Chess vs. Poker

I should clarify - I call the information 'perfect' because it's all there. But as in life, it's often in the interpretation where the errors are made.

hard to go on a run and make any money in chess. Its like Stu's gin game.. once your marked your action is gone.

I heartily disagree...you find better players and you can make decent money on games/matches (and they don't necessarily take as long as poker, or involve as many people, or require as much up front).

new york is the best city in the world for lucrative, competitive chess, in both officiated clubs/leagues, and private games.

Anyways, I'm more concerned with synergies in the thought processes employed in trading and chess/poker.

I think poker relates to trading more so than chess. you are basically making markets in every pot that you play while factoring in odds, imperfect info, strategy, etc.

that is pretty strange...

that is very strange. Who would you compare in current crop of players that have the same style? PA? PI?

I don't know much trading, but I find poker a microcosm for business in general. I love cards, and while I'm a very low-stakes player, I definitely take a cerebral approach to the game.

That said, I think mastery (especially proven...awards, championships, anything) of either game is a sign that you're very game/process/analytically oriented, and worth bringing to the front of any resume.

Hope that helps. I think arguments can be made for either game without a definitive conclusion.

indian-banker - really appreciated your input, that was exactly the kind of commentary I was looking for.

No doubt opening is very rehearsed, but I do think chess entails a lot more unpredictability than you implied. I started considering myself a more advanced chess player once I stopped thinking mechanically (ie - tried to predict as many moves ahead as possible) and started thinking tactically in 3-4 moves max, and strategically thereafter. Opening and endgame aren't very improvised; you develop a thesis, which makes chess conducive to prop/directional bets.

as for poker, i like the market making aspect, but to be decisive, you have to build a scenario in your head of who has what and bet/fold accordingly - to me, that's similar to building and opening and a follow through.

maybe I just prefer chess because it's combative

poker is the best hands down... or heads up. Had to include that pun. I personally dont like players that try and integrate the math and probability aspect of the game tirelessly. I for one know that my gut is better than any other system.

"In chess, you deal with perfect information, everything you need is in front of you, and you can make informed decisions."

I love to take risks but usually calculated risks. I rely too much on lucks when it comes to Poker. So Chess that is! I'm wondering if there's any Chess Club in the LA area. Any one knows? :)

...the best gambling game for a trader to be good at is high-level blackjack, ie counting cards. To clarify I am talking about a buyside trader not a market maker.

Here is why: 1) being a card counter forces you to understand the concept of position sizing and risk management. Even if you have an edge in the game a card counter can easily bust out if he is over-betting his bankroll as the normal volatility of the game can create long losing stretches. This forces you to learn concepts like risk of ruin and other aplicable risk management concepts. 2) blackjack is faceless. At high levels poker involves skills that do not apply to trading such as "reading your opponent". Watching someone like Phil Helmuth go around the table and basically tell you everyone's hand without seeing the cards is amazing but its not really a skill that is part of trading. Blackjack is purely mathematical always. 3) Discipline and not making mistakes are the key to being profitable at blackjack. A good card counter understands that even one mistake per hour of play may add up to enough in the long run to erode his edge over the house. The system he uses is not nearly as important as iron-clad discipline. 4) Blackjack is solitary and not social. Movies like "21" aside counting cards is not a social way to make a living. It is hours of grinding. Most of the money is made in short bursts and in between are weeks of grinding and grinding. This is how trading is on the buyside also.

Poker and chess are both good games because they require inteligence and are fun but neither apply to trading as well as blackjack. Between poker and chess I think poker does win hands down because the betting aspect mimics position sizing which is the most important part of leveraged trading in my opinion. The one skill poker does teach that is very much like trading the good patience to fold and fold and fold when the odds are against you while still being willing to push a good amount of money into the middle when the odds are on your side. That mentality is important for trading...but blackjack has that also.

I have a deep respect for both players but I think that you can't cheat and mislead people about your level playing chess.

Poker is different, I have won tournaments (small stakes) on very lucky hands but I never won any chess games on luck!

The difference between two chess players is based on their ability to think ahead and assess risk and not on a potential good turn or river.

