On becoming a better gambler...........

[beermantm]

WHEN DID IT ALL START??

I'm sitting here right now pondering thoughts I had about poker when I was in a more inebriated state. It's funny how my mind seems to relax and calm to have certain moments of epiphany when others sit transfixed on tv's or video games. I thought back to when I started gambling in my life and as far as I can remember I've always gambled to a degree. I'm sure most of you are the same but perhaps there is a difference. I remember back when I was first starting to ride bikes with buddies in the neighborhood. There was a curb at the end of the block that was rather large and steep. The curb was built in a weird place because the street ran in a half circle so if you hit the curb on your bike you could get a decent distant into the air. I was the first one to hit this curb on my bike and when I came down my handle bars striped the goose-neck on my bike and I fell. I felt pretty confident about hitting it again so I went to the bike shop and bought a tuff neck clamp for the handle bars and did it again while my friends watched. Success!!! Soon after this everyone was hitting this curb and the jump became boring....... we needed something higher. From there we built a ramp in the ally right about were that curb was. The allies back then were still rock and dirt and the ramp we built was about 3 1/2 feet high. This was the biggest height I had ever faced at that time but again I was the first one to hit the ramp. I remember having to hit that ramp about a half dozen times to figure all the flaws that need to be fixed in the ramp and I crashed nearly every time. The very last time I hit the ramp I successfully jump the ramp at full speed, got about 4 1/2 feet of air and landed the bike perfectly only to notice that I was going str8 out to the middle of the street and there was a truck coming right at me. I was full on the brakes, knew I couldn't stop and it looked like I was going to t-bone the truck so I laid the bike down. I heard the screeching of the tires as the neighbor from down the block desperately tried to stop from running me over. As we both came to a stop I found myself half way under his truck in between the front and back tires on the drivers side. Only a few scratches on me in the end of what appeared to me to be the possible end to my existence so I guess I made out OK. Needless to say the neighbor from down the block was as hot as I've ever seen anyone get. He started screaming at me and my friends then jumped in his truck, went around the half turn and came back through the ally and ran the ramp over making sure we couldn't go back to using it again. From there on out the ramps got bigger and bigger but also better located. The last major jump I remember making was off about a 12 foot dirt ramp over wheel-barrels filled with wood and lit on fire. I almost made it. Unfortunately I figured out I didn't have enough speed when I hit the top of the ramp and had to go through with the jump anyway. I tried to pull up real hard to clear the last wheel-barrel but this adjustment backfired and made the front tire drop forward and made the back tire sling shot almost above my head. My front tire caught the outside edge of the last wheel-barrel and rolled str8 into the fire giving me just enough time to bail off the bike. While I tried to play the incident off by making a little show out of the fall and getting up and taking a bow my rim was burning in the fire. I ended the day by carrying the bike back home with a flat melted tire and a half melted and bent Z-rim.

I told this little story because almost every jump that I made that others were afraid to do first had a price tag on it. If I made the jump first I would usually get something for my effort. The bets back then were obviously more simple but I never realized that I was gambling back then. The truth of the matter was that I had a big edge in winning the bet because most of the time the bet was they didn't think I would do it. I would win the bet regardless of the jumps being successful or not but by simply having the nerve to hit them in the first place. This was a bet that favored me because there was no way to lose the bet but there was the risk of physical injury. I suppose getting hurt could be considered losing the bet in a way but you actually always got paid off.

I'm sure most of us had this in our lives. If you think back you could probably come up with a number of things you did, when you were younger and growing up, that could be considered gambling even if you didn't know it at the time. Also you had no idea of what odds were but believe me you were thinking about your chance of winning and had an idea of how successful you were going to tend to be.

You see to be successful in life you have to gamble. Everyone that is successful is a gambler however they are gambling on the right things. They gamble on things they know they are going to tend to win. Maybe they have been told the odds are bad but they know in their heart the odds are better for them. Maybe they don't know the odds at all but they just have an idea of the tendency for them to be successful at that particular thing. People that can assess the odds accurately enough know what to gamble on. They know when they are favored. People who just gamble for the sake of gambling are going to tend to lose. How many people can you think of that have gambled wrong?? How many do you know that have gambled with drugs or alcohol?? How many do you know that gamble and take bets they are bad?? Wrong relationships?? Wrong purchases?? How many people do you know that just consistently gamble on the wrong thing??

Actually everything I wrote up till this point you already know but it's only put in a different context. I guess this is not the eye opening part but simply an assessment of all the gambles I myself have made throughout my life. It's also a way to get you to relate to so that you can look back at your life and try to think of all the gambles you have made. The real epiphany came when I started thinking about what I'm gambling on now and what are my edges?? What makes me favored?? or what am I gambling on that I'm not favored at?? This isn't always so clear and I'll try to explain.

ASSESSING THE ODDS

If you are anything like me you might find that your abilities are not extraordinary in any one thing. You might be good at a lot of things but an expert in nothing. This is probably the most common situation to find yourself in. So how can we accurately rate our day to day gambles and are we making enough gambles? My guess is you have to start tuning your brain into each choice you make every day of your life and start focusing in on each gamble as an important choice. No matter how small a choice may be you will have to consciously know you are in a gamble and assess what side of the gamble you tend to win on. