The insights you presented in caused the casino gaming industry to change the rules of blackjack almost overnight. This is a reasonable suggestion considering that Professor Thorp is one of the few people in any industry whose initial insights had altered the trajectory of revenue of an entire industry so drastically.
Thorp then got work analysing the game and ultimately making some very ground-breaking conclusions. It all started when Thorp and his wife Vivian had taken a trip to Las Vegas in the late s. The functionality of these two series of games is similar to almost every other casino game on the gaming floor.
If there was such a list, somewhere near the top would have to be Professor Ed Thorp. MacLean EditorEdward O. The returns were great on an absolute basis, but phenomenal on a risk-adjusted basis. In other words, if the bets were too big, you would go broke fast, and if the bets were too small you simply would not optimize the payout.
He tried it out, and believed he could improve on it by using the IBM computer at MIT to do tons more calculations and thus get much more accurate conversions. When the casinos finally realised that blackjack could be beaten, they tried to stop the winners by barring them from play Thorp gambling responded: February 6th, at 1: What insights if any do you have for the casino industry that could jump start the move back towards the glory days of profitability?
Every person who walked into a casino believed that they too could beat the casino; this caused a flood of players to frequent casinos on a regular basis. Thorp analyzed the game of blackjack to a great extent this way, while devising card-counting schemes with the aid of the IBM in order to improve his odds,  especially near the end of a card deck that is not being reshuffled after every deal.
Thorp and Shannon developed this seminal work while both were on faculty at the prestigious Massachusetts Institute of Technology. Playing it correctly means you've already won. It is defined to be the process of reverse engineering games that were designed to garnish money from the players and turn them into profit centers for players.
This chart illustrates the points: They ended up with legions of lower income gamblers pulling handles on slot machines.
I posed the following question to Professor Thorp. If I had never seen a picture of him, I think I would have either voted 1 or 3, but there wasn't convincing evidence.
Therefore, in essence, the efficient frontier is a path towards making Kelly wagers, while trading some portion of return for lower variance. I thorp gambling the opportunity to ask Thorp a question and I wanted to focus on the emotional element he referenced from the casino days. Thorp EditorWilliam T. I almost wrote more in there, but didn't want to detract from the video itself. Primarily, it is useful for stock investment, where the fraction devoted to investment is based on simple characteristics that can be easily estimated from existing historical data — expected value and variance.
Since that time the evolution of the casino gaming industry has been dramatic, and has resulted in year-on-year losses for nearly a decade. It was described by J. Thorp, A Man for All Markets: As time passed, they harassed thorp gambling counters, reduced the number of tables with decent blackjack rules, and introduced non-standard gimmicky table games of all sorts.
In its simplest form, the Kelly Criterion is stated as follows: An individual with such high personal achievement and of such substantial analytical ability is in a unique position to comment on the current standing of casino gaming. With this dramatic jump in occupancy the casino resorts became bigger, the food got better and the entertainment became world class.
EvenBob I always have to correct this. Although the Kelly strategy's promise of doing better than any other strategy in the long run seems compelling, some economists have argued strenuously against it, mainly because an individual's specific investing constraints may override the desire for optimal growth rate. This young Duke student then ventured out to Las Vegas and made a substantial amount of money.
After the publication of Beat the Dealer Thorp partnered with Noble Laureate Claude Shannon to develop what internet users have credited to be the first wearable computer, which was used to beat the casino game Roulette. But how about when it comes to investing?
William Poundstone wrote an extensive popular account of the history of Kelly betting. That's why I put "father of card counting" in quotes. If losing, the size of the bet gets cut; if winning, the stake increases. Thus, I felt it necessary to give this particular lecture more attention. Further, he said that he found himself stashing some chips in his pocket so as to avoid letting the casino see them despite the casino having an idea of how many he had outstanding and possibly as a way to prevent over-betting.
And simply stated, it changed everything in casino gaming. The 'turn and burn' philosophy that most casinos adhere to now is a result of the gaming industry no longer catering to people that gamble, but now focus on taking advantage of tourists and conventioneers.
AcesAndEights That was a great watch, thanks for posting. Operators are spending excessive amounts of money on licensing the brand on top of the initial development and certification cost.
KassoufBeat the Thorp gambling But when the novelty of playing on the familiar themed game dissipates, any initial revenue bump seen will rapidly flatten and then fall below the thorp gambling support levels. In Thorp published the book Beat the Dealer that presented the conclusions of his research. Each wager was an independent wager, and all other exposures, like betas, currencies and interest rates were hedged to market neutrality.
His original research in market analysis published in his book Beat the Market helped launch the derivatives market. First they visited Reno and Lake Tahoe establishments where they tested Thorp's theory at the local blackjack tables.
Thorp used the assertions in Beat the Market to create the first market-neutral hedge fund in ; the results to date have been exceptional. During his Las Vegas casino visits Thorp frequently used disguises such as wraparound glasses and false beards.
Similarly, the low denomination carnival table games, specifically the 6: Made a lot more sense when I saw him third. Any initial revenue bump that may occur will be shifted towards paying licensing costs.
The marketing value of his mathematical analysis has led to multi-billion dollar resorts and decades of overwhelming profits. Glad you enjoyed it as I did.
Kelly is the single quickest path to an aggregate goal. Specifically, Thorp felt that the impact of losses placed thorp gambling heavy psychological burden on his morale, while gains did not have an equal and opposite boost to his psyche. Thorp told the tale of his early endeavors in casinos, and how the casinos scoffed at the notion that he could beat them.
This approximation leads to results that are robust and offer similar results as the original criterion. This is key—LTCM was merely a strategy to deploy leverage, not one to get an edge in the market.
A person has to look no further than the triple zero roulette game seen at the Venetian Casino in Las Vegas. The area to the right of the peak, where the tail heads straight down is in the zone of over-betting, and interestingly, the area to the left of the Kelly peak corresponds directly to the efficient frontier. The following is what I learned from his presentation at SFI.
Gaming company executives would be wise to implement his assertions.