....an average poker player can sit down and win hands off the best in the world by catching a couple lucky cards, definitely. But remember we are talking about which game has a skill set similar to trading, not which game is the fastest one to sort out who is smarter. A bad trader can make money for years at a time thru luck, just like a poker player can catch a few lucky hands. But in the end it is the risk management and bet sizing of poker that make it a better match for trading, even if skills in those areas take more then a few hours to shine through.

Bondarb - I also have a fondness for blackjack, and I actually think a lot of what you said does apply to market-making.

I think pts 2,3, and 4 in your advocacy for blackjack apply to chess very well - by your logic, that may make it preferable to chess.

Did you guys read this article? It was from a while back: http://online.wsj.com/article/SB123387976335254731.html

Crazy... how do you win a 2 hour chess game without looking at the board...

Certainly being able to know when to hold and when to fold is relevant to any form of risk-taking. In some of the more thinly traded markets out there, it can be a little bit like poker in the way you described it, bondarb. I would give a recent example, but it would be a little like showing my hands so to speak

'Buffett himself says about bridge: "It’s got to be the best intellectual exercise out there. You’re seeing through new situations every ten minutes…In the stock market you don’t base your decisions on what the market is doing, but on what you think is rational….Bridge is about weighing gain/loss ratios. You’re doing calculations all the time."( Forbes June 2,1997)

On another occasion he described the similarities between bridge and investment as follows: "The approach and strategies are very similar in that you gather all the information you can and then keep adding to that base of information as things develop. You do whatever the probabilities indicated based on the knowledge that you have at that time, but you are always willing to modify your behaviour or your approach as you get new information. In bridge, you behave in a way that gets the best from your partner. And in business, you behave in the way that gets the best from your managers and your employees."'

More generally I know of quite a few fund managers who play bridge.

Just a quick question for anyone who plays chess on Yahoo!.

Do the numeric ratings assigned to players on Yahoo! chess conform to same system that the pros use? I think I'm rated around 1300, but I don't really know where this places me in the great scheme of things.

Old Boaz ain't doing much trading these days...

i mean, boaz didnt lose THAT much $ right??

...yeah boaz is great at chess. To bad he sucks at trading, has a lifetime p&l of -several billion dollars, and almost single-handedly blew up Deutsche Bank. ...Just another "genius"..

yesman writes: I like that essentially, all the information is in front of you and I feel like there're more contingencies to manage. Like poker, it's essentially about identifying risk, and because the information is more perfect, I think it mirrors markets better.

Imperfect information drives trading. The act of trading is because people need to judge imperfect information. If everyone knew a stock was going to go up in the next week, no one would sell the stock. The quality of perfect information in chess makes it least like trading.

Similarly, blackjack is also very dissimilar to trading because all the probabilities are known. How does one statistically arbitrage when the correlations and variances of assets change over time?

Lets not forget the market is made up of a bunch of people who are prone to group think, emotions, manias, etc. Poker is the only game mentioned in this comment thread that requires a player to make judgment calls on imperfect information. Therefore, its the most similar game to trading.

TeamLRAM http://teamlram.wordpress.com

From my limited experience, chess is the game of quants. Poker is the game for traders. New York is hands down best for chess. You can really play poker in public like you can play chess. Also from my experience, the mastery of chess does not go very far in terms of interviews or jobs. I don't think that it is nearly as popular as poker.

it's pretty hard to bluff the markets

I had taken chess very seriously when I was young having participated in numerous competitive regional and district tournaments, and I do think the conventional notion that poker players deal with imperfect information (markets) while chess players are conveniently confronted with perfect information is a baseless conclusion. While it is true that poker players are faced with far more uncertainty, the key elements to playing chess successfully involves impeccable defense, significant pattern recognition skills coupled with running a plethora of proverbial monte-carlo simulations in one's head to anticipate your opponent's movements and capitalize on their mistakes. Obviously these skills parallel some of the traits of a successful speculator, hence I wouldn't pigeonhole chess as entirely quant-centric. In any case, I doubt any of these games would be beneficial towards succeeding as a trader.

