Schiff paper

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Logan Schiff Cyberlaw

Legalization of Online Poker

Preface:

While I fear many students may choose to write on this currently hot subject, I cannot help but add my own voice. I have played poker, mostly no limit Texas-Holdem, extensively for the last three years, hosting a Harvard Law game and earning a substantial living both in underground live games and online. I have also actively participated in an online poker strategy forum called twoplustwo.com and read much of the poker strategy literature. I have inhabited an ardently pro-poker world, while all the while debating with family and friends over the merits of investing so much time and money (at least in terms of potential risk) into poker. All the while, I have not really taken the time to thoughtfully form a counterview to my own strong opinions in favor of a laissez-faire approach to online poker, and this assignment is an excellent excuse.

Counterargument to legalization of online poker:

First, I would like to point out that all forms of gambling, including poker, have almost no social value to anyone other than the casinos/online sites, and possibly the participants. Nothing is created when people play poker and often much is lost as poorer individuals typically lose their money, money that they derive far greater marginal utility from than a casino with endless funds. Indeed, many of these players have scant resources and are forced to depend on state support as a result of losses stemming from gambling addiction. Or they may turn to crime, imposing a clear negative externality on society. Even those who win are liable to not pay taxes on the profits as most online poker sites are internationally based and do not reveal their books. Ultimately, the online poker industry is a parasitic industry. Thousands of players transfer money back and forth while the online site collects a continuous “rake” from every pot until most players end up net losers. Yes, the players derive some social utility in terms of entertainment value, but this value is far outweighed by the external costs imposed on the players themselves and society as a whole.

You might wonder how online poker can impose external costs on its seemingly knowing participants. The reason is somewhat related to what poker players call “tilt.” Tilt is a psychological state, a mania of sorts, whereby a player loses his grip on reality and begins to frantically attempt to recoup his losses through hopeless and destructive means such as playing every hand wildly and betting the max even though the player at least subconsciously realizes this is a hopeless strategy. The other players at the table adjust accordingly and typically the end result is a complete loss of the individual’s money, followed later on by a gradual awakening from the state tilt and pangs of regret and remorse. The player then might experience a cognitive dissonance of sorts and swear off poker for a time, but the chance at a quick easy profit usually draws him back.

Tilt happens for various reasons. One common occurrence is when one commits one’s money in a hand way ahead, say with a 90% chance to win but then loses. The disappointment may create a state of hopeless despair. The large luck component in poker makes tilt a recurring vice that has a stronghold over most players even if they wish to break the spell. Indeed, the element of statistical variance in poker is far more pronounced than in everyday life, particularly in no limit poker. In a no limit poker game one may be obligated to invest everything on a 60% percent shot, a tremendous average expected return since you will doubled your money 60% of the time. This is surely an excellent investment, but it is so high risk that it would typically be hedged in investing. In poker every hand is winner take all, so a very correct play can make one broke, something few are able to take in stride.

Tilt is very common in live poker games as well, but typically it will result in losing the money one has brought to the game. Online poker is far more potentially destructive as one can have a poker account linked directly to one’s checking account. Furthermore, an immediate online wire transfer of money does not have the same significance as handing over hard cash in a casino. Even the live chips have more symbolic significance than a number on a screen. Furthermore, it is very easy online to jump to a vastly higher stakes game in a frantic attempt to recoup one’s losses. Taking such action at a casino would involve getting up, buying a far greater amount of chips and finding a new table, far more effort than the diseased mind of a tilter is typically able to bear.

Every time I try to forget about the potential for tilt my nervous and anti-gambling mother reminds me of our family friend, a successful partner at a law firm who lost one hundred fifty thousand dollars in one day playing online poker. This was a highly educated and intelligent individual now in gambling rehabilitation. I am confident that prior to or after his behavior that night he would never argue he was deriving adequate social value out of his actions or that he was fully in control of his actions at the time.

Many people consciously choose to take heroin because they gain social value in the form of entertainment with the initial high. Yet ultimately, heroin addicts suffer severe long term consequences from heroin use, and many come to regret the shortsighted choice to engage in this behavior. At the same time, heroin use hurts society as a whole in terms of added crime and resources deployed to help and contain drug addicts, while adding absolutely nothing to society as a whole. While society typically assumes that individuals will behave rationally when making choices that effect only their own well-being, the potential for shortsighted and self-destructive behavior, combined with the externalities imposed on society have led to the abolition of heroin use, and justify the same abolition for online poker.

It is tempting to liken online poker to cigarettes or alcohol which we tolerate despite obvious externalities. Or one might point to day trading or online shopping which we tolerate despite the potential for destructive behavior. Yet, the simple fact that alcohol and cigarettes and other activities are tolerated does not prove that they are useful to society or that we should allow the proliferation of other destructive vices that have not yet fully caught on. The clichéd phrase “two wrongs do not make a right” is particularly apt here. Moreover, the vast majority of the population does not approve of gambling and has not shed a tear over the recent legislation restricting online poker.

Even the small sects of intelligent professionals who thrive off of online poker give nothing back with their labor. Their success necessarily comes at the expense and hardship of other players. Even people who engage in seemingly frivolous jobs like cosmetic surgery are making their patients happy. The ultimate goal of an online pro is to pilfer money from the ignorant. I can personally say that as a successful online player I revel when I see another player on tilt, potentially losing a substantial amount of his life savings.

Indeed, the problem with online professionals is not merely that they add nothing to society with their labor. Playing poker professionally fosters a cannibalistic mentality out of typically highly educated and capable individuals. My own college roommate, one of the most intelligent people I have ever met, has delayed going to graduate school for two years now to pursue an online poker career. He freely admits that his activity is parasitic and probably even immoral, but the easy money and fast action of online poker have infected his will power. My own personal relationships, law school work and extra-curricular activities have all suffered as a result of online poker. It is both easier and more exciting to play a fast paced game for money than to go through the motions of every day life. I read the paper far less and am generally less aware of my surroundings as a result of the poker bug.