HOW CASINOS MAKE MONEY FROM YOU
pitboss.pokerstrategy.com
August 15, 2008
Original LinkCasinos profit by tipping the odds in their favor. Most people know this, but they don’t understand the underlying statistical forces behind it. Beneath all the glamorous lights and sizzle is some serious math ensuring the casino always ultimately comes out ahead. If you’ve ever wondered exactly how they can accurately know this, prepare to find out!
The first thing to realize is that casinos do not pay out a “fair” amount of money. In this case, “fair” is not meant in an ethical or moral sense but a very specific mathematical one. A “fair” payout is one in which both you (the player) and the casino will break even in the long run. For example, a casino that used roulette wheels with only 36 numbers -- half red, half black -- would be offering a “fair” chance of winning. The casino would double the money of roulette players who bet on red if a red number was hit. In the long run, the casino and the gamblers would win each win half of the time.
This is not what actually happens. To guarentee themselves a slight edge, casinos use roulette wheels with 38 numbers. Furthermore, two of them are neither red nor black, making any ball that hits in those numbers an automatic loss for the player. This tiny modification gives the casino a 2/38 edge over a “fair” game or payout. Similar tactics are employed throughout the casino to give them a slight yet significant edge in light of how much money is being gambled each day.
However, the odds being in the casino’s favor is just one half of the equation. If you’ve been following along so far, you might be starting to sense what the casino’s other major advantage is. Remember: a mathemetically “fair” payout is one where you and the casino break even in the long run. But for you, the individual gambler, there is no “long run.” We can continue our roulette example to illustrate this. An infinite roulette player would find himself up for a while, down for a while, and at any random time, on average, down 5.26% from whatever amount he started gambling with.
This does not actually happen either. You will not be sitting at one crap’s table or roulette wheel forever. Like most gamblers, you will probably stop playing when you run out of chips or money. This means the “official” 5.26% house edge is usually much higher than that in practice. The book “Statistics Hacks” runs a simulation of 1,000 gamblers acting as gamblers normally do - deciding to walk away, keep betting, increase or decrease their bets, and the like. The end result showed that the casino would actually rake in a stunning 43.16% of the money being gambled.
What’s the big success secret behind these huge, calculated winnings? Very simply, the secret is time. The casino -- unlike you -- can keep at it forever. When you go home, new gamblers take your place at the slot machine, roulette wheel, or blackjack table. Being open 24/7 lets casinos ride out any momentary success a gambler has, knowing that the laws of probability will “have their back” in the long run.
What this all means for you is that you should leave the casino after a certain time -- say, a few hours -- whether you are ahead or not. No matter how long you stay to “ride out” a bad streak or keep a good one going, you will never have more time than the casino does. As the book “Statistics Hacks” cautions, “if you are lucky enough to get ahead before your time runs out, consider running out of the casino.”
The only way to win is to treat all losses as entertainment expenditures, and make sure you quit while you’re ahead.