Silent Archimedes

Posts Tagged ‘gambling’

Bud Selig – Baseball’s incompetent commissioner

Posted by silentarchimedes on February 9, 2009

On the same vein as my previous article, an argument that greed is the root of the steroids scandal in baseball, the current economic crisis and global warming, there is one other commonality among the three problems, a void of  leadership.  One can even argue that greed becomes rampant only at the behest  or ignorance of the leadership. In the three problems stated, a lack of leadership for years is what has led to the current situations. Let’s look at the steroids scandal in particular.

BUD SELIG – BASEBALL’S INCOMPETENT COMMISSIONER

There is something special about baseball. Through all its scandals (Black Sox, race, recreational drugs, Pete Rose and gambling) it has always ended up doing the right thing and upholding the integrity of the game, even if it meant banning its all-time hits leader, Pete Rose, or several of its top players (Black Sox scandal – Shoeless Joe Jackson) for life. No player or players were above the game, and the commissioners knew this. The commissioners also knew they were not above the game and although they existed at the whim of the owners, they were supposed to put the interests of the game at the top.

MLB Commish - Bud Selig

MLB Commish - Bud Selig

Well, something happened in 1992. An owner (Milwaukee Brewers), Bud Selig, was unanimously picked by the owners to become the ninth commissioner of baseball. Since 1992, he has allowed baseball to fall into a steroid scandal by ignoring the ramifications of performance enhanced statistics on the game. Any stories about players juicing were swept under the rug because of increasing television ratings and attendance due to historical records falling every year. Instead of looking out for the interest and integrity of the game, Selig exchanged it for higher revenues. Even in the past 7 to 8 years when everyone knew of the oncoming collapse, he acted in a very condescending way, as if the problem was not bigger than the game.  (This sounds just like our past  president and administration on the Iraq War and the current economic crisis?) Consider these players that have now been tainted by performance enhancing drugs:

1. All-time leader in home runs in career and in a season, Barry Bonds
2. Expected future all-time leader in home runs and one of the greatest players in history, Alex Rodriguez
3. Considered best pitcher in the past 25 years, Roger Clemens
4. First to break Roger Maris’ decades long single-season home run record, Mark McGwire
5. Most seasons with 60+ home runs, Sammy Sosa
6. Other 400+ home runs, Jose Canseco, Ralphael Palmeiro, Garry Sheffield

The leader always sets the trail for others to follow...

The leader always sets the trail for others to follow...

That list is too remarkable to ignore. The leader must be held accountable. Selig has been commissioner or acting commissioner since 1992, about the time hints began about steroids usage. Although he might not be the cause of the problem, he allowed it to fester and grow and grow.  Players that would not have used steroids were eventually compelled to use it due to lesser skilled players on par with them now because of PEDs. This is simply human nature. It is now a scandal that won’t go away. As much as the players need to be held accountable for their actions, the leader also needs to be responsible for his lack of action.In any other institution where people are held accountable, the leaders are replaced by the board. The board of the United States, the citizens, overwhelmingly voted the Republicans out of office in the past elections. Even in corporations, strong board of directors have been known to push incompetent CEOs out. However, similarly to baseball, when the board is closely tied to the leader, this almost occurs too late. In baseball, when the owners overwhelmingly approve of an incompetent commissioner that was once an owner himself, then the checks and balance system fails. In my previous article, Baseball as America’s Pastime continues to fall further into the past, the popularity of baseball has decreased more and more as society’s attention has shortened. To compensate for such pressures, Selig’s actions were always for short-term gain (ie interleague play) at the expense of long-term interests.

Rickey Henderson

Rickey Henderson

It is time baseball cleaned itself by removing its commissioner and the players that have cheated. It is apparent that without the pressures of Congress, Selig would not have voluntarily instituted stringent drug testing. Even to this day he acts as if nothing is wrong and that history will view him as a good commissioner that brought baseball back from its dark lockout days (Sound familiar?) As a big baseball fan, until there is strong leadership that is interested in cleaning up the game, then the game itself has lost its allure, the allure that I used to have as a kid in the 1980s watching Rickey Henderson, Don Mattingly and Dave Winfield…

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When is poker gambling? Analogies to investing in stocks.

Posted by silentarchimedes on December 24, 2008

Screenshot of Texas Hold'em Poker 3D

Screenshot of Texas Hold'em Poker 3D

To those people that play poker for its competitive atmosphere or its mathematical excitement, it is not gambling. However, to the outsider or the concerned family member or friend, poker is gambling and any attempts to justify it are simply excuses. I am more in the former camp, but I also know that there are varying degrees of how one plays poker that determines how much poker is a game of skill versus luck. Playing poker is very similar to investing in stocks or mutual funds. A person can play it such that luck is the overriding factor in whether he or she wins (like playing the lottery) or the person can become informed and knowledgeable in all the aspects of the game (like the game of life). Educated poker is about rules, probabilities, psychology, and strategy. Educated investing is about laws, microeconomics, macroeconomics, markets, company details, management details, buying strategy, and selling strategy.

