Why the online-poker crackdown makes sense

By Felix Salmon
May 18, 2011
Steven Levitt isn't very good at introspection.

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Steven Levitt isn’t very good at introspection. “I was outraged a few weeks back when the U.S. government cracked down on internet poker,” he writes, adding that “it took me a while to figure out why.” Well, I can tell him why he was outraged: he’s a gambler (he’s especially fond of the horses), and gamblers don’t like it when the government cracks down on gambling.

But no — after all that while thinking on the question, it turns out that Levitt’s own proclivities aren’t the reason he was so outraged. Instead, it’s the Daughter Test:

It wasn’t until the U.S. government’s crackdown on internet poker last week that I came to realize that the primary determinant of where I stand with respect to government interference in activities comes down to the answer to a simple question: How would I feel if my daughter were engaged in that activity?

If the answer is that I wouldn’t want my daughter to do it, then I don’t mind the government passing a law against it. I wouldn’t want my daughter to be a cocaine addict or a prostitute, so in spite of the fact that it would probably be more economically efficient to legalize drugs and prostitution subject to heavy regulation/taxation, I don’t mind those activities being illegal…

The “daughter test” makes it clear why I find the U.S. government’s stance against internet poker so ridiculous. When I imagine my daughter growing up to be a professional poker player, my reaction is to think that would be a great outcome!

Off to the side, in a photo caption, Levitt says that he’d love it if his daughter “became a poker champion.” But it’s insane to legalize an activity on the grounds that some tiny fraction of the people doing it are very successful at it. After all, the vast majority of poker players never go pro, and the vast majority of poker pros never become champions. Overall, the number of people who lose money playing poker is much larger than the number of people who make money at it.

Meanwhile, Levitt says that he wouldn’t want his daughter “to be a cocaine addict” if such activity were legalized. He says nothing about her becoming a gambling addict — just as he says nothing about her becoming a successful legal cocaine merchant who makes lots of money selling the stuff and who doesn’t use it herself.

The point here is that it’s the job of the government to look after the weakest members of society. Ultimately, if someone becomes a drug addict or loses their life savings gambling, it’s society as a whole which has to pick up the pieces and support that person. And so the government has an incentive to circumscribe such activities and even make them illegal — even if a handful of people could engage in them successfully.

I’ve tried playing online poker myself, and didn’t enjoy it all that much: for me, the pleasures of a poker game are first and foremost social ones, rather than being mainly gambling-related. Gambling serves very little in the way of public utility, and it makes sense to regulate it. Should online poker be banned entirely? Unless and until there’s a robust regulatory infrastructure in place, yes. Casinos are very carefully regulated, and I’m not sure it’s even possible to regulate online poker sites that assiduously. But certainly up until now those sites have been operating more or less outside any regulation at all. Which is why it makes sense to me that they were shut down.

Update: Some very smart pushback in the comments, none more so than a great entry from QuantPoker. Here’s some of it:

Realistically, depending on whose numbers you like, we can look at the players that make up the poker world in these pieces:

1%-5%: People at risk for being problem or addicted gamblers — Indeed these people should not be playing poker, and we should want regulations that help them control their harmful relationship with the game (I’ll get to this later).
10-15%: Players who derive significant income from poker — Not much to say here, but note that these profits are not necessarily unduly at the expense of the 1%-5% of addicted gamblers, but mostly against like-minded strategic competitors who happen to be slightly weaker at the game than them.
80%-89%: People who responsibly enjoy poker — Whether they are slight winners or slight losers, poker is a unique strategic competition that offers many social and personal benefits to its players (for one, certainly that the average person is bad at pricing and managing risk, and poker teaches that quite well). When a rational, well-minded, non-addicted person chooses to play poker, as economists, we should infer that they’re doing so *because they are deriving benefits in excess of the costs*!

