Posted on 03/05/2014 7:38:49 AM PST by Kaslin
Dear Dave,
How do you feel about gambling at a casino, as long as you limit your spending and don’t expect to win big money?
Brian
Dear Brian,
I don’t really have a moral problem with it, but I don’t understand the concept. Call me crazy, but I do not get a thrill from losing money I’ve worked hard to earn. That’s not my idea of entertainment.
When someone tells me they gamble for fun or recreation, my first thought is they’re delusional enough to believe that they’ll actually win—that they think they’re the exception to the rule. Otherwise, there would be no thrill. You may see a news story once in a while about someone winning big money in a casino, but that rarely happens. Think, too, about how much money those people had flushed down the toilet previously while gambling. There’s a really good chance they didn’t really “win” anything. In most cases, they probably just recouped a small portion of their previous, substantial losses.
My advice is don’t waste your time and money on that stuff. One way or another, the house always wins. That’s how they’re able to build those giant, billion dollar places called casinos. Did you know that some of those companies are so big and expansive that they’re publicly traded entities? And guess what? The profits they make off people who are foolish enough to gamble their money away inside their fancy halls—and call that entertainment—drives their stock prices!
Think about it, Brian. Why do all the folks sitting at slot machines and card tables look like they can’t afford to lose money? Most of them look like sad, broken, lonely people. Maybe they change when they sit down. Maybe they were winners in life and with money before they walked through the doors, and their slumped body language and the look of stress and hopelessness they carry is just a coincidence or the indoor lighting. But I don’t think so.
—Dave
Dear Dave,
What happens to the money in an ESA if the child gets a scholarship and no longer needs the money?
Jonathan
Dear Jonathan,
In an Educational Savings Account (ESA), and in a 529 Plan, you are allowed to pull out money tax free in the amount of the scholarship. But very rarely do you find someone going to college completely free and clear. Often tuition is covered, and even tuition and a dorm room in some cases, but zero-cost college is almost unheard of. There are always living expenses, books and other miscellaneous items, and you can use the money in an ESA for any education-related expenses.
The chances of your money getting trapped and you as parents winding up in a situation where you’ve actually saved too much and a child has leftover money just doesn’t happen. This is a bunch of drama found only in the nightmares of nerds. Real human beings don’t have this problem, Jonathan, because nobody ever saves enough!
—Dave
Dear Dave,
I own a landscaping company, and recently I hired some superstar employees. One of them is really good, and I’d like to turn him into a salesman. How should I start this process?
Daniel
Dear Daniel,
The first thing I’d do is talk to some other landscaping companies outside your area that are about your size, while big enough to have a salesman or two, and pick their brains as to how they’re structured. You could go visit them personally, or it could be as simple as a phone call. Just let them know you’re thinking about hiring your first salesman, and find out how they pay their guys and if it’s working well for everyone.
What we’re talking about here is called best practices in business. Find something that works for someone else in your same industry, and apply it to your situation. Think of it this way. If you wanted to lose weight, you’d begin by doing what thin people are doing, right? You emulate behavior that generates positive results.
Another thing I’d tell you in this kind of situation is to make sure the person involved understands that any compensation agreement you initiate in the beginning is on a trial basis for a specific length of time. You’re venturing into uncharted territory here, and while you want to make sure your new salesman makes enough money to eat and have a decent life, you don’t want him to make more than the company.
Come up with a temporary compensation plan that’s agreeable to you both at the outset. Then, have an agreement to revisit the plan in 90 days, six months or a year down the road. There may be some time, and a little bit of give and take involved, but in the end you’ve both got to be okay with the upside and downside of the scale and the natural results. You’ll both be really happy if he’s busting it and making himself and the company financially successful. But as a business owner, you kind of want him to starve out (not literally) if he’s not making sales!
—Dave
Dear Dave,
My brothers and I will soon be taking over a 30-year-old company that belongs to our dad. Do you have any advice for us?
Dennis
Dear Dennis,
I could give you lots more advice than would ever fit in a column, or even in an answer on my radio show. So, for now let’s stick with some basics.