Poker and investing is gambling when…

1a. You pick random hands to play even when the odds are against you.
1b. You pick a random company to invest in.

2a. Even when you know you have a losing hand you keep raising and hope to bluff or scare your opponent into leaving the hand. In other words, you risk going down with the ship. You don’t know when to cut your losses.
2b. The company you invested in keeps missing its target numbers. Instead of cutting your losses, you hope for a turnaround that seems further and further out of reach. You don’t know when to cut your losses.

3a. You don’t even know the probabilities well enough and what the odds are of the next community card being in your favor. You are playing blind, so to speak.
3b. You know what the company basically does, but you don’t read its quarterly reports or anything about P/E ratios, operational cash flow, debt levels, etc. You will be blind to micro-economic problems that can drop the stock like a rock.

4a. You misjudge your opponents’ hands. Being too optimistic in your chances, you turn blind to the fact that your opponent might be holding a pair of Kings because you are hoping that two diamonds come down on the turn and river.
4b. You become attached to the company you invested in and are blind to emerging companies with better technologies or other competitors whose pipeline is looking better than your company.

5a. You keep losing hands. Your track record of winning in poker is below 50%. However, you have a hard time stopping and your losses eat inside you even when it’s over.
5b. You keep losing money in your investments. Your track record of picking sound investments is below 50%. However, you have a hard time letting go and you keep pouring in money into the same losing investments.

6a. You have no long-term poker-playing strategy or your strategy is not working. However, you ignore this or you have blind faith that it will eventually turn in your favor. Gambling is about false hope, blind attachment and ignorance of your true abilities.
6b. You have no long-term investment strategy or your strategy is not working. You know when to buy but have a hard time determining when to sell.

7a. You are too emotional. You take losing hands very hard. They eat inside you hours or days afterwards.
7b. You are too emotional. You take losing investments very hard. They eat inside you for days and even months afterwards.

8a. You are too risky. You regret bets that don’t pan out. You wish you didn’t plop down $20 on a hand that you knew you’d probably lose anyways.
8b. You are too risky. You regret investments that don’t pan out. You wish you didn’t plop all that money on a technology that had only a tiny chance of succeeding.

.

I like the saying that poker is short-term luck and long-term skill. The goal for the player is to decrease the length of that short-term luck to as short as possible. By maximizing skill, you minimize luck, and the game becomes less about gambling and put you more in control of the outcomes. The problem with playing the lottery or slot machines is that no matter how much you learn or the type of intricate strategy you use, the big chunk of luck can never be reduced. However, poker and investing can be done such that the luck or gambling aspects of the game is greatly reduced.

Why do you think the same poker players are at the final table in poker tournaments all the time? Doyle Brunson? Why do you think investors like Warren Buffet are consistent winners in their investments? The homework those guys do can be loosely equated to Michael Jordan and Tiger Woods’ attention to detail.

Good luck! Well, good skill!

Related link:

The Mirage of the Martingale

Posted in Economics, Ethics, List, Other, Reviews, Science and Math, Technology | Tagged: , , , , , , , , , , , , | 5 Comments »

The Mirage of the Martingale

Posted by silentarchimedes on May 17, 2008

Like all those people looking to find the edge in Roulette at the casino, I fell into what I call “the Mirage of the Martingale“. The Martingale’s premise is in putting money only on 50/50 bets, like the flip of a coin. In Roulette, the closest to this is the RED/BLACK bet, ODD/EVEN bet or 1-18/19-36 bet. It is not a full 50/50 bet because the two green slots (0 and 00) reduces each bet to a 47.3684% winning probability instead of the 50% winning probability in 50/50 bets. (Remember, American Roulette has 38 slots, 18 for RED, 18 for BLACK, and 2 for GREEN. This creates a 2.6316% for landing on any specific slot. The house edge is the two GREEN slots, or 2*2.6316 = 5.2632%)

Standard American roulette table

The basic strategy of the Martingale is when you lose a 50/50 bet, you double your bet on the next spin. That way, if you win, you cover your last round’s loss and also gain your initial bet’s amount.

For example, let’s say you bet $5 on BLACK in round 1. The spin turns up RED. You are down $5. In round 2, you now bet $10 on BLACK. If the spin turns up black, you cover the $5 you lost in the first round, and you also make $5. If you lose, you are now down $15. In round 3, you now bet twice the last round’s bet, or $20. And so on and so forth… Assuming you lose 5 BLACK bets in a row until winning on the sixth, your betting sequence is 5, 10, 20, 40, 80, 160, … and your profit sequence is 0, -5, -15, -35, -75, -155, 5.

In short analysis, this sounds like a fool proof idea because you assume that if you keep betting on black, at some point it will land on black, and you will cover your losses.

Upon further analysis, there are some obvious problems with the Martingale. The problems are both in the mathematics, and in the practicality of using such a strategy in a casino.

