GTO Poker Theories - The Time Value of Money Theory
A dollar today is worth more than a dollar tomorrow. A useful consideration in investing and also, strangely, satellite tournaments.
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 to this game we know and love.
The Time Value of Money Theory tells us that a dollar today is worth more than the same dollar in the future. This is because money can earn interest or be invested to grow in value over time.
Imagine you have two options:
- Receive $1,000 today.
- Receive $1,050 one year from now.
At first, glance, waiting a year for an extra $50 might seem tempting. But, consider this: If you take the $1,000 today and invest it at a 6% interest rate, by the end of the year, you'd have $1,060. That's $10 more than the delayed payment option.
This simple example shows why it can be more beneficial to have money now rather than later. There are also other factors that make having the money now a better option. Inflation could erode the value of that dollar, you might also want it for a purchase or prefer to have the money around for an emergency.
Stop hoarding tickets
The obvious poker example is not to lend other players money. It's always tricky in this game and there is sadly a greater risk of being scammed when large amounts are involved.
I have a more left-field example where poker is concerned, which is the Time Value of Money Theory relates to winning satellite tickets. Most poker rooms have the option to win generic satellite tickets rather than forcing you into a specific event. The temptation can be to horde those tickets and save them up for a big series.
Some poker rooms put an expiry date on the ticket to stop you from doing it, but either way, I would argue you are best off using the ticket sooner than later.
The reason is that if you satellited into the tournament it is likely that a good result in that tournament will be quite big for your bankroll. Even a min-cash in some satellite ticket tournaments might add 30% to your bankroll, or maybe even more. If, for example, you doubled your bankroll from a big result you could use it to take shots at a higher stake. Let's say you play $5 MTTs but a big result in the $50 MTT you won a ticket for meant you could play in $10 MTTs.
It is therefore an opportunity cost not to do this sooner than later. You miss out on a chance to benefit from the compounding gains from a bigger bankroll sooner. If you horde your tickets for a big series, for example, it actually means you are stuck playing the lower stake for longer. You are more likely to get to the big series with a good bankroll if you use your tickets sooner.
This is a very simplified discussion on the merits of shot-taking and moving up stakes, but generally speaking, you can benefit more from using a satellite ticket today than next year.
What theories from outside of poker have helped your game? Let us know in the comments.
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