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The Risk-Reward Concept in poker
IntroductionIn this article:
- How the risk-reward concept aids decision-making in poker
- Why you use bankroll management
- How you will find the most suitable style of poker for yourself
In this article you will learn about a concept that many poker players already use subconsciously: the risk-reward concept. This simple concept is a very useful tool. It provides us with theoretical explanations for many basic ideas underlying a successful poker strategy.
The risk-reward concept (RRC) can help you in the following areas:
- It illustrates the need for bankroll management.
- It highlights advantages and disadvantages of various styles of play.
- It provides you with a thorough explanation of the trade-off between expected value and variance.
That's enough chit-chat, let's move on! The RRC is based on one basic idea. Poker players look for situations with a positive expected value and try to avoid variance. The potential gain for a poker player can be reduced to a simple risk/reward function:
profit = EV – a * variance
The parameter 'a' describes to what extent variance has a detrimental effect on your game. A larger 'a' value means the harder it'll be to deal with variance. The size of 'a' depends on many separate factors like your psychological robustness and your bankroll management.
Using the formula is simple. Your gains increase as EV rises, while growing variance reduces your profits. We can test the RRC using two case studies.
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