Even if you take the worst-case-scenario assessment of poker as potentially harmful to too high a percentage of society, the risks are still much, much lower than other things that our society and government has already approved of. Alcohol is the obvious example. The majority of people enjoy alcohol responsibly and gain social and personal benefits from it, but a minority of people do significant harm to themselves and others through it.

28 comments

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felix – you should be able to see that it should be possible to regulate online sites much more easily than casinos. After all, there is a history of every hand played online, that can be analyzed for abnormalities like collusion, cheating, etc. Every cashout and deposit can be tracked… etc.

data, baby.. data… there’s infinitely more data available online, and that should make it easier to regulate.

in any case, I think you’re making two totally different arguments here: most of your piece seems based on the “this is bad for MOST people” line of thinking that holds basically no hope of standing up in any sort of logical discussion – since, of course, we allow ample things that are bad for most people (like regular casinos, sports betting, etc, and non-gambling things: alcohol, cigarettes, etc)… so then you conveniently tried to twist the argument into “oh, well, regular casinos are highly regulated” – as if that changes any of the facts about the harm it does to “most people”!

Posted by KidDynamite | Report as abusive

You’ll be going after the bath-houses next.

Posted by gringcorp | Report as abusive

“it’s the job of the government to look after the weakest members of society”, yeah like with free healthcare, stopping them from signing up to home loans they can’t afford, keeping them healthy and not 100lbs overweight…. And then there are the other folks who invest in banks and investment schemes which fail… I can play poker in a casino or card club or a home game with friends any time, so why not online? Purely because they’re not getting their cut – that’s all….

Posted by Zeditave | Report as abusive

This is an interesting question. The latest National Geographic has an article on the climbers of Yosemite National Park. They climb deadly vertical walls on El Capitan and Half Dome and lots of them do die.

For me, climbing vertical cliffs, especially without ropes as many do, is the height of idiocy. Should the government shut them down because a lot of reasonable people could find what they do to be a very bad idea?

I suspect most people would find that to be overreaching!

Posted by DanHess | Report as abusive

ps – Felix, I guess my point is that your conclusion:

“Should online poker be banned entirely? Unless and until there’s a robust regulatory infrastructure in place, yes.”

goes against the first 3/4 of your article. After all, a robust regulatory infrastructure doesn’t change the fact that most people will still lose, etc. that was my point….

Posted by KidDynamite | Report as abusive

Can’t help noticing that if Levitt really doesn’t want his daughter to become a prostitute, then maybe he shouldn’t have written a book chapter about how being a prostitute is really great if you adopt a suitably Freakonomics approach to it.

Posted by dsquared | Report as abusive

If the government prohibited all activities that were dangerous, there would be nothing left to do. Even though I have never gambled on line, I think it’s ridiculous that the government shut down sites. The only reason they do this is to keep their casino operator campaign contributors happy. Don’t for a second think that they actually care about all the poor slobs who lose their paychecks on the internet.

Posted by KenG_CA | Report as abusive

Your criticism of Levitt’s argument is qualitatively correct, as it’s not fair for him to consider the upside of his daughter becoming a professional poker player without considering the downside of his daughter having any sort of negative relationship with poker. However, I believe that Levitt would still feel that poker passes his Daughter Test even when the downsides are considered and appropriately weighted.

—————-

“After all, the vast majority of poker players never go pro, and the vast majority of poker pros never become champions. Overall, the number of people who lose money playing poker is much larger than the number of people who make money at it.”

It is true that the vast majority of poker players don’t do so professionally, and that more people lose money than win money at poker (as will be true in any zero-sum game where operators charge a cost for playing). However, you neglect the biggest, most important group here: those poker players who are either small winners or small losers who *enjoy competing at poker* and do so in an economically rational and socially beneficial way. You seem to presuppose that every player who loses at poker has lost economic utility by doing so, but most poker players enjoy the mental exercise and competition of playing this strategically-deep game.

