Professional poker players and economics professors

Economics professor Greg Mankiw blogged about professional poker players:

Third, there is the professional gambler, such as the one in the Slate article (or the boyfriend of blogger Jacqueline Passey ). In some ways, this case is the saddest of all. I have no doubt that some people can, in fact, make a living gambling. But doing so requires a lot of intelligence and savvy. It is a shame that someone with so much inherent ability wastes it doing something of such little social value.

But Mankiw seemed uninterested in the plight of the professional poker player in the article he linked to who only made $300/week before he became a professional poker player. Clearly there’s a huge inefficiency in the way people are allocated to jobs if someone with “so much inherent ability” is only able to earn $300/week. The guy in the article clearly didn’t choose to waste his ability on poker, but rather it was the must lucrative career available to him.

Professor Brad Delong then chimes in with the following comment:

Somebody good enough at calculating odds and reading situations to make money as a professional gambler should pick a segment that is positive-sum rather than zero-sum for the economy as a whole: he should go to Wall Street and become part of the global capital allocation mechanism.

I doubt very much that people are quitting their Wall Street jobs to become professional poker players. Professor Delong is obviously unaware of the fact that Wall Street only hires people with MBAs from schools such as Harvard, Wharton, or Columbia. It doesn’t matter how smart someone is or how good he is at “calculating odds and reading situations.” If his only education is a bachelor’s degree from a state school then Wall Street is not interested.

This ties in to my previous posts about how IQ is unrelated to income.

Economics professors don’t seem to understand how our labor market really works.

Comments

[spungen]

I don't see how a sucessful stock trader necessarily contributes more to the economy than a successful gambler. Aren't they basically the same activity?

Gambling is like a sport. People's enjoyment of it creates revenue, through tourism and support jobs. Most do it only for recreation. A few stars entertain us and stimulate the industry by winning big.

[TGGP]

Stocks are shares in corporations. Gambling is simply enjoyable to gamblers. Both are positive sum in terms of utility, although in terms of money the gamblers presumably have to spend money driving to the casino and whatnot. The stock market allocates money (and information, a sometimes overlooked aspect of the market process) more efficiently than otherwise, as the bond market also does. The difference is that bonds are like I.O.U.s whereas stocks give votes.

I'm not an economist and I don't actually know too much about stocks or bonds, but I hope that's a good enough answer.

[Half Sigma]

Stock traders are increasing the liquidity of the markets and thereby lowering the cost of capital, which results in greater economic growth because more capital is available to businesses.

At least that's the theory.

The professional gambler has a marketing benefit for the gambling industry, because people hear about it and they want to try too, which results in more profits for the casinos.

I don't really think that gambling is such a bad form of entertainment. Some people get carried away with it, but I don't believe in a nanny state where all vices should be made illegal.

[Steve]

It is ironic that professors of economics would denounce gambling. It is safe to say that a lot of the statistical techniques that they use were inspired by and discovered because of gambling.

If people are going to moralize about gambling, shouldn't they at least moralize that people are gambling over the wrong thing?

The results of a throw of the dice or the turn of a roulette wheel are trivial to all except the participants. Betting on the results of a presidential election or a natural disaster encodes socially useful information about the likelihood of those events.

Two cheers for gambling with positive externalities.

[michael vassar]

The incredibly naivete displayed here by De Long and Manikew makes me think that the whole way we are training social scientists is foolish. It makes sense for natural scientists, who's major insights are likely to come at a young age, to ignore the practical side of the world, but it makes no sense for social scientists to have little practical experience with the world. Maybe there should be a required "sabbatical" of 7 years between attaining an bachelors degree and pursuing graduate studies and another after recieving a PhD during which would-be social scientists must live out in the world, keeping notes of their observations, and radically changing their circumstances every 2 years or so in order to gain perspective. Universities could pay some of the transaction and opportunity costs associated with them living in this manner.

[Peter]

To elaborate on a comment I posted on Jacqueline's blog, relatively few people these days are lucky enough to work in jobs that they actually enjoy doing. Monday mornings are not a happy time for most people. If you have the talent to be a successful poker player, enjoy playing and can make a living at it, good for you! Your first priority is toward yourself, so you're under absolutely no obligation to work at some field you don't enjoy rather than playing poker on a professional level, merely because this other field is supposedly more socially and/or economically productive.

[The Superfluous Man]

HS,
Why didn't you throw the book (http://www.owlnet.rice.edu/~psyc231/Readings/schmidt.htm) at 'em? All you have to say is:
1. IQ is the factor most responsible for productivity.
2. Employers cannot administer these tests to job applicants, due to Griggs v. Duke and its bastard offspring.

Heck, I'll do it for you. It's posted on Mankiw's blog, in the comments, with the requisite evidence.

[tc]

michael vassar: what are they being naive about? I sincerely want to know.

[Half Sigma]

Superfluous Man, IQ tests are simply NOT BELIEVED to be useful by the people doing the hiring. Ask anyone who works in HR, they will tell you they don't believe in IQ tests. I've asked the HR people of every company I ever worked for out of curiousity, not a single ever had anything positive to say about them.

Peter, you are right, a lot of people hate their jobs. Maybe it's because they can't stand the lack of freedom, and maybe because their employers mistreat them because they can get away with it due to the high cost of switching jobs. Perhaps another example of how the labor market is inefficient?

When economists measure the value of something, they tend to ignore whether or not it makes the people happy. So someone taking a vacation isn't contributing to the economy according to the economist, but in reality he may enjoy the time off a lot more than the money he's giving up by not working.

[SFG]

I'm sure if you asked DeLong whether someone with a degree from, say, OSU could get a job on Wall Street he would correctly answer 'no'. He just doesn't think of the prestige factor because he and everyone he knows has a prestigious deree.

[bbartlog]

My brother made three times as much as I did last year, playing poker professionally. And I have a decent job in software. While he can also write pretty well I think it's fair to say that even if his skills were optimally allocated, there is no way he could be worth that much money in another occupation (I'm skeptical of the idea that poker skill and stock/bond market skills are really equivalent). So in this case Mankiw is right, I suppose. But there are many other cases (like stock and bond markets, or the contest to become CEO) where income is determined more by gamesmanship than by value delivered; singling out gambling seems rather unfair.

[michael vassar]

tc: In suggesting that poker players should work on Wall Street instead as if that option was available to them.

[Steve Miller]

HS, I really don't understand your point here. You speak as if we should expect people with high levels of ability to make more, and that it is a labor market failure if they don't. But then you say that HR execs don't value IQ. I would suggest that they have a reason: a smart slacker is nearly as worthless as a stupid one. Ability without conscientiousness is worth very little to an employer.

That said, your GSS-based research is fascinating, and very much along the lines of a series of papers Bryan Caplan and I are working on. I'll send you a draft of our current paper, which should be finished in a week or so. It's closely related to your June 21st post on intelligence and economic libertarianism.