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Rational Bankroll Management - Part 2

Started by Bugs | 2728 Views Like 0 Show 25 Start New Thread

Category Donkr - Poker Forums - Cash Games | Tags bankroll, brm and management

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Bugs 5 years ago

1. Introduction
This is the second part in an article series about bankroll management
Reg: 02/10/2007
Posts: 5296 (BRM) in poker. In Part 1 we defined expected value (EV), variance, and
standard deviation.

For a game with n outcomes, each associated with a probability p and a

value x, EV, variance and standard deviation are defined as:

EV

Variance

Standard deviation

To illustrate these concepts, we defined two simple dice games with the
same EV, but different variance. Then we calculated EV, variance and
standard deviation for both games:

Dice Game 1
We wager $1 per throw in the following dice game:

Our wager is returned on 1, 2, 3 and 4

We lose our wager on 5
We win twice our wager on 6
The expected value of the game is EV =0.1667
The variance of the game is V =0.8056
the standard deviation of the game is SD =0.8975

Dice Game 2
We wager $1 per throw in the following dice game:

We lose our wager on 1, 2, 3, 4, and 5

We win 6 times our wager on 6
The expected value of the game is EV =0.1667
The variance of the game is V =6.8056
the standard deviation of the game is SD =2.6087

We did this to show how the definitions of EV, variance and standard
deviation can be used in practice for simple games. What we have done so
far shows that we in principle can calculate these properties, based on the
definitions and the rules of the game we are studying.

2. EV, variance and standard

deviation for poker games
Using the definitions of EV, variance and standard deviation directly for a
real poker game is in practice impossible, since we would have to list all
outcomes of the games together with their probabilities and values.

These quantities are too complicated to calculate exactly in real poker

games. And even if we could, the number of outcomes we would have to
list is astronomical. For example, in heads-up limit Hold'em there are an
estimated 10^18 game states, and this is one of the simplest games to
study theoretically.

Specifying complete strategies for all players, and then calculating

probabilities and values for billions of outcomes is impossible in practice.
We bypass this problem by extracting estimates of EV and
variance/standard deviation from PokerTracker or HoldemManager. These
estimates are based on the sample of hands we have played, and they are
our best estimates.

Before we move on to real poker, we'll study a simple poker model to show
how the definitions of EV,variance and standard deviation can be used in
poker games.

3. EV, variance and standard

deviation for the AKQ game over
1/2 street with fixed-limit betting
We'll now calculate EV, variance, and standard deviation for the "AKQ
game over 1/2 street with fixed-limit betting". This is a simple poker toy
game that we have studied extensively in the article series "Modeling
Poker".

3.1 Definition of the game

We have two players: Alice (out of position) and Bob (in position)
At the beginning of the game both players put an ante of n bb to
build a pot of P =2n bb
Both players get dealt one random card from the AKQ deck
Alice checks "in the dark"
Bob can now check and see a showdown, or he bets 1 bb
If Bob bets, Alice can fold, or she can call and see a showdown
When the betting round is over, and nobody has folded, the highest
card wins in a showdown

We found the following solution to the game, under the assumption that
both players are playing optimally:

3.2 Solution for the AKQ game over 1/2

street with fixed-limit betting
Alice

Always check-calls A
Check-calls K (P - 1)/(P + 1) of the time
Always check-folds Q

Bob

Always bets A for value

Always checks behind K
Bluffs Q 1/(P + 1) of the time

Bob's EV for the game is:

EV =(1/6)(P-1)/(P+1)

In this article we'll only look at the case where the ante is 1 bb and the pot
is P =2 bb before the betting starts.

3.3 Calculating EV, variance and standard

deviation for the AKQ game
We'll now give the AKQ game the same treatment we gave the two dice
games in Part 1. We list all outcomes, find the corresponding probabilities
and values, and then we plug these numbers into the formulas for EV,
variance and standard deviation. We calculate all values relative to Bob.

