Lesson #4: Intro to Variance

Let's start with a basic tool that's going to be your friend: Prime Dope
Variance Calculator
Variance is a widely discussed topic in poker and for good reason: it’s because of variance
that people can make a living from poker.

Let's jump right in with a thought experiment:

Imagine poker without variance, where the player with edge wins every time.

Would there be money to be made? We know most of the money in poker comes from
recreational players. Would the recreational players come back day in and day out? If they
didn’t have the chance to run hot, cooler you, or have a winning day, they simply wouldn’t
play serious poker. A minority of those would take that personally and study hard, to the
point that they're not a recreational anymore. The rest would quit for good.

Thankfully, variance does exist. It can be harsh and raw. You can get destroyed for days in
a row. You can do everything right and simply not catch a break. But as serious players we
should be grateful that it's baked into the game. It's why poker is so profitable.

So how does variance work, and what can you do to turn your
understanding of variance into edge?

Here are a few examples of variance in action:

Variance in EV
Let's run a toy game:

You are on the river. Your hand has 0% equity. You’ll try to bluff, since it’s your only way of
winning the hand, and you decide to go with a pot-sized bet - $100 into $100. If villain
folds 70% of the time, what's your EV?

Chance of winning the hand: 70% (you need your opponent to fold in order to win)
$ expected to win: $100 (the pot)
Chance of losing then hand: 30% (you always lose when called)
 $ expected to lose: $100 (your bet)

EV = chance of winning * $ expected to win - chance of losing * $ expected to lose

So, we have the following equation

0.7 * $100 – 0.3 * $100 = $40

This is a very +EV bluff. However, it is not going to work every time. 30% of the time he'll
call and you'll lose. And that's okay. Nothing in poker works 100% of the time.

It could fail many times in a row. That's going to shake anyone's confidence in their play.
"Maybe I won't bluff next time, I doubt I really had 70% fold equity." or " I doubt they are
folding that much / doubt my bluff was good". This is where data gives you an edge - you
have real certainty that your plays are +EV. With data, you can have higher confidence in
the face of variance than your opponents.

Variance in Results - Volume

Let's test out our variance calculator. We'll look at how sample affects us first.
Meet Barry.
Barry plays online poker for a living and has a win rate of 5bb/100
He has a standard deviation of 100bb/100 (pretty normal for a 6max cash player)

How well does Barry do over 10,000 hands?

What do we see here?

1. Barry has ~31% chance of losing after 10k hands.
2. On average Barry is expected to win 500bb after 10k hands.
 3. With a 95% confidence interval, Barry might run anywhere between -15bb/100 and
25bb/100.

In the following graphic you'll see potential routes that Barry’s graph can take in a sample
of 10k hands:

What are the takeaways?

1. A lot can happen in 10k hands
2. 10k hands can be considered a pretty small sample - at least when trying to realize
your true winrate

Next, how well does Barry do over 1,000,000 hands?

What do we see here?

1. Barry has exactly 0% chance of losing after 1m hands.
2. On average Barry is expected to win 50,000bb after 1m hands.
 3. With a 95% confidence interval, Barry might run anywhere between 3bb/100 and
7bb/100

Here are the routes he might take over 1m hands:

What are the takeaways? There's still variance, however, a few major things changed:
1. Barry will not lose
2. He's going to realize much closer to his true win-rate
3. Therefore, the bigger the sample you play the less prone you are to the thrashings of
variance

Conclusion: More volume is better when facing variance - if winrate stays the same. If a
players quality of play declines, then volume isn't the answer. Ideally we need
professional levels of volume and high quality play. These are the best tools for
overcoming variance.

Let's look at winrate next:

Variance in Results – Winrate

Now let’s say that Barry decided to study (a lot) and also find a better site to play, which is
softer. Something that every pro would do. Let’s say that these moves increased his
winrate to 8bb/100 and he puts in 300,000 hands.

How well does Barry do now?

What are the takeaways here?
1. Over 300k hands, the probability of loss is effectively zero. With a 95% confidence
interval, his winnings are between 4.35bb/100 to 11.65bb/100.
2. He expects to book a massive win of 24,000bb on average in this sample

What if he didn’t study and didn't table select at all though, and his 5bb/100 win rate
became 3bb/100, since he didn’t improve while the regs around him were consistently
studying?

