arXiv:0911.3100v1 [math.

PR] 16 Nov 2009

The Independent Chip Model and Risk

Aversion
George T. Gilbert
Texas Christian University
g.gilbert@tcu.edu
November 2009
Abstract
We consider the Independent Chip Model (ICM) for expected value
in poker tournaments. Our first result is that participating in a fair
bet with one other player will always lower ones expected value under
this model. Our second result is that the expected value for players
not participating in a fair bet between two players always increases.
We show that neither result necessarily holds for a fair bet among
three or more players.

Introduction

The analysis of expected value in poker tournaments is more complex than

for cash games. By this, we mean that chips in a cash game are equivalent
to cash. On the other hand, the expected value of chips in a tournament are
related to expected value in cash in a nonlinear way.
In a typical (freezeout) tournament, each player begins with the same
number of chips. Once a player is out of chips, he or she is out of the
tournament. Play continues until one player has all of the chips. In most
tournaments, however, the winning player gets only a portion of the prize
money. The last player eliminated gets second place money, the next-to-last
eliminated gets third place money, and so forth. Effectively, the winner is
forced to give back some of the chips he or she has won. Consequently, most

players should play in a somewhat risk averse manner, the extent depending
on his or her ability.

Modeling Poker Tournaments

In models of poker tournaments where all players have equal abilities and
equal opportunities, the probability a player finishes first equals the fraction of the total chips in play that he or she holds. The model where a player
wins or loses a single chip with probability 1/2 each is the standard Gamblers Ruin or random walk problem going back to Huygens [10]. In fact, he
further considers constant, but unequal, probabilities of winning or losing,
which can be interpreted as introducing skill into the model. See also [4].
The probability of finishing first equals the fraction of the total chips
in play held by the player much more generally, for instance if a players
expected gain in chips is zero for each hand. If the players proportion of all
chips is x and probability of winning the tournament is f (x), then
(1 f (x))(x) + f (x)(1 x) = 0,
from which we see f (x) = x. Henke [8] tested this model on data from World
Poker Tour final tables. There was reasonable agreement between theory and
data. Nevertheless, the model modestly overestimated the probabilities of
small stacks winning and modestly underestimated the probabilities of large
stacks winning. This could be due to flaws in the model or to differences in
the skill of players that led to the disparities in stack sizes.
In contrast, the probability of finishing second, third, and so forth is very
dependent on the model. Even in the particular model where two players are
chosen at random and each wins or loses a single chip from the other with
probability 1/2, a players probability of finishing second will depend not
just on the fraction of chips held by each player but on the actual number
of chips held by the players. In a more general setting, Swan and Bruss [11]
give a recursive solution for the probability a particular player is the first to
go broke in terms of Markov processes and unfolding. Unfortunately, it is
not a computationally practical method for the repeated calculations needed
to analyze poker tournaments. In the case of three players, the problem is
a discrete Dirichlet problem on a triangle. Ferguson [5] solved the players
probabilities of finishing first, second, and third for Brownian motion the
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limit as the number of chips increases to infinity. Employing a SchwarzChristoffel transformation, he expresses the answer in terms of the inverse
of the incomplete beta function, so it is not easy to actually compute these
limiting probabilities. Due to the specialized techniques, even this does not
generalize to more than three players [1].
In the early to middle stages of a tournament, the primary factor in
determining a players expected cash winnings is his or her chip count. Thus,
one could model expected winnings as a function of the fraction of the total
number of chips the player holds. There are two especially simple models of
this. One can use the biased random walk of single steps to model expected
winnings rather than the probability of finishing first. Alternatively, Chen
and Ankenman, [2] and [3], propose a model to estimate the probability of
finishing first by assuming the probability of doubling ones chips before going
a broke is constant. Again, one can instead consider expected winnings under
the same assumption. It would be appropriate to call these the small-pot
model and the big-pot model. They were developed with some preliminary
comparisons with data from online poker tournaments in [7]. Although skill
is naturally incorporated into these models, neither would be appropriate late
in a poker tournament when the number of chips held by a players opponents
becomes a critical factor in both determining the players expected winnings
and deciding on the optimal play in each hand of the tournament.