1. First, the mathematics. At first glance, the probability of a losing streak of 5 seems very small. For every spin, there is a 1/2 probability of winning or losing. Five in a row has a 1/2 * 1/2 * 1/2 * 1/2 * 1/2 = 1/32 = 3.125% likelihood. If someone asked you if you would bet $5, and the chance of you losing is 3% and the chance of you winning is 97%, you would take that bet in an instant. However, this 3% is nice when you are talking short term (although you might be unlucky). For example, if you stay at the table for 5 rolls, your chance of hitting that losing streak is a small 3%. However, the longer you stay at the table, the more you are exposing yourself to the Law of Large Numbers and the Central Limit Theorem (see images below, courtesy of Wikipedia).

(a) fewest trials

(b) second fewest trials

(c) many trials

(d) very many trials

As the number of trials increases, the output plot starts to resemble a bell curve. Even the unlikely outcomes eventually occur, based on their respective probabilities. In gambling, unwanted outcomes will eventually show up if enough bets are placed.

.

Eventually, that 3% will show its ugly face. This is also true for losing streaks greater than 5, such as 6=1.56%, 7=0.78%, 8=0.39%, etc. On a positive note, as the length of a losing streak increases, the probability decreases and you can stay longer at the table without fear of the two above theorems/laws. For example, the chance of a losing streak of 8 is only 0.39% for any 8 straight rolls. However, a losing streak of 8 means you would have to wager $640 on the 8th round, and this is all an attempt to get your original $5 back!! A person with a limitless purse would not care, because they know eventually they will break this losing streak and cover however big their loss is. Unfortunately, the casinos know this! Which leads to our second problem…

2. Every casino has a minimum bet and maximum bet on the roulette table. A typical “cheap” table usually has a minimum of $5, and a maximum of $100 or $200, or for short (5,100) and (5,200) table. When I started going to casinos at 18, I always wondered why the maximum bets are so low. Now I know. The maximum limit of a (5,200) table would limit a person using the Martingale strategy to a maximum losing streak of 6. That means if you bet $160 on that sixth spin and lose, you lose $315. You cannot bet $320 to potentially cover your losses because that is over the max limit of the table. You must carry that $315 loss with you!! All for an original $5 bet! That risk proposition doesn’t seem so good now.

These two problems might not fully convince some people to not use the Martingale strategy. The first thought is I will make enough money before I hit a losing streak of 6. Now we talk about how to bet on winning streaks and why they are not practical to overcome the odds of hitting a losing streak. The most common method is the Anti-Martingale Strategy:

The Anti-Martingale Strategy – The betting strategy is the same as the Martingale except you double your bet when you win. However, you must have winning streak level where you bank your profit, and then begin betting at $5 again. Let’s say you make your level at 4. So when you win 4 in a row, you bank 5, 10, 20, 40 = $75. Not bad huh? The problem is a winning streak of 4 only occurs 1/2 * 1/2 * 1/2 * 1/2 = 1/16 = 6.25% Remember, a (5,200) table only allows a max losing streak of 6. If it happens, you lose $315. As mentioned, these losing streaks occur 1.56% of the time. That means win streaks of 4 occur exactly 4 times more than losing streaks of 6. Both of these are the only two instances in which non-even money is exchanged. All other streaks are break even for you. So, for every time you lose $315, you only make 4 * $75 = $300! You are still short $15. And all these computations above don’t include the house edges on the greens. Which would mean a slightly larger loss on your end! No matter how you change the length of the winning streak when you bank your money, you are on the short end. For example, say you bank every time you win two in a row = $15. This occurs 25% of the time. This occurs 16 times more than your losing streak of 6. That means for every time you lose $315, you make only (16 * 15) = $240!

Our LS6-WS4 Martingale/Anti-Martingale Strategy on a (5,200) American Roulette Table looks like this:

I tried modifying the Martingale and Anti-Martingale and even ran simulations in Matlab. The numbers never ever add up. In the end, it still comes down to luck.

Anybody disagree or have ideas about at least slowing down your losing in a mathematically dependable way? I apologize if the math is somewhat off, as I did this on the spot, but I think no matter what, it’s impossible to use the Martingale effectively in a casino.

**Update 05/21/08 ** – Yesterday’s NBA lottery draft is a perfect example that anything can happen, even with the probability against you. Probability is simply that, the likelihood of something happening and not happening. If something has a nonzero probability (even if it’s 1.7%), it can still happen at anytime. That’s what happened last night. The Chicago Bulls, had a 1.7% chance of landing the #1 pick in the draft. Eight teams were ahead of them (in terms of probability). Miami had the highest probability to land the top pick, with 25%. So guess what happens? That 1.7% happens, and the Bulls get the top pick!! (As a Knicks fan, I was rooting for the Knicks 7.6% chance, but instead of picking even 5th, they ended up 6th)

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When is poker gambling? Analogies to investing in stocks.

Posted in Science and Math | Tagged: , , , | 25 Comments »