The first thing I’d suggest is to separate the ownership role from your operational roles. In other words, you need to decide ahead of time, and have a consensus, on who’s going to do what job. If you and your brothers are all going to be owners of the company when you “take it over,” but one of your brothers would function well in the role of CEO, then he’s in charge and everyone needs to know and respect that position. As a group, the owners should give the CEO direction, but they don’t make all the day-to-day decisions. In addition, someone needs to be in charge of finances, and you also need individuals overseeing sales and production.
The second thing is you need to decide together how to handle things if someone wants out. If one of you misbehaves or incurs a disability, or if someone simply wants out of the business completely, you have to decide on a fair and equitable way to handle possibilities such as these. So, you’ll also need good ownership documents and a top-notch attorney to help put it all together.
—Dave
The casinos depend on mathematics to generate predictable earnings. Players are almost universally guided by their human brains with its inherent cognitive biases. Those biases are well-suited to normal life but are not designed to think in terms of probabilities or events that have no memory. Casino slot machines are designed to pay out based on probabilities and pay-out schedules that are relatively simple in nature. A slot machine doesn’t need to care about whether it has paid out any money in the past, it only needs to reliably follow the programmed pay-out probabilities and schedule for each new play. Card games are, in essence, versions of the same probability-based payout system.
The player has to fight the powerful influence of memory of prior play outcomes. He also has to fight internal motivation to win and internal upset at losing.
If the player plays five times and loses, then suddenly has a winning play, that can motivate further play. A player will start with, say, $100 and play down to $40. Then he wins $30 and is motivated to spend another $50. He now has $20 and the next play gets him $50! He is on a roll and “feels like a winner”. He plays again and again, eventually winning $10 but finally emptying his pocket. He goes home “entertained” and human nature tends to remember the positive events such as winning $30 followed by an even bigger $50 win. But, in the end, the casino earns $100.
The more times you play, the more closely to the programmed probabilities you will get. Those probabilities always favor the casino, of course. If you want to “beat the casino”, you should reduce the number of plays to a minimum (one play). You should have unemotional rules of play—you are playing an unemotional mathematical system—it has neither memory nor feelings. By doing these two things, you will increase the possibility of a net positive outcome—but you do so at a mathematical disadvantage to the casino. Alternatively, construct a team of experts trained in all aspects of a winning strategy, including perfectly-controlled strategy, fail-proof security, and the ability to avoid pattern detection. You have to be better than an MIT team because their approach is now known.
No, I got a couple of hours of fun and entertainment, which is exactly what I wanted.
Same as I would have gotten from going out any place else. Some free drinks too.
“Just how do you “count cards” with SIX deck black jacK. With six decks that is 24 aces to keep track of. It is ridiculous.”
I doubt I could do that. I believe the MIT team was working in an era of fewer decks, however, they “counted” a lot of things besides cards and used a tightly-trained and coordinated group to track the game and other matters. The mathematical part of it is relatively basic—it has to be or the casino could expose itself to uncertainty through complexity. Another “team” I was told about was an organization of different size and approach in contrast with the MIT team.
I've never tried to count every single card. You're right - that would be ridiculous. But, even paying just a little attention to patterns - i.e. how many face cards versus other cards are being dealt - can help. Even with 6 decks.
Those wanting to pay more attention can go with the old-fashioned plus/minus system. "+" or every face card, "-" for others. If you find the minuses are greatly outweighing the pluses at some point, don't be afraid to bet bigger on the next hand.
I like how the casino industry has changed the word “gambling” into “gaming”. Less ominous, I suppose.
“What do you think we’re doing out here in the middle of the desert? It’s all this money. This is the end result of all the bright lights and the comped trips, of all the champagne and free hotel suites, and all the broads and all the booze. It’s all been arranged just for us to get your money. That’s the truth about Las Vegas.”
I once remarked to another statistician that I could achieve the expected value by not playing. His reply was that I must think it's a fair game. He was right. The expected value is negative. By not playing, I do better than the expected value of playing.
I went to high school with a guy who inherited a lot of money, including a farm. He worked hard and increased his wealth quite a bit. He lost every thing at a casino. I’ve heard numbers from $3 million to $8 million. He’s 62 years old now lives with his 90 year old mother.
