(Fish Bowl contestant pitches a stupid funny business to the ‘fishes’)
Unless you’ve been living under a rock for the past 10 years, you’ve undoubtedly seen an episode of Shark Tank. The appeal of this show is simple; it’s individuals seeking money in exchange for equity in their business, product, or ideas.
(contestant) Why would anyone pay for equity?
Well, to understand such incentives, let’s discuss what equity is.
Equity is a fair share of ownership in a product or commodity. In poker, that comes with many layers. The raw equity of a hand is merely the frequency it will win at showdown, assuming no future betting. However, that’s only half the story. The commodity being fought for is the POT, which prior to showdown, is shared by everyone in the hand, i.e. its investors.
Thus, in poker, equity is the frequency by which a hand wins versus another hand, or group of hands, at showdown. For example, if we hold AK of diamonds on a board of J-T-2 with two diamonds, and our opponent holds JT of clubs, our equity is 45%. If the pot is $100, that means over a large sample, we'll win $45 every time this exact scenario presents itself.
That being said, your equity changes throughout a hand. At any given point, we must approximate (1) our holding’s equity vs. our opponent’s range, and (2) our range’s equity against our opponent’s range. In addition to projecting (3) how our holding and range will fare against our opponent’s range as it shape-shifts throughout the hand.
For example, if we have a holding which has very low equity when called, then our bet needs to elicit several folds in order to be profitable, given how low our chances of winning are at showdown.
Now, a word of warning...poker is a game of imperfect information. We can never truly be certain of the equity of our hand at any given point. Being able to estimate your opponent’s range, and compute the frequency which your hand improves, or holds (assuming it's ahead), is a pivotal skill to develop. The more confident you become in appraising the equity of your hand in any given spot, the more comfortable you will become investing large sums as the favorite, or folding as the underdog when being lain a poor price.
In lesson 4C, we’ll discuss in greater detail how to determine if a pot is worth being ‘in’ or ‘out’ of, as we dive into the Pot Odds Model.