Realistically, depending on whose numbers you like, we can look at the players that make up the poker world in these pieces:

1%-5%: People at risk for being problem or addicted gamblers — Indeed these people should not be playing poker, and we should want regulations that help them control their harmful relationship with the game (I’ll get to this later).
10-15%: Players who derive significant income from poker — Not much to say here, but note that these profits are not necessarily unduly at the expense of the 1%-5% of addicted gamblers, but mostly against like-minded strategic competitors who happen to be slightly weaker at the game than them.
80%-89%: People who responsibly enjoy poker — Whether they are slight winners or slight losers, poker is a unique strategic competition that offers many social and personal benefits to its players (for one, certainly that the average person is bad at pricing and managing risk, and poker teaches that quite well). When a rational, well-minded, non-addicted person chooses to play poker, as economists, we should infer that they’re doing so *because they are deriving benefits in excess of the costs*!

—————-

“Casinos are very carefully regulated, and I’m not sure it’s even possible to regulate online poker sites that assiduously.”

You simply haven’t thought this through enough. Regulation of problem gamblers and underage gamblers is MUCH easier through internet poker, where identity verification is comprehensive and effective (the UK, among others, have been doing it for several years). When you compare this to the protection that an underage or problem gambler might have in a brick-and-mortar casino, where there is no real identity record and no record of history of play… it’s simply laughable.

—————-

“The point here is that it’s the job of the government to look after the weakest members of society.”

Two issues here:

1) As far as problem gamblers at poker are concerned, they are playing poker not because it’s a strategic game, but because it offers the opportunity to mindlessly gamble. If you remove poker, almost all of these people will move to myriad other legal, state-sponsored gambling opportunities. We’re not helping them by eliminating only one of their outlets, and as I’ve discussed, poker is a gambling outlet for few and a strategic competition for most.

2) Even if you take the worst-case-scenario assessment of poker as potentially harmful to too high a percentage of society, the risks are still much, much lower than other things that our society and government has already approved of. Alcohol is the obvious example. The majority of people enjoy alcohol responsibly and gain social and personal benefits from it, but a minority of people do significant harm to themselves and others through it.

Posted by QuantPoker | Report as abusive

“it’s the job of the government to look after the weakest members of society”

The problem is that people always want to protect OTHER ‘weakest’ people.

Do you want the government looking after YOUR weaknesses?

Posted by Rant2112 | Report as abusive

How about outlawing lotteries then? I’d much rather play online poker (against a house rake of a couple %) than state lottery (where the government steals half the pot, everytime). Do you really think the low-income retired people that make up a large portion of the lottery playing crowd are not weaker members of society than the average poker player? who’s protecting them?

Posted by tiger4 | Report as abusive

Quant, thank you for providing a little reason to what are clearly skewed arguments by Mr. Salmon.

“The point is that it’s the government’s job to look after the weakest members of society”. Ummm…. No it isn’t. We shouldn’t be catering our rights to the outliers. Because a portion of the US population is obese, should we outlaw pizza?

Posted by FishyMcFish85 | Report as abusive

by that logic you’d also ban alcohol, smoking and fatty foods. if people want to play poker online they should be able to do so. it’s not the job of the government to dictate how we live our lives.

Posted by Worsel | Report as abusive

I assume that people who want to gamble will and that those with proclivity toward addiction will find their addiction. I’m of course willing to be proved wrong, but as of now my concerns are more bluntly practical:

1. I don’t trust that online casinos aren’t rigged by insiders, by people making subtle adjustments to chance.
2. I don’t trust that the person I’m playing directly on line isn’t cheating, that a program which, for example, reveals my hand isn’t in use.
3. Given the actual problems of this type, I’m fairly convinced that most people can be fleeced on line and not know it even happened; they think they just lost or that the payout was x when it should have been x+.

Posted by jomiku | Report as abusive

“After all, the vast majority of poker players never go pro, and the vast majority of poker pros never become champions. Overall, the number of people who lose money playing poker is much larger than the number of people who make money at it.”

