Lets begin our explanation of odds with a simple example, which is borrowed from David Skalnsky. Imagine you are placing a bet on the outcome of a coin flip. You know that 50% of the time the result will be heads and 50% of the time the result will be tails. There will be short term variations where heads might come up ten times in a row, but sooner or later, tails will come up ten times in a row too. After you have flipped the coin thousands and thousands of times, you would expect the number of times heads was flipped to be about equal to the number of times tails was flipped. As odds, that is written as 1:1. That is for every one time heads is flipped, you can expect tails to be flipped one time.

What happens if we were to place a wager on the outcome of the coin flip? In a perfect world, the person taking the opposite side of the bet SHOULD offer a payout that is equal to the amount you wager.

Suppose you are willing to wager $1 on the result of the coin flip.  The other person agrees to pay you $1 if the result is heads and you agree to pay him $1 if the result is tails. Over a large number of flips, you cannot be assured that you will make any money (or lose money for that matter). Assume you flip a coin 100 times. You expect that heads will come up 50 times and tails will come up the other 50 times. You will win $1 for every time heads came up for a gain of $50. You will lose $1 every time tails comes up for a loss of $50. After those 100 flips, you would be in a break-even situation ($50 won minus $50 lost).

Imagine some person was willing to pay you $2 every time heads came up, but you still only had to pay him $1 when tails came up.  Lets analyze how this affects the situatiuon.

After 100 flips, you still expect the same results as before: 50 heads and 50 tails. On the 50 times where heads is flipped, you win $2 per flip, earning $100 (50 flips x $2/flip). On the other 50 flips where tails comes up, you lose $1, for a loss of $50. The net result is a gain of $50 for you ($100 won minus $50 lost), and a $50 loss for the other person ($100 lost to you, PLUS $50 won). This winning situation was created because your "payout odds", which were 2:1 (two dollars won for every time heads is flipped and one dollar every time tails is flipped), was greater than the actual odds of the event actually happening (which was 1:1).

You might be asking yourself, "How does all of this relate to poker?"

In poker, you are always faced with a decision. If you have a draw (for example, you need one card to make a straight), you always weigh the odds of completing your draw to the amount of money that is currently in the pot (called "Pot Odds"). If the Pot Odds are greater than the hand odds, then you should make the call. Lets look at pot odds in more detail.

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