The Independent Chip Model (ICM)

The best-known model for tournaments between players of (roughly) equal

abilities is the Independent Chip Model (ICM). Although it did not arise from
any model for the movement of chips from player to player, this model is often
used by serious poker players for analysis of the late stages of tournaments.
Under the ICM, a players probability of finishing first is the fraction of the
total chips in play he or she holds. Recursively, the conditional probability of
finishing in kth position given the k 1 players finishing 1st through (k 1)st
is the fraction of the chips held by the player once the chips of the (k 1)
players finishing higher have been taken out of play. Thus, if the fractions of
chips held by players 1 through k are x1 , . . . , xk , the probability they finish
1st through kth is
pk (x1 , . . . , xk ) =

x1 x2 xk
.
(1 x1 ) (1 x1 x2 ) (1 x1 x2 . . . xk1 )
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Ganzfried and Sandholm [6] have used this model to analyze the effects
of position in a simulated three-player Texas holdem tournament under
jam/fold strategies. This author has data from online single table tournaments that, at first glance, suggest the ICM is a reasonable approximation
of the probabilities in the aggregate. We mention in passing that the ICM
is essentially the model used since 1990 to determine the first three picks in
the National Basketball Association draft.

Risk Aversion Under the ICM

We introduce notation we will use in all that follows. Let qk (x; y; z1 , .., zk )
denote the probability, under the ICM, that a given player with fraction y
of the chips finishes first, one with fraction x finishes somewhere among the
top k + 2 players, with the remaining k places taken by given players with
fractions z1 , . . . , zk , who finish in this relative order. Thus, by definition,
qk (x; y; z1, .., zk ) = pk+2 (y, x, z1 , . . . , zk ) + pk+2 (y, z1, x, . . . , zk )
+ + pk+2 (y, z1, . . . , zk1 , x, zk ) + pk+2 (y, z1, . . . , zk , x). (1)
We begin with two lemmas we will use in proving both of our theorems.
Lemma 1. For every integer k 0,
qk (x; y; z1, .., zk ) =

y
pk+1 (x + y, z1, . . . , zk )
x+y
pk+2 (y, z1, . . . , zk , 1 x y z1 zk ).

Proof of Lemma. We note that the second term is the probability that players with chip fractions y, z1 , . . . , zk finish in the first k + 1 places and that
anyone other than the player with fraction x finishes in (k + 2)nd place.
We prove the lemma by induction. For k = 0, we have
q0 (x; y) =

y
y(1 x y)
yx
=
(x + y)
.
1y
x+y
1y

We now assume the identity for k and prove it for k + 1. Applying the

inductive hypothesis yields

qk+1 (x; y; z1 , . . . , zk+1 )
zk+1
= qk (x; y; z1 , . . . , zk )
+ pk+3 (y, z1 , . . . , zk+1 , x)
1 x y z1 zk

y
=
pk+1 (x + y, z1, . . . , zk )
x+y

pk+2 (y, z1, . . . , zk , 1 x y z1 zk )
zk+1
+ pk+3 (y, z1, . . . , zk+1 , x)
1 x y z1 zk
y
=
pk+2(x + y, z1 , . . . , zk+1 ) pk+2 (y, z1, . . . , zk , zk+1 )
x+y
+ pk+3 (y, z1 , . . . , zk+1 , x)
y
=
pk+2(x + y, z1 , . . . , zk+1 )
x+y
pk+3 (y, z1, . . . , zk+1 , 1 x y z1 zk+1 ),

