Gambler’s Ruin – Something to Avoid

by on November 17, 2012

If there’s one single skill that separates the amateurs from the professional gamblers it’s money management.   Basically the task of obtaining the greatest profit from a single (preferably favorable) betting opportunity.   It doesn’t matter how skilled you are without sensible money management – there is only one single outcome, you’ll end up completely broke.

Here’s a simple chart that could represent anyone’s visit to their local casino playing any of the house games.

The gambler starts his session with his ‘original stake’ and every time he wins or loses a bet, his total fluctuates up or down.   Now if the game was completely fair then we would expect this line to be a horizontal line i.e. the gambler would be neither up or down in the long run.  He would have an neutral expectation of zero – he wouldn’t lose but won’t win either.

You can see the path of the gamblers wealth fluctuates wildly, sometimes he’s up and sometimes down.  There’s very little rhyme or reason to this pattern and mathematicians call it the ‘random walk’, in reality it’s just the effect of being lucky or not.

However there is one very important point to this graph, a notable event which occurs at point X when the line representing wealth of the gambler goes through the zero line.   At this point the gambler has lost everything, he’s got nothing else to play with and the game finishes.   The rest of the graph to the right of this point never happens, the game is over and the gambler makes his way home (probably on foot!).

Gamblers ruin is inevitable and in fact is likely to happen much quicker when we introduce real life concepts like the house edge.  When the house has a built in advantage then the gambler is likely to pass through that line even sooner.  Try it out if you like on the free play roulette game, and see how quickly that pointer gets to zero.   It will happen if you keep playing.

There is one single thing that a gambler can do to stop this situation becoming inevitable.  it won’t change the odds but it will give you a chance of leaving in profit and avoiding the gamblers ruin scenario.  It’s actually quite simple when  you think about it, instead of waiting until the overall wealth crosses through the zero line – the gambler needs a target.  That is a profit number which if reached will stop the game on the gamblers terms.  It offers the possibility of a profit and the lower the figure the higher the possibility of reaching it.  It gives the game two end points – a win for the player and a win for the bank.   The figure doesn’t even have to be a profit though, it could be to finish when the stake is down to 80% of it’s value for example.


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