Maybe because any game you play can be risky like gambling is?
Yeah thats how they pay for all those really nice casino’s. With the money they pay out.
(The chips can be cashed in casinos worldwide.)
With all due respect, I’m not sure that is correct.
Whichever casino issues the chips, is the casino that accepts them back. Were I to take chips from MGM and head over to Ceaser’s, they would not accept those chips.
Just curious what you meant by that statement.
“Slots KEEP 97-98% of the money they take in.”
Other way around. House take on the slots is typically 2-10%
Most is returned to the players but the house always wins their take
Card counting is not keeping track of every card. Each card is assigned +1, -1 or zero value. When the value gets high (more aces, tens and face cards left to deal), counters bet large.
It's not just an issue of counting cards. With just a single deck there are four aces. The probability of the four aces being grouped toward the bottom of the deck is what the card counter is hoping for. This increases the odds of a better payoff.
If you count cards in a single deck and the aces appear at the top of the deck, the opportunity to benefit has disappeared before you can take advantage and it would be disadvantageous to continue playing with the remainder of the deck.
With six decks, and twenty-four aces, the probability goes way down that the aces will group toward the bottom of the deck. No matter how accurately you count, you will still have to wait an inordinate amount of time before the six decks are arranged in such a way that the bottom of the deck is more advantageous for the player than for the house.
holy crap you need to chill!
While that has been generally true, I think the amount of subsidy for the meals has decreased as the economy has sagged.
As for the games, the issue of subsidy is also relevant.
My wife loves slot machines. She can sit for hours playing the same machine and only recently has she grown somewhat less interested in doing so.
For some time we would make a weekly circuit visiting three Indian casinos in our area. They have "Senior Day" at each one. At one, for example, if you wager a total of $30, the casino would then provide $20 free for additional wagering.
Five dollars played a nickel at a time in a machine takes about thirty minutes. At this rate, playing $30 takes three hours. If the machine pays at 95%, then you can expect to have, on average, $28.50 returned from the $30 wagered. At this point, the casino gives you $20 to wager. After an additional two hours, you can expect to have $19 remaining of the $20 supplied by the casino.
Subtracting the $1.50 cost of earning the additional $20 and the $1 take while wagering the $20, one can expect to leave the casino after 5 hours having an additional $17.50 in one's pocket, or $35 for a couple.
My wife and I would typically hit three such casinos on our "casino day" and thus would have about $100 to show for the day. This would be the average benefit. The variability is quite high, so some trips would yield $30 or $40 dollars and some several hundred dollars.
When you add back in the subsidized meals, it was pretty cheap entertainment. The "trick" is that you must never spins the wheels unless the house is subsidizing the spin.
Sometimes these same casinos would even provide a "match play" coupon allowing a $10 bet on a blackjack table for only $5. Roughly half the time you win and half you lose. For every two times you use such a coupon, you tend to lose $5 once and win $10 once, for a net benefit per coupon of $2.50, or another $5 per couple.
A fourth casino in our area offered a special slot-machine "Buy In", providing $260 of play for $200 in cash. Having nothing better to do during the day, I took advantage of this every day for almost three months before so many people must have figured out the benefit that the casino cancelled the program.
I'll let you calculate what I took from the casino during that time.
Even that won't help. The MIT team was taking advantage of a legal way to play which caused the game to favor the player and not the house. Most casinos have now changed how they manage the cards so that the advantage is with the house. You can play to minimize your loss but there is no way to win long term while playing a game which favors the house.
A professional statistician I know tried to board an airplane with a bomb in her carry-on luggage with no intention of setting it off of course. She said as a way of explanation that the chance of two bombs being on the same flight is statistically infitesimal.
If you win consistently at a casino you definitely will get noticed. The house’s argument is that these are games of chance and if you eliminate chance you’re illegal. Of course, no player can totally eliminate chance. That the state is in cahoots with the casinos is no surprise, given their dependence on gambling revenue.
Casinos make it up in volume. Just like my computer computer company told me when we were selling machines below production costs.
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