as desired.
Lemma 2. Let f > 0 f 0, f 0 and g > 0, g > 0, g > 0. Then
f g > 0, (f g) > 0, (f g) > 0.
Proof of Lemma. The lemma is an immediate consequence of the product
rule.
We define a fair bet for a player to be a random variable W (for wager)
that is not identically 0 and whose expected value in chips is 0. We may let W
stand for either a players gain or loss. In our context of poker tournaments,
W will be expressed as a fraction of the chips in play and can take on only
finitely many values. Here we include subsequent bets in the hand as part of
the expected value. Thus we are interpreting the wager, which may be either
initiated or accepted by the player, to be the possible gain or loss in chips
over the course of the rest of the hand.
Our first result is the following.
Theorem 1. Suppose a tournament has prize money for nth place which
is at least that for (n + 1)st place and that at least one player still in the
tournament will not earn as much as second place prize money. Under the
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Independent Chip Model, any fair bet in which only one other player can gain
or lose chips in the hand being played will lower the players expected prize
money.
Proof. We will first break down the expected prize winnings under the ICM
into a sum of simpler terms, each of which is either linear or concave down,
allowing us to conclude Theorem 1 by convexity.
Consider a tournament paying prize money m1 m2 . . . mn for
finishing first, second, . . . , nth. Our first reduction is view this as n simultaneous sub-tournaments, the first a winner-take-all paying m1 m2 for first
place, the second paying m2 m3 to the first and second place finishers,
through one paying mn to each of the top n finishers. It will suffice to prove
that, by participating in a fair bet, a players expected winnings will not
increase in any of these sub-tournaments and will lose expected value in at
least one of them.
Denote the player in question by A and the opponent involved in the
bet as B. Let A have fraction x of the total number of chips in play, let
B have fraction y, and let w denote the fraction of all chips A loses on the
bet (negative when A wins). We will use ui and zi as needed to denote the
fraction of chips held by other players.
In any sub-tournament where all players get the same prize money (including those with prize 0), As expected winnings are that amount regardless
of wagers.
For the winner-take-all sub-tournament, As expected value participating
in the wager is
(m1 m2 ) E[x w] = (m1 m2 ) x,
i.e. As expected value hasnt changed.
All remaining sub-tournaments, of which there is at least one, satisfy the
conditions of the theorem. Thus, it suffices to prove the theorem for those
tournaments where each of at least two winners gets a prize of 1 and at least
one nonwinner gets 0. After losing a wager w, the probability A finishes in
mth place behind players other than B having chip fractions u1 , . . . , um1 is
pm (u1 , . . . , um1 , x w).
This is linear in w, so
E[pm (u1 , . . . , um1 , x w)] = pm (u1, . . . , um1 , x).
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On the other hand, in those scenarios in which player B finishes ahead of

player A, with both among the winners, the dependence on w is nonlinear.
We partition all such cases by fixing the first m finishers with B in mth
place and fixing the relative positions of all other finishers except player A.
Denote the fraction of chips held by the first m 1 players by u1 , . . . , um1
and those of the remaining k players other than A or B by z1 , . . . , zk , where
k = n m 1. Setting = 1 u1 um1 , player As expected winnings
may be written as
pm1 (u1 , . . . , um1 ) qk ((x w)/; (y + w)/; z1 /, . . . , zk /).
We may drop the leading term, pm1 (u1 , . . . , um1), and rescale units, dividing w, x, y, and zi by . This leaves us needing to show the concavity of the
simpler expression qk (x w; y + w; z1 , . . . , zk ).
Applying Lemma 1, we see that
y+w
pk+1 (x + y, z1 , . . . , zk )
x+y
pk+2 (y + w, z1 , . . . , zk , 1 x y z1 zk ).

qk (x w; y + w; z1 , . . . , zk ) =

The first term is linear in w. The latter expands to

(y + w)z1 z2 zk (1 x y z1 zk )
.
(1 y w)(1 y w z1 ) (1 y w z1 zk )

Thus it suffices to show that

gk (w) =

y+w
(1 y w)(1 y w z1 ) (1 y w z1 zk )

(2)

has positive second derivative. Observe that, for the range of relevant wagers,
(1 min{x, y}) w (1 min{x, y}), 1/(1 y w z1 zj ) satisfies
the conditions of Lemma 2, as does
g0 (w) =

y+w
1
=
1.
1yw
1yw

By induction, gk > 0, gk > 0, gk > 0 for all k.

