The Poker Face of Wall Street [Englisch] [Gebundene Ausgabe]

Anyone who works on Wall Street senses the truth in Aaron Brown's thesis, gambling is a fundamental brick in the foundation of economic and investment thinking.

Brown has done it all: poker player, options trading, risk and portfolio management and finance professor. He draws on this experience, using poker as a narrative spine; he weaves a tale of the crossroads between finance and gambling, economics and risk.

The resulting book is an insightful, thought-provoking, entertaining, yet frustrating. In many ways it is similar to the seemingly filling meal that leaves you hungry as soon as you burp.

For example, on page 96 Brown asserts that the Crash of 1987 was caused by under-priced exchange-traded puts which lead "people to invest in the stock market without assuming risk." This is a unique and provocative interpretation on a subject in which I have a great deal of interest. The subject is dropped. Six pages later, it is re-introduced with the conclusion that "(f)or financial quants, the revelation was that risk has a price."

How we got there, I am not quite sure. I have re-read the section several times and I am still puzzled. You have a long bull market. The public is buying calls and shorting puts. The professionals are doing forward and reverse conversions, which are tied to the money rate. The options trade where they trade, it seems to me. An explanation of how put pricing triggered a six sigma event is lost. It is an intriguing thought; worthy of exploration. Yet, it remains unexplored.

Another example: Brown assets that Hernando de Soto discovered in the lower Mississippi "the most sophisticated and successful preindustrial economy in the world." Raw materials and finished good were distributed over an area of thousands of miles. It was done without money, writing, long-distance communications, common language or culture.

Brown takes a hunch and attributes it to gambling. Interesting, yet no support is offered. We know de Soto did not find Indian Casinos.

After reading page after page of abstractions, generalizations and unsupported conclusions, I got frustrated. The book rates four stars. Despite Brown's inability to construct and articulate a cogent and articulate argument, he is on to something. Stock trading in Germany is regulated under that country's gaming laws.

Brown is entertaining. Unfortunately, his book leaves, as the academics say, room for lots of addition research.

Move over William Poundstone (author of "Prisoners Dilemma" and "Fortune's Formula"). John Allen Paulos (author of "A Mathematician Plays The Stock Market") can read this book and revise his own flawed works with this insight. Michael Lewis (author of "Liar's Poker") can stop typing now. There is a new king of lucidity concerning the nexus of games and game theory, mathematics, finance, gambling, markets, and the simultaneously brilliant and frail humans who engage and advance our knowledge of them all. His name is Aaron Brown.

Aaron Brown's "The Poker Face of Wall Street" accomplishes the impossible, for it is simultaneously a readable and enjoyable narrative work, yet also dense with mathematical and behavioral finance theory. Nearly every page supplies a lucid thumbnail explication of an economic or behavioral finance concept, backs it up with an appropriate example, often offers an alternative view, and then provides an historical anecdote to expand the concept and make it at once both memorable and familiar. Yet this is not a pedagogic work, but a popular offering for a wide audience of those who are curious or love poker, finance, or both.

Brown's method is to use the game of poker as his narrative spine, upon which he weaves the histories and intersections of finance and gambling, economics and risk, information theory and human behavior. He tells the tale of his own love affair with the game, going to the poker dens of 1970s Los Angeles long before there was a World Poker Tour or the Commerce Casino existed. These modest halls (often operating Veterans of Foreign Wars meeting halls) were an anomaly and a pause in history after the saloons of the wild west were tamed and before the leveraged glamour of Las Vegas lured the core tourist and casual poker player away. My own uncle spent his life in such places as a career poker player who made a modest living at the game, but often working ten and 12 hour days to do so, and with not infrequent setbacks. Yet, these nondescript low rise cinderblock buildings were the birthplace of poker as we know it today, and were where the world famous celebrity players of the hour originally honed their skills for today's high stakes televised games from the well of glamour.

Yet this is not simply a memoir of a poker great also-ran, but a sound examination on the dimensions of why the game is rational and irrational, tractable yet inexplicable, simultaneously transcendent and incarnational. Familiar poker personalities appear here and there, often emerging again in the work as other dimensions of their contribution to the game become more famous. But the work is not concerned with a recounting of great memories of a silent Cowboy facing a taciturn Chinese, both bluffing, and both betting all-in. Rather, it uses poker to point to gambling, gambling to point to math, and math to point to risk, and risk to point to investing, and investing to point to finance, and finance to point to economics, and economics to point to gambling. All concepts explained with examples and personalities.

Brown's elucidation of the gambling economy of the Mississippi delta Native Americans and how effective it was at distributing goods across vast territories in a moneyless society is the first treatment of the topic I have seen outside specialist historical texts, typically only known to Mississippi natives such as myself. The irony of a gambling economy trying to be supercharged by colonial economic presumptions, which were themselves being advanced by famous gambler John Law through his Mississippi Company, is a hilarious accident of history that Brown walks us through with deadpan seriousness. All the while pointing to goods and trade being advanced by gambling.

The short detail above is just one example of the countless dimensions that Brown has managed to weave into this work and provide its density. Well chosen history and anthropology buttress Brown's memories and economic and financial comments, yet in the same breath he points to gambling and poker. One puts this work down with the feeling that finally all previous works you have read concerning probability, finance, gambling, history, psychology, economics and mathematics have been tied together with a clarity never previously experienced or imagined possible. This is an excellent, satisfying work that merits immediate rereading. You will not be disappointed.

I almost wish this book was less good. I have a huge pile of readings that I must read, but I keep picking this book up because it's so fascinating. The author uses poker as a framework to tell fascinating stories about risk. It is extremely accessible to the layperson, but the information within is of practical worth to the professional. I have no real interest in poker, but it is a perfect metaphor to illustrate that people's perception of risk is just as important as calculating numeric probabilities. From the beginning, the author provides a framework for taking calculated risks, and illustrates this framework with amusing stories from recent history. I would recommend this book to anyone who wants to better understand the decisions that professional money managers make every day.

I've seen a couple of negative reviews on this page that said something strange about not wanting to see these concepts in print. What a strange comment! In an odd way, it is the highest praise that one could give this sort of book: that its contents are so valuable that they should not have been given away. In any case, the author is not only an executive director of Morgan Stanley, he's also a well known personality in the world of quantitative finance, with an outstanding reputation for helping novices learn to apply their minds to solving problems. Perhaps those other reviewers could provide more than vague insinuations? Perhaps the most honorable thing would be to simply remove themselves.