Not every chip is worth the same in tournaments. There are tournament phases when it is extremely unfavorable to lose chips. For example if you are about to receive the prize money (bubble). The ICM answers the question of how much it is worth doubling your stack in a certain tournament phase and how catastrophic is it to lose half of your stack?
Example:
Example tournament
Buyin: $ 10
Teammates: 10
Payouts: 1st $ 50, 2nd $ 30, 3rd $ 20
Starting stack: 1,000 chips
Example chip counts for the last 4 players
Player 1: 5,000 chips
Player 2: 2,000 chips
Player 3: 2,000 chips
Player 4: 1,000 chips
From this, the average profit of each player can be calculated:
ICM value of these chips
Player 1: 5,000 chips ≅ $ 37.18
Player 2: 2,000 chips ≅ $ 24.33
Player 3: 2,000 chips ≅ $ 24.33
Player 4: 1,000 chips ≅ $ 14.17
The following game situation is to be assessed based on the ICM model: Player 4 folds, Player 1 folds, Player 2 moves allin (2,000 chips), Player 3 holds A9s What should player 3 do? If Player 3 doubles in this situation, their average win in this tournament is $ 36.44. If he calls and loses, he has no more chips and his expected value is $ 0. Let's say player 3 wins the showdown by 60%. Then he can calculate his expected value: EV = 60% * $ 36.44 + 40% * $ 0 = $ 21.86 His expected profit has now decreased. From $ 24.33 to $ 21.86. Therefore he should fold according to the ICM model although he has a 60% chance of winning. He shouldn't put all of his chips at risk if he can just wait until player 4 goes out and he slips into the prize money.
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