Also: http://dealbook.nytimes.com/2011/09/29/good-at-chess-a-hedge-fund-may-w…

There is an interesting article related to the matter:

Chess and the Stock Market

Abstract

Chess is fascinating, you can think of it as a game, an art, a science, a sport or a combination of all of these. For those who sought its usefulness outside the sixty four squares board, they found military strategy, indeed, throughout history chess has been mostly depicted as a wargame. But who knows? Chess may find many other applications in life, perhaps economics and finance.

This article compares and contrasts the fields of chess and investment. 1. Introduction

In an article published in the Guardian newspaper in 2004 titled: Chess what is it good for? we read in the byline: "War, say researchers in Sweden and Australia. They are using the game to improve understanding of real battles, where you can't always see what your opponent is up to." This has materialized the concept of chess seen by Emanuel Lasker, the world chess champion between 1894-1921, who wrote the following in his book Common Sense in Chess back in 1896:

"Chess has been represented, or shall I say misrepresented, as a game – that is a thing which could not well served a serious purpose, solely created for the enjoyment of an empty hour. If it were a game only, chess would never have survived the serious trials to which it has, during the long time of its existence, been often subjected. By some ardent enthusiasts chess has been elevated into a science or an art. It is neither, but its principle characteristic seems to be what human nature mostly delights in – a fight. Not a fight – indeed such as would tickle the nerves of coarser natures – where blood flows and the blows delivered leave their visible traces on the bodies of the combatants, but a fight in which the artistic, the purely intellectual element holds undivided sway."

Aron Nimzowitsch, one of the best players in the world on the early 1930s and one of the most important writers in chess history, highlighted a strategic concept in chess that maybe valid in the battle field too. He mentioned: "The attacker relies mainly on his territorial superiority – on the superior state of his lines of communication. The game is lost because at some point, it proves impossible for the defender to keep pace with his opponent in his rapid regrouping of his forces."

Now let's put forward the following question: Chess – is it good for the stock market? 2. Prudent Man Rule and Romantic Chess

In 1830 the "Prudent Man Rule" arose from a celebrated Massachusetts court decision, Harvard College versus Amory. Under the Prudent Man Rule, speculative or risky investments must be avoided. Certain types of investments were imprudent per se and thus prohibited as fiduciary investments. Moreover, each investment in a trust portfolio, rather than the portfolio as a whole, had to satisfy the tests of prudence.

Over time improvements were introduced to the Prudent Man Rule, by taking into account new developments in the field of finance, such as Modern Portfolio theory (MPT) advanced in 1952 by later Nobel laureate Harry Markovitz. The fundamental concept behind MPT is that the assets in an investment portfolio should not be selected individually, each on their own merits. Rather, it is important to consider how each asset changes in price relative to how every other asset in the portfolio changes in price. The theory provided an optimal way of diversification, and laid the ground for a scientific way of managing wealth based on the tradeoff between risk and return.

This revolutionary change could be compared to the birth of "scientific chess" at the end of the nineteenth century ending a long era of "romantic" chess. Romantic chess is the style of chess distinguished by open, sharp and spectacular play, a typical game would involve an aggressive attack targeting the king, often carried through bold material sacrifices, which were rarely declined. This style reached its peak on the mid of the 19th century and was personified by a group of leading players such as Paul Morphy, Henry Blackburne and Adolf Anderssen – the latter produced brilliancies over the board, like the Immortal Game and the Evergreen Game, masterpieces that inspired generations of players. Contemporary chess master Pal Benko, describing a game played during the romantic era, remarked: "A typical chess game of a hundred years ago was like a medieval jousting contest: brutal and direct. Both sides, intent on straightforward attack against the enemy king, generally galloped toward each other with lances bent. The possible endgames that could result from a given strategy were hardly considered. All that mattered was checkmate." Manly pride played an important role in this philosophy of the game. When a player offered a speculative sacrifice on the chessboard, he was throwing down the gauntlet, challenging his opponent to a duel; it could not honorably be declined. When a player attacked, he attacked the king; he would no sooner bend down to pick up a loose pawn than he would joust with a child".

