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101 Geo. L.J. 581 (2012-2013)
Is Texas Hold 'Em a Game of Chance - A Legal and Economic Analysis

handle is hein.journals/glj101 and id is 609 raw text is: Is Texas Hold 'Em a Game of Chance? A Legal and Economic Analysis STEVEN D. LEVITT, THOMAS J. MILES, AND ANDREW M. ROSENFIELD* In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA), prohibiting the knowing receipt of funds for the purpose of unlawful gambling. The principal consequence of the UIGEA was the shutdown of the burgeoning online poker industry in the United States. Courts determine whether a game is prohibited gambling by asking whether skill or luck is the dominant factor in the game. We argue that courts' conception of a dominant factor- whether chance swamps the effect of skill in playing a single hand of poker-is unduly narrow. We develop four alternative tests to distinguish the impact of skill and luck, and we test these predictions against a unique data set of thousands of hands of Texas Hold 'Em poker played for sizable stakes online before the passage of the UIGEA. The results of each test indicate that skill is an important influence in determining outcomes in poker Our tests provide a better framework for how courts should analyze the importance of skill in games, and our results suggest that courts should reconsider the legal status of poker TABLE OF CONTENTS INTRODUCTION .......................................... 582 1. THE UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT ........ 585 II. REGULATION OF GAMBLING UNDER STATE LAW ............... 587 A. THE DOMINANT FACTOR TEST ......................... 588 B. DOMINANCE IS QUALITATIVE, NOT QUANTITATIVE . ........... 593 C. FOCUS ON SINGLE ROUNDS OF PLAY ..................... 595 D. DISCOUNTING EVIDENCE FROM MULTIPLE ROUNDS ........... 597 E. DISCOUNTING EVIDENCE OF SKILL ...................... 601 F. INDETERMINACIES IN APPLICATIONS OF THE DOMINANT FACTOR TEST .......................................... 606 G. THE UNDERLYING POLICY CONCERN ..................... 610 * University of Chicago, Department of Economics, Law School, and Law School, respectively. @ 2013, Steven D. Levitt, Thomas J. Miles & Andrew M. Rosenfield. Comments welcome at tmiles@uchicago.edu. The authors thank Christopher Heasley and Maria Ibanez for excellent research assistance. 581

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