Basic Economic Situation

[fnord_too]

Somebody discovers a way to make a lot of money at something. Other smart folks see that there is a lot of money to made doing this something so they start doing it. Suddenly, due to this gold rush like influx of competition, margins go down and there is less (or no, or negative) money to be made and competitors begin to pull up their stakes and move onto other perceived opportunity until the people remaining ones make enough to keep them there, but nowhere near as much as could be made previously.

This happens all the time. Someone sees an opportunity to create a new market or to increase the margin in an existing market and they exploit that opportunity. You can see it in the auto industry when the Japanese began adopting Deming's cost of quality theories. You see it in the retail industry when WalMart revolutionized their supply chain and were able to cut their inventory and warehousing costs dramatically. You can see it in the early history of almost every industry, and often times later too when someone has a major inovation of some sort.

Oh, and poker offers some fine examples. In the (hopefully not over yet) poker boom, a lot of smart people saw that there was good money to be made playing poker, so they learned the game and had easy pickings. Pokertracker constitures another innovation that a lot of players exploited effectively. Then people began pushing the boundries on multi-tabling. I remmeber when playing 8 tables was an accomplishment realized by only a few (the advent of HUDs propelled this but some players played 8 tables with no HUD and no exporting of notes from PT.)

There may or may not be another revolution taking place: shortstacking. We'll see how it plays out over the next couple of years. Could it kill the game? Sure. Could any of the other innovations kill (have killed?) the game? Sure. What will happen when the game is eventually 'killed'? Well, likely it will go to a place where profitable players reach an equillibrium. That is, the number leaving and entering the game will ballance such that decent but not great money can be made by the good/very good players. (The truly great will be able to make more, like best in breed companies make more, but probably not ridiculously more).

This is just the simple economics of things. The problem, if you want to call it that, is every player acts in their own best interests. Granted, everyone acting in their own best interest may hurt everyone. This is the domain of Nash equilibria. When you have a bunch of parties in a state, such that if any one changes their stance their utility goes down, but if several change their stance their utility goes up, you are in a Nash equilibrium. Why wouldn't everyone just change so everyone wins? you may ask. Well, even if they did then in many (most? all?) cases every individual would improve their own utility by changing back (at the expense of everyone else). So a lot of times you not only need everyone to know the big picture implications but also pass up increasing their own benefit in the short term for the long term benefit. Humans are not good at either of those things (understanding the bigger picture or acting in their long term interest when they go against their short term interests).

Sorry for rambling on but I think a lot people don't understand that in most ways playing poker is no different than any other money making enterprise. Also, I just typed this off the top of my head, so if I butchered any history or theory I would not be shocked.