Toward the end of the nineteenth century, many leading players began to see the tradition of manly honor in chess as foolish and self-destructive. Prudence and pragmatism began to supplant bravado, added Benko. 3. Modern Chess (Wilhelm Steinitz) and Efficient Market Hypothesis (Eugene Fama)

Wilhelm Steinitz was born in Prague in May 17, 1836, and was the first undisputed world chess champion, from 1886 to 1894. He was the first to realize that chess obeys some theoretical principles that needed to be discovered. He developed the positional style of play which was to become the basis of modern chess, which has effectively ended the romantic style at the highest level.

Eugene Fama, an American economist born in 1939, is widely recognized for his outstanding contributions to modern finance. He proposed the efficient market hypothesis (EMH) in his PHD thesis in 1970. EMH is an investment theory that asserts the impossibility of consistently outperforming the market on a risk-adjusted basis, given the information available at the time the investment is made, because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information.

Opponents of EMH not only pointed to evidence that suggests the weakness of the theory, especially the strong form of EMH, which suggests that markets are efficient enough to prevent making above average profits from insider trading. But also to the fact that the theory cannot explain stock market crashes. 4. The Rise of Behaviorists in Finance and Psychology in Chess

Behavioral finance is the study of how psychology affects financial decision making and financial markets. Unlike traditional finance which assumes that people behave with extreme rationality, behavioral finance relaxes the traditional assumptions of financial economics by incorporating observable, systematic, and very human departures from rationality into standard models of financial markets. The proponents of behavioral finance, argue that a few psychological phenomena pervade the entire landscape of finance. These phenomena are centered around three themes.

Heuristics: The use of rules of thumb to process data, for example: "Past performance is the best predictor of future performance, so invest in a mutual fund having the best five-year record." In contrast, traditional finance assumes that when processing data, practitioners use statistical tools appropriately and correctly.

Frame dependence: The description or frame of a decision problem, behavioral finance postulates that in addition to objective considerations, practitioners' perceptions of risk and return are highly influenced by how decision problems are framed. In contrast, traditional finance assumes frame independence, meaning that practitioners view all decisions through the transparent, objective lens of risk and return.

Inefficient markets: Behavioral finance assumes that heuristic driven bias and framing effects cause market prices to deviate from fundamental values. In contrast, traditional finance assumes that markets are efficient. Efficiency means that the price of each security coincides with fundamental value, even if some practitioners suffer from heuristic-driven bias or frame dependence.

Lasker was the first to realize that psychology plays a role in a chess game. He stated:

"There can be but one objective in a fight, winning. What does it matter, in the heat of a battle, whether or not a plan is theoretically sound? Simply put, if it works, it's good; if it doesn't, it isn't. Chess is played by human beings, Lasker emphasized, and to disregard their human frailties-that is, to play the board-is to close one's eyes to a world of winning opportunities. To play with common sense means not only to choose plans according to the characteristics of the position-that goes without saying-but also with due regard for the characteristics of the opponent. "Chess is a fight in which all possible factors must be made use of," he asserted; "a knowledge of the opponent's good and bad qualities is of the greatest importance."

Lasker's teachings were followed by generations of great players and world champions such as Alekhine and Botvinnik. They themselves developed and employed the concept of psychology in chess. Nowadays, psychology is systematically employed in chess at all levels of competition – most chess players recognize its importance and strive to make use of it as much as they can both at the chess board or while preparing against their opponents. 5. Computer Chess and Algorithmic Trading

Since the introduction of the first chess programs that could play chess autonomously, without human intervention, there have been a special interest in the human intelligence versus artificial intelligence contest. Early programs which were developed in the 1950s were weak, and only in the 1980s computers started to compete with chess grandmasters.

Today it is obvious that the machine surpassed man in chess. Back in 1997 Deep Blue beat the then World Champion Garry Kasparov 3.5-2.5 in a six-game match, and the last major confrontation was also won convincingly with a score of 4-2 in the six-game match between world champion Vladimir Kramnik and the Deep Fritz chess program in 2006. This trend is not expected to reverse – more computation power as well as better algorithms will widen the gap even further in the future, the battle man versus machine in chess is over.

