GTO Poker Theories: Gresham's Law
If you play in different currencies or have poker money in lots of different places, you need to understand this economic principle.
One of the real gifts poker has given me is that it has been a great jumping off point to learn things from other disciplines like economics, AI, psychology and Game Theory. So here is a series of articles where I bring some of the most interesting things I have learned from other subjects outside of poker which are applicable in this game we know and love.
Gresham’s Law is a monetary principle named after Sir Thomas Gresham which states "bad money drives out good". The idea is that when there are two currencies of similar face value, the more desirable commodity will disappear from circulation.
A classic example which led to the coining of this phrase (pun totally intentional) would be when a new coin is made of a less precious metal than its predecessor (Let's say a gold coin vs a silver coin of the same monetary value). People would spend the new coin and hoard the old coin. A more practical example in everyday life if you have to spend €1 and can either get rid of a load of small coins or a €1 coin, you will usually keep the €1 coin because a pocket full of change is annoying.
Counterfeit currency is another example whereby people will usually spend all their fake notes before they spend real ones. If a particular type of currency is about to be retired (In the UK we recently changed our £1 coins, and £5 and £10 notes) people will clamour to spend that currency before it becomes useless. Finally, we have all been in the situation at an airport after a holiday desperately trying to spend the few foreign coins we have left before we go back home.
The way of keeping score
Gresham’s Law should be of interest to anybody who plays poker, because currency is the way we keep score, so how we use it is important.
While they may have the same face value, different types of poker currency have different practical values. You have cash in the hand vs casino chips, for example. Cash in the hand vs money in an online poker account. Dollars vs Euro. To some people maybe $100 in PayPal is worth more than $100 in NETELLER, or $100 on PokerStars might be worth a bit more than $100 on 888poker. T$ might not be worth as much as regular dollars (which is why people sell them). And I won’t even begin to ponder how this applies to poker players with Bitcoin right now.
Many years ago I worked for PokerNews when Tony G was the boss and he told us about some very big cash games he was playing in with some Russian players at a time when the dollar was very weak. As a result they were just throwing their dollars around like it was Play Money compared to other forms of currency. This is something you will see at times on the live poker circuit, if somebody has a big win in a stable currency they’ll keep onto it, if a currency is weak they’ll gamble more with it or try to exchange it before they get home.
The money you spend first
It’s commonplace for players to swap money with each other from one poker room to another via transfers. For example if I have a lot on PokerStars and you have a lot on partypoker, we might do a like for like swap. There have been times, however, when for whatever reason somebody might pay more for money on one site compared to another. The most infamous example being after Black Friday when people were paying a discount for people’s Full Tilt balances and pennies on the dollar for UB balances.
In online poker you also have the concept of T$ or tournament tokens. $100 of T$, or a $100 token, or $100 in MYPPL money, or $100 of player points, is worth the same as $100 cash, but obviously has way less utility than regular money because it can only be used for poker. Very much like a gift certificate, if you have $100 of Amazon vouchers you will try to spend them before you spend real money, and likewise if you have $100 in T$ you will want to play with that before anything else. I know a few players who have done well on the MYPPL leaderboard who are taking shots at bigger than usual live games precisely because it’s not a currency that should be hoarded, it can only be used in partypoker events and they want to use it before dipping into their regular money.
Gresham’s Law specifically states that a more valuable currency will go out of circulation when there is another face value currency that is less valuable. Practically speaking it is useful for deciding which currency you should be spending first when you have a choice. In poker it is also useful for realising which types of money have more utility than others.
What theories from outside of poker have helped your game? Let us know in the comments.
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