NEVER EVER play a negative expectation game unless forced.
More after the jumpFrom Atlas Obscura:
“It's a tough way to make an easy dollar,” says Josh Axelrad, a former professional card counter and the author of Repeat Until Rich, a memoir of his card-counting days. Card counting, thanks to movies like Rain Man and 21, holds a position in the popular imagination as a near-superhuman savant ability, a method to help card-players cheat, or both.
In fact it’s neither, but that hasn’t stopped the casino industry from waging war against card counters. In fact, we’re right now in the midst of a change in the rules of blackjack, a change that seems minor but which blackjack aficionados claim is murdering the game.
And it’s a change that may kill card counting for good.
Card counting as a process was created first by a group of U.S. Army Engineers known, no joke, as the Four Horsemen. They published a little-seen paper in 1957 titled “Playing Blackjack to Win.” That work was drawn upon and improved by a mathematician named Ed Thorp in a 1962 book titled Beat The Dealer, which became a huge smash success. (There’s no ill will there; Thorp wrote the foreword to a recent edition of “Playing Blackjack to Win.”) Thorp used early computers to prove, building on various earlier work in the field of probability in addition to the Horsemen’s paper, that the strategy of card counting could give a blackjack player a very, very slight edge over the casino.
Play long enough, and the odds are in your favor, which is more than can be said of other casino games.
What was Thorp’s key finding? “Blackjack is different from other card games because sequential hands are dealt out of a randomizing device whose composition changes in an observable way from round to round,” says Axelrad. In other words, the outcome of one hand of blackjack has an effect on the following hand: in a game of blackjack using a single deck of cards, for example, if the Ace of Hearts is dealt in one hand, the Ace of Hearts will not be dealt in the next hand. (Providing the dealer doesn’t shuffle in between hands.)
That’s highly unusual for casino games. In roulette, for example, each spin is totally independent of the spin that came before and the spin that came after. You can scowl and study roulette all you want; you’re not going to learn anything. But blackjack is different, and that difference opens a teensy tiny door for counters.
The Mechanics of Card Counting
Card counting is a blanket term for all versions of one particular technique used in the game of blackjack (and, less often, in blackjack variants like Spanish 21). The technique is incredibly simple, at its core: it’s an attempt to keep track (“count,” obviously) of some key patterns in the cards that have already been dealt, which in turn gives you insight into which cards are still remaining to be dealt. It allows you, basically, to have a little bit more information about what cards you’ll be dealt next....MUCH MORE
Previously on Baby need a new pair of shoes:...Where it gets weird is what’s been happening in the past year or so in some of Las Vegas’s biggest casinos. The Venetian, the Palazzo, and the MGM Grand have all changed their blackjack payout rules, moving them from the traditional 3:2 payout to a 6:5 payout....
Dreamtime Finance (and the Kelly Criterion)
I've been meaning to write about Kelly for a couple years and keep forgetting. Today I forget no more.What Proportion of Your Bankroll Should You Bet? "A New Interpretation of Information Rate"
In probability theory the Kelly Criterion is a bet sizing technique used when the player has a quantifiable edge.
(When there is no edge the optimal bet size is $0.00)
The criterion will deliver the fastest growth rate balanced by reduced risk of ruin.
You can grow your pile faster but you increase the risk of ending up broke should you, for example bet 100% of your net worth in a situation where you have anything less than a 100% chance of winning.
The criterion says bet roughly your advantage as a percentage of your current bankroll divided by the variance of the game/market/sports book etc..
Variance is the standard deviation of the game squared. In blackjack the s.d. is 1.15 so the square is 1.3225.
As blackjack is played in the U.S. the most a card counter can hope for is a 1/2% to 1% average advantage with much of that average accruing from the fact that you can get up from a negative table.
Divide by 1.3225 and you've got your bet size.
It's a tough way to grind out a living but hopefully this exercise will stop you from pulling a Leeson, betting all of Barings money and destroying the 233 year old bank.
I'll be back with more later this week.In the meantime here's a UWash paper with the formulas for equities investment....MORE
How did Ed Thorp Win in Blackjack and the Stock Market?
Journal of Investment Consulting: Interview With Edward O. Thorp
Markets, Risk and Gambler's Ruin
"Not in my house: how Vegas casinos wage a war on cheating"
Finally, another rule of life:
Cassandra's (Not so) Golden Rules About Investing (And Not Investing)
#21. NEVER double-down (except when you have material non-public information and deep pockets) or if you're Ed Thorp, or if you're playing at The Martingale Room.
Don't double down, double up.