When this work is done, we'll have exact solutions for a simple poker toy
game, and this will illustrate how the statistical properties we have defined
work in poker games. Real poker is much more complicated to work with,
but the underlying principles are the same.

We start by observing that there are 6 possible scenarios in the game:

Scenario 1: Alice has A and Bob has K

Scenario 2: Alice has A and Bob has Q
Scenario 3: Alice has K and Bob has A
Scenario 4: Alice has K and Bob has Q
Scenario 5: Alice has Q and Bob has A
Scenario 6: Alice has Q and Bob has K

All scenarios are equally probable, and the probability is 1/6 for each of
them. What remains is to calculate the value associated with each
scenario, relative to Bob. How Alice and Bob play the various scenarios is
given in the solution to the game, defined previously.

We write out the EV equations for each scenario and calculate Bob's win or
loss for each of them. Note that we are calculating the EV for the whole
game, and not only the betting round:

Scenario 1: Alice has A and Bob has K

EV1 =(1/6){-1}

Bob always checks behind and loses his ante for -1 bb total.

Scenario 2: Alice has A and Bob has Q

EV2
=(1/6){(2/3)(-1) + (1/3)(-2)}
=(1/6){-4/3}

Bob checks Q 2/3 of the time and loses his 1 bb ante. 1/3 of the time he
bluffs and loses the ante plus a bet for -2 bb total.

Scenario 3: Alice has K and Bob has A

EV3
=(1/6){(1/3)(+2) + (2/3)(+1)}
=(1/6){4/3}

Bob always bets. Alice calls 1/3 of the time and Bob then wins Alice's ante
plus a bet for +2 bb total. The remaining 2/3 of the time Alice folds, and
Bob wins her ante for +1 bb total.

Scenario 4: Alice has K and Bob has Q

EV4
=(1/6){(2/3)(-1) + (1/3){(1/3)(-2) + (2/3)(+1)}}
=(1/6){-2/3 + (1/3){0}}
=(1/6){-2/3}

2/3 of the time Bob checks behind and loses his ante for -1 bb total. 1/3 of
the time he bluffs. Alice then calls 1/3 of the time, and Bob loses his ante
plus one bet for -2 bb total. The remaining 2/3 of the time Alice folds, and
Bob wins her ante for +1 bb total.

Scenario 5: Alice has Q and Bob has A

EV5 =(1/6){+1}

Bob always bets and Alice always folds. Bob wins Alice's ante for +1 bb
total.

Scenario 6: Alice has Q and Bob has K

EV6 =(1/6){+1}

Bob always checks behind K and wins Alice's ante for +1 bb total.

This gives us the following list of outcomes for the AKQ game:
 Scenario 1: Alice has A and Bob has K
Probability: 1/6
Value for Bob: -1 bb
Scenario 2: Alice has A and Bob has Q
Probability: 1/6
Value for Bob: -4/3 bb
Scenario 3: Alice has K and Bob has A
Probability: 1/6
Value for Bob: +4/3 bb
Scenario 4: Alice has K and Bob has Q
Probability: 1/6
Value for Bob: -2/3 bb
Scenario 5: Alice has Q and Bob has A
Probability: 1/6
Value for Bob: +1 bb
Scenario 6: Alice has Q and Bob has K
Probability: 1/6
Value for Bob: +1 bb

Now we plug these numbers into the formulas defining EV, variance and
standard deviation:

Calculating EV

EV
=(1/6){-1} + (1/6){-4/3} + (1/6){4/3}
+ (1/6){-2/3} + (1/6){+1} + (1/6){+1}
=(1/6){-1 -4/3 +4/3 -2/3 + 1 + 1}
=(1/6){1/3}
=1/18

Expressed in the unit "per 100 hands" (standard unit for poker win rate)
we get EV =100/18 bb/100 =5.56 bb/100.