Now let's see what happens to Barry:

1. Over 300k hands, the probability of loss is now 5%. He expects to win 9,000bb on
average in this sample. With a 95% confidence interval, his winnings are between
-0.65bb/100 to 6.65bb/100.
2. 5% of the time he will lose money after 300,000 hands. Allowing his quality of play
to slip has now introduced the possibility of loss over this sample.
Conclusion: The higher your winrate the less likely you are to lose over large samples.
Playing well and continuing to improve are tools a player can use to combat variance.

Final Thoughts

First and foremost, you need to realize that on a day-to-day basis, you only experience
variance. Your win rate can only be realized in the long run. Even in the long run, you
might not have an accurate estimate of your true win rate. You saw that the strongest
version of Barry, the one that studies and plays in a soft pool, after 300k hands Barry's
true win rate could be anywhere between 4.35bb/100 to 11.65bb/100. But that's only for
the past. In the present, Barry needs to keep studying and improving. Maybe his win rate
is even higher than that. And the next sample could show something different. It makes
sense that after a big sample (that is required for you to get a relatively accurate estimate
of your true win rate), you'll be a different player.

Truth number #1: On a day-to-day basis, you only experience variance.

There's nothing you can do about it, so do your best to relax in the face of variance. If it's a
sense of urgency or anything else, you most likely need to work on that away from the
tables. Take your time and be patient with yourself, the human mind is full of biases, and
unrolling all of yours will be a lifelong journey.

Truth number #2: The only thing that variance doesn't dictate, is your behavior.
No matter how you run, you must make sure that your strategy is intact, that you perform
to the best of your ability and that you play enough volume. You need to make sure that
you improve consistently, that you recover as much as you need and that you do your job.
Don't quit after what might seem a "long break-even stretch". And don't be paranoid that
your game always needs some improvement because you didn't win for 50k hands. Your
game should be in check consistently, not only when you run badly. Also, reframe what it
means to be running badly. You might believe that your KK gets crushed by AA more often
than it should, but you might be forgetting that you hit sets 5 times in a row. So, avoid
believing that you run good or bad. You run how you run, let your long-term sample speak
for itself.

Focus on things that you can do something about, and are actually important. Your
behavior on and away from the tables.
Truth number #3:Framing helps.

Let's assume that you have a 6bb/100 winrate at 200nl. Let's also assume that we know
that this is your absolutely true win rate. That means that you're entitled to earn $12 every
100 hands on average.
Let's say that you just finished a winning session, with $1,000 in profit after 1,000
hands. A frame: That $1,000 isn't really yours. What's yours, is $120 which translates
to your win rate. Consider the rest as a loan that you took from the pool and you're
going to give it up to the pool one way or another. Either you're going to lose $880
(slowly or fast, it doesn't really matter), or you're going to break even for some
hands, so you'll get exactly what your win rate shows in the long run. "Don't
celebrate every touchdown like you just won the Superbowl"
Now let's say that you finished a losing session. Your loss was $800. A frame: You
didn't lose $800. You actually gave a loan this time to the pool, thankfully for the
pools to keep existing. You'll get that back somehow. From the same or different
players. Slowly or fast. If you know your winrate then it's only a matter of time
before you realize it. Your true results are $12 every 100 hands (or whatever your win
rate is). Everything else is just noise.

Poker can be very deceptive with the feedback that gives us. We're very fast to see
patterns in noise. Everything will happen, as often as it is supposed to happen, if you play
long enough. Work on your game, play your volume, and take care of yourself. Let
variance do the rest. Thank variance because it's the reason that profitable poker exists.
Suggested reads:
Fooled by Randomness by Nassim Nicholas Taleb.
Black Swan by Nassim Nicholas Taleb.
Thinking Fast and Slow by Daniel Kahneman.
Don't trust your gut by Seth Stephens-Davidowitz.

Daily Mission #5 🚀
Variance is a concept that even very strong players often struggle with. What is your
experience with variance in poker? Have you had a downswing that you thought would
never end? An upswing that made you feel invincible? Write a post elaborating on your
relationship with variance. Do you think that this will change after the previous lesson?
(Now is your chance to show us your wildest graphs 🎢)

After sharing in the #daily-missions channel, scroll to the appropriate column on the
'Reports' page in the Volume Challenge and give yourself a checkmark (✔️) by your name.

Min-requirement: Demonstrates critical thought on lesson concepts/tools, written

coherently, stays within subject boundaries, 250 words

(For quick access to the Volume Challenge, click the pin icon at the top of the #daily-
missions channel and follow the first link 📌)