new world: un-calculated risk.
Displaying 1 - 19 of 19 reviews