Then we plug EV into the formula for the variance and calculate this
property:

Calculating variance

V
=(1/6){-1 - 1/18}^2 + (1/6){-4/3 - 1/18}^2
+ (1/6){4/3 - 1/18}^2 + (1/6){-2/3 - 1/18}^2
+ (1/6){1 - 1/18}^2 + (1/6){1 - 1/18}^2
=1.1636

For our purpose, variance is only a property we calculate in order to find

the standard deviation (the property we usually use in statistical analysis
of poker games):

Calculating standard deviation

SD =sqrt(1.1636) =1.0787

Then we express standard deviation in units "bb/100" according to this

formula:

SD(100 hands) =sqrt(100)SD(1 hand) =10(1.0787) =10.787

4. Variance simulations for the
AKQ game over 1/2 street with
fixed-limit betting
We now do the same type of simulation that we did for the two dice games
in Part 1. We use an online variance simulator and plug in EV =5.56
bb/100 and standard deviation SD =10.787 bb/100.

First we let 10 players (let "Num. of trials to run" =10) play 1000 hands
each (let "Num. of hands" =1000), and plot the profit graph:

The expected profit for Bob is 1000 x 5.56 bb/100 =55.6 bb (the dotted
line). All 10 players ended up with a profit, but the spread is large after
only 1000 hands. The spread in observed profit is between +16 bb for the
unluckiest player to +98 bb for the luckiest one.

Even for a game where Bob is guaranteed a theoretical profit of +5.56

bb/10 (which would be a fantastic guaranteed win rate in any poker
game), there is no guarantee that a single session will be profitable even
with 1000 hands played per session.

If we increase the number of players to 100, we'll get a better picture of

the expected spread:

The 100 players in this simulation are spread out between about -50 bb
and +140 bb for a session of 1000 hands. Losing 50 bb in 1000 hands is a
pretty big loss in a fixed-limit game. When we see that a guaranteed
+5.56 bb/100 winner can have such a session, we can easily imagine the
kind of losses that are possible for a moderate winner (for example, 2
bb/100) in a fixed-limit game. Especially for games with high variance, like
2-7 triple draw, 7-card stud and heads-up limit Hold'em.

Then we increase the number of hands to 10,000 and do another

simulation:

The expected profit after 10,000 hands is 10,000 x 5.56 bb/100 =556 bb.
The 10 players now spread out between about 280 to 710 bb. All have a
solid profit, but the luckiest player has won about 2.5 times more than the
unluckiest one, even if they both have the same theoretical win rate. So
we can't really say that we have reached the long run in the AKQ game,
even after 10,000 hands.

If we increase the number of players to 100 for this simulation, we get:

The spread now goes from about 300 bb to about 800 bb. Being a
guaranteed winner in the game does not guarantee you get to realize all of
your expected profit over a few thousand hands.

The simulation for the simple AKQ game draws a somewhat glum picture.
A serious poker player who is playing for income would like his profit curve
to be smooth and predictable, but this is not possible due to the nature of
poker. This becomes clear after an analysis of a simple poker model game,
and in practice it's even worse for real poker.

In real poker we not only have to take worse variance into account, we also
suffer from win rates that are moderate compared to the one Bob had in
the AKQ game. When variance increases and win rate decreases, our
bankroll experiences much bigger swings. To protect ourselves against
these swings, we need to operate with a larger bankroll.

5. Summary
In this article we have continued with the definitions of EV, variance and
 standard deviation and shown how they can be applied to poker games.
We used the AKQ game as a model of real poker, and did variance
simulations for this game.

We have now most of the concepts and tools we need to estimate bankroll
requirements for real poker games. What we lack at this point is a formula
that ties together the concepts we have learned so far. What we want is
the answer to the following question:

When we know our EV and standard deviation for a poker game, what does
this tell us about the bankroll requirement for the game?

In the next article we'll present the risk-of-ruin formula. This formula lets
us calculate the bankroll requirements for a game when we know the EV
and standard deviation. Since we can always estimate these properties
from PokerTracker or HoldemManager, we now have everything we need
to design bankroll management schemes adapted to our own win rate and
standard deviation. We'll also see that there is another subjective
component involved, namely our tolerance for risk.

Good luck!
Bugs

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