## DEFINITION of 'Liar's Poker'

Liar's Poker is a game often associated with Wall Street traders who use statistical reasoning and behavioral psychology tactics to gamble. Liar's Poker is fairly similar to the card game "cheat." Players hold random dollar bills with close attention to their own bill serial number. The objective of the game is to bluff the opponents into believing that your bid does not exceed the combined sum of all of the serial numbers.

Liar's Poker is also book by Michael Lewis that depicts the Wall Street bond trading culture at Salomon Brother's. Though the author has commented that he intended the book to be a cautionary warning about behavior and practices he found to be questionable and deceptive, he admits that some individuals have used the book as a blueprint to seek personal profit.

Next Up

## BREAKING DOWN 'Liar's Poker'

In Liar's Poker, if one player bids three 4s, he predicts that within all of the dollar serial numbers held by all players, there are at least three 4s. If the player's bluff is not called, the next player must either bid a higher frequency of any other digit (five 2s) or can bid a higher number at the same frequency level (three 6s).

## Strategies of Liar's Poker

The number of players in the game can affect the probability of winning, though the game itself largely rewards and benefits those who employ deception and trickery to win. Rather than merely bid as accurately as possible, the players are taking turns at coaxing their rivals to make a mistake as they play. Under the rules that require bids to continue escalating, the stakes of the game increase as well. With more than two players, it is a frequent strategy to continue to raise the bid given the likelihood of being challenged and the related likelihood of losing when challenging. Such a strategy is built on the basis that it is better to continue to bluff in the hopes of potentially winning than to challenge and lose.

The game is comparable to liar’s dice, a game where players roll dice, hide the numbers they have rolled, and then make bids on the total number of dice they believed were rolled by all players with that face value. Here again, the players bid and bluff until challenged by another player.

Typically if a player poses a challenge in Liar's Poker and is incorrect, they must pay the player they challenged. If the player who was challenged was found to be incorrect, then they must pay every player who posed a challenged. Usually the payout is one dollar but that may be increased depending on the agreed upon rules.

RELATED TERMS
1. ### Best Bid

Best bid is the highest quoted bid for a particular security ...
2. ### Bid Rigging

Bid rigging is an illegal practice in which competing parties ...
3. ### Nash Equilibrium

A concept of game theory where the optimal outcome of a game ...
4. ### Bid Support

Bid support has many meanings within the financial industry, ...
5. ### Bid Whacker

A slang term for an investor who sells shares at or below the ...
6. ### Bid Size

The number of shares being offered for purchase at a specified ...
Related Articles
1. Investing

### The Worst Bets You Can Make At The Casino

We break down the odds associated with casino games. Which game do you think offers the best chance at winning?

### Three Companies That Will Benefit From Online Gaming

Certain companies stand to benefit from the increasing popularity of the online gambling industry in the U.S., as well as its expanding legalization.
3. Insights

### Get Positive Earnings In The Negative-Sum Market

Gain an advantage in the markets by understanding how to win in a negative-sum game.
4. Personal Finance

### Top 6 Mortgage Mistakes

These common errors could end in foreclosure.
5. Insights

### The Rise Of Labor Unions In Pro Sports

Most of today's pro athletes enjoy the perks that come with union membership - but this wasn't always the case.
6. Investing

### Going All-In: Comparing Investing And Gambling

People often compare stocks to gambling, but how close are they really?
7. Investing

### Game Theory: Beyond the Basics

Take your game theory knowledge to the next level by learning about the Nash Equilibrium.
8. Investing

### Create a Monte Carlo Simulation Using Excel

How to apply the Monte Carlo Simulation principles to a game of dice using Microsoft Excel.
9. Tech

### How The Video Game Industry Is Changing

Video game creation has become increasingly complex, and the cost of creating a game to run on one of the major consoles has risen with this greater complexity.
10. Tech

### You Love Video Games, But Do You Know How The Industry Works?

Traditionally, the video game industry was limited to consoles, such as Microsoft’s (MSFT) Xbox and Sony’s (SNE) PlayStation, but it now includes PC games, mobile games and, in the near future, ...
RELATED FAQS
1. ### Why is game theory useful in business?

The concepts of game theory became a revolutionary interdisciplinary phenomenon, but they are still relevant for business ... Read Answer >>
2. ### What are common examples of Serial Correlation in finance?

Take a deeper look at serial correlation in finance, and find out why most attempts at discovering serial correlation among ... Read Answer >>
3. ### What are the odds of getting a perfect bracket in Warren Buffett's March Madness ...

In 2014, Warren Buffett announced that he would give whoever could correctly guess every game of the NCAA men's basketball ... Read Answer >>
4. ### What is the difference between speculation and gambling?

Learn about speculation and gambling, examples of speculation and gambling, and the main difference between a speculator ... Read Answer >>
Hot Definitions
1. ### Net Present Value - NPV

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
2. ### Price-Earnings Ratio - P/E Ratio

The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
3. ### Internal Rate of Return - IRR

Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
4. ### Limit Order

An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
5. ### Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
6. ### Return on Investment (ROI)

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...