Former world champion and legendary chess master Garry Kasparov dedicated a chapter in his book, How Life Imitates Chess, to Man vs. Machine, and in a section titled: " If you can't beat 'em, join 'em", he explained how "Advanced Chess" emerged. This time it was not man vs. machine but man vs. man both assisted by a machine. Advanced Chess did not prove that popular however.

Algorithmic trading (AT) in financial markets refers to any automated systems deployed for the purpose of entering trading orders, or even implementing a technical trading system on a completely automated basis. Once the system is developed and deployed, the intervention of the human hand is not required to operate these systems – although, of course, it is desirable to closely monitor the operation and performance of such systems to establish prudent credit controls.

A subset of algorithmic trading is high-frequency trading (HFT), a trading platform that uses powerful computers and complex algorithms to transact a large number of orders at very fast speeds based on information that is received electronically. Algorithmic trading is widely used by pension funds, mutual funds, and other institutional investors, and has become increasingly significant components of the order stream in many capital and commodity markets. In the process, many opinions and concerns have surfaced regarding the impact of AT and HFT practices on market dynamics. Some analysts argue that AT serves to enhance liquidity, which in turn mitigates untoward price volatility. Others have suggested that AT practices may exacerbate price volatility and lead to reduced liquidity, particularly in times of market stress.

Controversies: During the world chess championship match held in Russia in 2006, the team of the Bulgarian contender Vaselin Topalov made a complaint against their Russian rival Vladimir Kramnik, implying that he might be receiving computer assistance. This infamous scandal was labeled "Toiletgate". Similar incidents happened at the Moscow Chess Open and the Chess Olympiad in 2010, and there is a growing concern among professional chess players that illegal use of computer might hinder fair competition between humans.

Algorithmic trading and high-frequency trading were implicated in the May 6, 2010 Flash Crash, when the stock market lost about nine percent of its value, the Dow Jones Industrial Average fell by nearly 1000 points before rebounding swiftly and making up those losses within minutes. This unprecedented event highlights the downside of these automated systems, It took regulators several months to reconstruct what happened in a span of minutes, indeed the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) published a joint report nearly 5 months after the event, a report that did not convince all market participants. 6. Conclusion

By observing in chronological order the events that unfold in both chess and the investment world during the last two centuries, and if history is a guide, behavioral finance will prevail over EMH, in spite of Fama skepticism (Eugene Fama believes that market anomalies are chance events). Bobby Fischer too considered psychology irrelevant in chess, and is quoted as saying: "I don't believe in psychology. I believe in good moves." If Bobby did not need to use psychology in chess, it might be because he was a psychological phenomenon himself, his endless demands and countless grievances at the world championship match in Reykjavik in 1972 resulted in bitter disputes with the organizers as well as his rival Boris Spassky. The latter was shaken and put out of balance by the unintended psychological warfare, a byproduct of Bobby Fischer's character.

Disregarding psychology in chess or in finance is to close one's eyes to a world of winning opportunities. Alain Greenspan, the former chairman of the Federal Reserve, once stated that what's common between the current and the next economic crisis is human nature. References

Benko, Pal, and Burt Hochberg, 1991. Winning with Chess Psychology. Mckay Chess Library.
Shefrin, Hersh, 2002. Beyond Greed and Fear. Oxford University Press.
<span class="keyword_link"><a href="https://www.e-junkie.com/ecom/gb.php?ii=1145861&amp;c=cart&amp;aff=44880&amp;ejc=2&amp;cl=175031">CFA</a></span> Institute, 2011. Level II Ethical and Professional Standards, Quantitative Methods, and Economics. Pearson Learning Solutions.
Dvoretsky, Mark, 2002. Strategic Play School of Chess Excellence 3. Edition Olms.
Barber and Odean, 1999. Behavioural finance
CME Group, 2010. Algorithmic <span class="keyword_link"><a href="//www.wallstreetoasis.com/finance-dictionary/trading-overview">trading</a></span> and market dynamics