This argument seems to be in favor of banning any sport known the man. Replace the word “poker” with “baseball”.

Playing baseball has a cost associated with it (bat, balls, renting fields, paying for uniforms), so plenty of people lose money playing baseball with no fat MLB contract to show for it.

Also, god forbid the amount of time spent on baseball leisure, when that time could be spent hitting the books and working hard! It’s as if kids are addicted to baseball! (Ok, this last one is a bit extreme)

What’s the difference though? Both are leisure activities. I’m sure I’ve spent more of my (and my parents) hard earned cash on baseball related supplies (without actually enjoying baseball growing up) than I’ve lost playing poker. And the camaraderie of the baseball team has as much social value as my improved understanding of probability via online poker.

Besides, there is NO difference between state lottery and poker, besides who’s pocket is lined. In fact, a poor person is much more likely to win some money in poker due to dumb luck than winning the lottery.

Posted by djiddish98 | Report as abusive

There’s several huge flaws in your world perspective, Felix, but here’s one from the big-government side of the camp (i.e. assuming that govt’s job is indeed protecting weakest):

“The point here is that it’s the job of the government to look after the weakest members of society. Ultimately, if someone becomes a drug addict or loses their life savings gambling, it’s society as a whole which has to pick up the pieces and support that person. And so the government has an incentive to circumscribe such activities and even make them illegal — even if a handful of people could engage in them successfully.”

This presupposes that making something illegal is what looks after people. But that’s not how it works. What it does is washes governments’ hands of the problem. Instead, you get drug use, prostitution, gambling, run entirely on a criminal basis with even LESS protection for those “weakest members”. Advocating making these things illegal does exactly the opposite of what you’re after. If people want to gamble, they’ll find a way; better to have it regulated than people suffering much worse threats from money-lenders etc.

Posted by BarryKelly | Report as abusive

Levitt = glib.

Posted by GlibFighter | Report as abusive

Online poker never should have been shutdown the way it was. It would have made much more sense for the sites to be taxed, rather then closed. The online poker industry brings in over 25 billion a year, and that number was only expected to grow in the coming years. Wouldn’t it have made sense to tax it, so the government gets their cut, and the players can still continue playing.

Instead of doing that, the biggest sites were shutdown, however, there are still sites available to U.S players. Sites like Carbon Poker http://bit.ly/gwGK2V are still accepting U.S deposits and withdrawals. So, if people still wanted to play, they could. Seems like the government didn’t stop U.S players at all, just made things a little harder, and the best part is, they still aren’t getting any tax revenue.

Posted by jjhould | Report as abusive

I wouldn’t want my daughter to date a pro-athlete. Should that be illegal too?

Posted by Mr.Do | Report as abusive

“The point here is that it’s the job of the government to look after the weakest members of society.” Huh?

I’m sorry but gambling isn’t a major source of weakness in society. I’m fine with people who believe in a nanny state, but aren’t there bigger problems on the table?

http://www.cdc.gov/nchs/fastats/alcohol. htm

What we need to do is ban alcohol again!

C’mon, Felix. How can you stand by the quote above but yet feel differently about alcohol? Or maybe you don’t.

Let’s be consistent here.

Posted by TeamJotty | Report as abusive

Exhibit #1 when debating the proposition “Felix Salmon is a liberal weenie”

Posted by TinyOne | Report as abusive

Felix –

Given that the main reason for the crackdown was the hefty campaign contributions from the bricks-and-mortar gambling industry, your argument is not tenable. I mean if it was, then why are Vegas, Atlantic City, and the many Indian casinos legal?

Posted by MaysonLancaster | Report as abusive

Bravo! It’s really hard to reconcile what Levitt’s mode of thinking is. His comment on drugs and prostitution is telling. If he doesn’t like the outcome, he would reject economic analysis. He would shelve his own economic principles and follow his daughter’s reasoning even though his daughter has less education, less life experience, and I’m not even sure she is an economist! He also needs to address how the government should decide whose daughter to listen to.

