What Is Liar's Poker?

"Liar's Poker" is a betting game often associated with Wall Street traders. It involves wagering on the frequency of digits appearing in the serial numbers of U.S. paper currency.

In each round, players take turns proposing an ever-increasing number of digits (e.g., a sequence may involve: three 5s, three 6s, four 5s, etc.).

The game proceeds until somebody calls out the previous proposal as being a "lie." If such a sequence exists (e.g., there are four or more 5s between all the serial numbers held) the person who announced the proposal wins. If there are not that many (i.e., there are only three 5s), then the one who called out the hand wins.

Liar's Poker is also the title of a bestselling finance book by author Michael Lewis, which is about bond trading at Salomon Bros. in the late 1980s.

Understanding Liar's Poker

Liar's poker, like the game poker itself, relies on a mix of statistical reasoning, chance, and psychological tactics. The rules are fairly similar to those of the card game "Cheat." Players hold randomly drawn dollar bills, with close attention to the serial numbers on their respective bills.

The objective of the game is to bluff opponents into believing that your bid does not exceed the combined sum of all of the serial numbers among the bills in play. In Liar's Poker, if one proposes, say, three "fours," they are predicting that among all of the dollar serial numbers held by all players, there are at least three "fours." If the player's bluff is not called, the next player must either bid a higher frequency of any other digit (five "twos") or can bid a higher number at the same frequency level (three "sixes"). The game continues until somebody thinks the prior player is lying and calls the bluff. If correct, the one who called the bluff wins; if not the player who proposed the sequence wins.

Strategies Used in 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 bidding as accurately as possible, the players are taking turns at coaxing their rivals to make a mistake as they play. The rules of the game require bids to continue escalating, thereby increasing the game's stakes. 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. The strategy relies on continuous bluffing in hopes of potentially winning. 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 believe were rolled by all players with that face value. Here again, each player bids and bluffs 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 the challenge. Usually, the payout is one dollar (the dollar used in the game), but that may be increased depending on the agreed-upon rules and stakes.

Liar's Poker (The Book)

Liar's Poker is also the title of a popular financial book by Michael Lewis that depicts the Wall Street bond trading culture at Salomon Brothers (later Salomon Smith Barney). It was first published in 1989.

The book provides a behind-the-scenes look at this unique and chaotic time in US business history. Along with Barbarians at the Gate: The Fall of RJR Nabisco (by Bryan Burrough and John Helyar) and The Bonfire of the Vanities (by Tom Wolfe), Liar's Poker is considered one of the books that captured Wall Street culture in the 1980s.

Lewis, who previously worked as a bond trader, has said that he intended the book to be a cautionary tale about questionable and deceptive behavior and practices at his workplace. But he admits that some individuals have since used the book as a blueprint to seek personal profit.

The Bottom Line

Liar's Poker is a betting game in which players hold dollar bills, then make escalating bids on the total number of digits contained in the serial numbers of those bills. It involves using strategy, psychology, probability, and bluffing to intimidate your opponents into betting unwisely.

The game is associated with Wall Street traders due to Michael Lewis's popular book Liar's Poker, a non-fiction and semi-autobiographical account of bond trading culture at Salomon Brothers (which later became Salomon Smith Barney).  In the book, young and reckless traders frequently play Liar's Poker.