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Measuring Skill and Chance in Games

Duersch, Peter ; Lambrecht, Marco ; Oechssler, Joerg

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Abstract

Online and offline gaming has become a multi-billion dollar industry. However, games of chance are prohibited or tightly regulated in many jurisdictions. Thus, the question whether a game predominantly depends on skill or chance has important legal and regulatory implications. In this paper, we suggest a new empirical criterion for distinguishing games of skill from games of chance: All players are ranked according to a "best-fit" Elo algorithm. The wider the distribution of player ratings are in a game, the more important is the role of skill. Most importantly, we provide a new benchmark ("50%-chess") that allows to decide whether games predominantly (more than 50%) depend on chance, as this criterion is often used by courts. We apply the method to large datasets of various two-player games (e.g. chess, poker, backgammon, tetris). Our findings indicate that most popular online games, including poker, are below the threshold of 50% skill and thus depend pre- dominantly on chance. In fact, poker contains about as much skill as chess when 3 out of 4 chess games are replaced by a coin flip.

Item Type: Working paper
Series Name: Discussion Paper Series
Volume: 0643
Place of Publication: Heidelberg
Date Deposited: 22 Dec 2017 12:26
Date: 20 December 2017
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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