Posted by junkcharts | Report as abusive

“… it’s the job of the government to look after the weakest members of society.”

Hmmm. I don’t think so. It’s the job of government to promote and advance societal norms and goals. You may feel that should include looking after the weakest members of society, but I suspect that’s secondary to many other norms and goals.

As for gambling, it’s a simple random reward behavior, which psychology research has demonstrated is one of the most addictive of reward schedules. I don’t think the social aspect plays into it very much for most people; rather it’s the hit of adrenaline from getting a reward delivered randomly.

I have no problem with gambling, especially government sponsored and taxed gambling. In my mind, it’s a tax I can choose whether or not to pay. I choose not to.

Posted by Curmudgeon | Report as abusive

Back to the author’s point:

“The point here is that it’s the job of the government to look after the weakest members of society.”

Freedom = Great Responsibility. Do you want the government constantly monitoring everything you say and everything you eat. In my opinion the government’s ‘job’ to support freedom and equal human rights. IT IS EASIER TO PROTECT THE WEAKEST MEMBERS OF SOCIETY BY LEGALIZING ONLINE GAMBLING. IF THE INDIVIDUAL OR A FAMILY MEMBER CALLS A GAMBLING HOTLINE THEY COULD HAVE RESTRICTIONS PUT ON THEIR ACCOUNTS BECAUSE THEY PERSON CAN’T ACT RESPONSIBLY. IT WOULD BE THE EQUIVALENT OF HAVING YOUR LICENSE REVOKED FOR A DUI.

Posted by seannartiff | Report as abusive

Hasn’t this happened several times before? Wasn’t Phil Helmuth involved in some type of online poker cheating scheme? Since the government can’t seem to do anything about online poker sites existing, you’d think it would make laws to protect the people who decide to play from getting ripped off.

Posted by elecengrman | Report as abusive

The other day as I walked home,Isaw some people on the corner handing out literature. I stopped introduced myself ,shook hands . they where a church group ,you see I dont like the porn shop on the corner either.But when asked to join them no. See I assume the responsability to teach my “Daughter”to make better choices than to be a porn star or drug addict. And I told them not only as Americans Do we have the right but the responsability to respect those with diff opinions.When confronted with the aspect of a society that would not tolerate thier religion ,they concieded,how ever I requested that my input not detere them from thier task.Plainly We as americans have afforded thru the constitution to do as we chopse within the boundries of that document and its interpretation
[B S] The Government has no legal right to make laws to Interpret our possible missunderstanding of our lack of accountability of what may or may not occur in the course of our life.How about Hey Full Tilt Poker Great site cant get my money out , my choice, my reprocussions, my lesson learned .You dont trust online casinos dont play .Just because there is a porn shop on the corner doesnt make you a sex addict. The US is in trouble our leaders are out of touch with who they are and what thier responsabilities are our forefathers ,of which I am adirect decendant,were responsable community leaders usually volentering thier time and serviice for the greater good of the community.exam Obama said Health care a law if people dont buy it we will impose a fine????The leaders in my community raised money for a homeless shelter couldnt decide wear to build offered bus tickets instead .New Billboard”Bums, No tolerance,Eliminate the problem”Should say”Selfish,Greedy,Control freaks,terminate with extreme predudice”

Posted by MichaelQ2765 | Report as abusive

The small amount of people who lose thier life savings can be supperted by tax $ s we give Pakistan 20 Bill ayear to not give nuclear info to muslum extremists .do you think that will support gamblers annonymous for one year. You cannot evade the personal responsability issue. If your house getts robbed you probably think its not your fault?

Posted by MichaelQ2765 | Report as abusive

Thank God for the people voicing there opinions here there is a true american voice represented by the respondents not the author “silver spoon brain washing”

Posted by MichaelQ2765 | Report as abusive