What it means
In the game, each player holds a banknote and keeps its serial number hidden. Players take turns making bids such as "five sevens," meaning that at least five of the digit seven appear among all the serial numbers on the table.
Each new bid must raise the quantity or the digit, and a player who thinks the bid is too high challenges it, after which everyone reveals their numbers and the bid is checked. The game rewards a mix of probability and bluffing.
You know your own digits for certain and must guess about everyone else's, so you can estimate the likely total using simple odds. You also watch how confidently others bid, because a player who pushes the bid up may genuinely hold the digits, or may be bluffing.
On Wall Street, the game was played by traders as a test of nerve, sometimes for very large stakes. The expression became famous through Lewis's book, which described the culture of bond trading in the 1980s, including the mix of ambition, humour and aggressive risk-taking.
It was widely read as an inside view of how investment banks worked and as a warning about their incentives. The game teaches lessons that apply to markets and business more widely.
Decisions are made with incomplete information, other people's behaviour reveals clues, and confident bids can move others even when the facts do not justify them. Good players think in probabilities and do not let ego push them into overbidding.
The name can also refer more loosely to any risky game of bluff and counter-bluff in financial markets. Context normally makes clear whether someone means the bar game, the book, or a figure of speech.
In practice
Real-world examples.
Example
A group of new analysts plays Liar's Poker after work. One player holding two 3s bids "four threes," reasoning from the odds that the others will hold about two more. The next player challenges the bid, and the count shows five threes, so the challenger loses.
Example
A trading desk manager uses the game as a team exercise at a training day. He asks the group afterwards how bidding behaviour relates to taking risk with the firm's capital. The discussion focuses on probability, bluffing and knowing when to stop.
Example
A business school lecturer assigns Lewis's book to a class on financial markets. Students discuss how pay incentives and information advantages shaped behaviour on the trading floor in the 1980s.
Formula
Calculation
Expected count of a given digit = Total digits in play x (1 / 10)
This assumes each digit is equally likely at each position in a serial number, which is a reasonable simplification for the game.
Worked example: four players each hold a note with an 8-digit serial number. The total number of digits in play is 4 x 8 = 32.
Expected count of any one digit, such as 7 = 32 x (1 / 10) = 3.2.
So, on average, you would expect about three 7s across all four notes. A bid of "six sevens" is almost double the expected figure, so it is aggressive unless you hold several 7s yourself. If you can see that three of your own eight digits are 7s, then the other 24 digits are expected to contain 24 x 0.1 = 2.4 sevens, for a combined expectation of 3 + 2.4 = 5.4.Case study
Seen in the real world.
Brightstone Securities is a fictional trading firm where the head of desk had a tradition of Friday afternoon games of Liar's Poker for small stakes. A new trader, Sam, noticed that the most successful players were not those who bluffed most but those who calculated the odds carefully.
Sam applied the same discipline to the desk's trading, writing down a probability and a worst-case loss before each trade. Over a year, his position sizes became more consistent and his largest loss was limited to $25,000.
The head of desk later adopted the written checklist for the whole team. This is an illustrative story, but it shows how a simple game can reinforce habits of probability-based thinking.
Watch out
Common mistakes.
- Assuming the game is mostly about lying. Skilled players rely on probability and information, and bluff selectively.
- Treating Michael Lewis's book as a rulebook for finance. It is a memoir of one person's experience in the 1980s, and practices have changed significantly since.
- Overbidding to impress others. High bids made for ego rather than odds are the fastest way to lose.
Questions
People also ask.
Who wrote Liar's Poker?
Michael Lewis, who published it in 1989 after working as a bond salesman at Salomon Brothers. It is widely regarded as a classic account of Wall Street culture.
Can I play with any banknote?
Many versions use the serial number on a banknote, but you can also use phone numbers, licence plates or cards. Check that everyone agrees on which digits count.
What does the game teach about markets?
That decisions involve incomplete information, probability and psychology. It also shows how confidence can influence other people.
From the founder's library
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