Therefore, qk (x w; y + w; z1, . . . , zk ) is concave down and by convexity,
E[qk (x w; y + w; z1 , . . . , zk )] < qk (x; y; z1 , . . . , zk ),
completing the proof of Theorem 1.
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Theorem 1 is false for fair wagers among three or more players. With
many players, counterexamples are unusual. On the other hand, they are
easy to construct: start with a tournament paying two places and with three
players, all participating in a fair wager. Barring the unlikely possibility that
expected winnings for all three are unaffected by the wager, the expected
winnings for at least one must increase. One could easily add one or more
uninvolved players with very small chip stacks to the counterexample. We
give another, explicit, counterexample following Theorem 2.
We move on to examine the impact of a fair wager on the expected winnings of players not involved in the bet.
Theorem 2. Suppose a tournament has prize money for nth place which
is at least that for (n + 1)st place and that at least one player still in the
tournament will not earn as much as second place prize money. Under the
Independent Chip Model, the expected prize money of any player not involved
in a fair bet between two players will increase.
Proof. The proof parallels that of Theorem 1. Let A and B denote the
two players involved in the fair bet and let C denote one player who is not
involved.
We break down Cs expected winnings into a sum of expected winnings
from sub-tournaments paying 1 to each of it winners. The expected winnings
of C in a winner-take-all sub-tournament is unaffected by a fair bet. Similarly,
they are unaffected in scenarios when neither A nor B finishes ahead of C. It
suffices to prove that Cs expected winnings increase when B finishes ahead
of both A and C.
For sub-tournaments paying the top two finishers, Cs expected winnings
when B finishes first are
(y + w)u
= ug0(w),
1yw
which we have seen is concave up. In this case we can actually conclude that
Cs expected winnings must increase for any fair wager among two or more
players.
As in the proof of Theorem 1, we further break down to scenarios in
which a fixed m 1 other players finish ahead of B, who finishes in mth
place. Again, there is no loss of generality in assuming B finishes first, with
the top k + 2 places paid, with k 1.
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Our final reduction is to scenarios where the order of the first k finishers
other than A, B, or C are fixed. Let x, y, and u denote the respective
fractions of all chips in play held by A, B, and C. Let the fractions of the
other relevant k finishers be z1 , . . . , zk . Let w be the amount B wins on the
fair wager. When A also finishes in the money, well fix Cs position and
float A as in the proof of Theorem 1, summing over the different positions
for C. To these well add those cases that A does not finish in the money
by floating C. Noting that only k + 2 places are paid in this scenario, Cs
expected winnings are
[qk+1 (x w; y + w; u, z1, . . . , zk ) pk+3 (y + w, u, z1 , . . . , zk , x w)]
+ [qk+1 (x w; y + w; z1 , u, z2 , . . . , zk ) pk+3 (y + w, z1 , u, . . . , zk , x w)]
+ + [qk+1 (x w; y + w; z1 , . . . , u, zk ) pk+3 (y + w, z1 , . . . , u, zk , x w)]
+ qk (u; y + w; z1 , . . . , zk ).
We apply Lemma 1 to each of the differences. The first is
qk+1 (x w; y + w; u, z1 , . . . , zk ) pk+3 (y + w, u, z1, . . . , zk , x w)
y+w
=
pk+2(x + y, u, z1, . . . , zk )
x+y
pk+3(y + w, u, z1, . . . , zk , 1 x y u z1 zk )
pk+3(y + w, u, z1, . . . , zk , x w)
y+w
pk+2(x + y, u, z1, . . . , zk ) pk+2 (y + w, u, z1, . . . , zk ),
=
x+y
with similar expressions for the other terms. From the definition of q, we can
express Cs expected winnings as
y+w
[qk (u; x + y; z1 , . . . , zk ) pk+2 (x + y, z1 , . . . , zk , u)]
x+y
+ pk+2 (y + w, z1 , . . . , zk , u).
The first term is linear in w. The second term is, essentially,
z1 zk ugk+1(w)
in the notation of equation (2) and is thus concave up, completing the proof.

As we saw in its proof, Theorem 2 holds for tournaments paying only two
places for fair bets among three or more players, but is false in general. Even
then, counterexamples are quite rare. In our counterexample below, the first
three finishers win 1 unit. (Perhaps its a satellite tournament to earn entry
into another tournament.) The bet has two equally likely outcomes: A wins
16 units, B and C each lose 8 units or A loses 16 units, B and C each win 8
units. The expected winnings, to four decimal places, are given in the table
below.
Player
A
B
C
D

Initial
Chip Count
140
10
10
50

Initial
Final
Expected Winnings Expected Winnings
0.9952
0.9914
0.5256
0.5316
0.5256
0.5316
0.9536
0.9455

However, there is an interesting special case, with which we conclude this

paper.
Corollary 1. Under the assumptions of Theorem 2, if two or more players
each bet a fixed amount and the total of all bets is won by one of these players
with probability proportional to the size of his or her wager, then the expected
winnings of all players not involved in the bet increases. In particular, if the
chips of two or more players are combined into a single players stack, the
expected winnings of all other players increase.
Proof. The case of two players is a special case of Theorem 2. The general
case can be realized as a sequence of such fair wagers between two players.

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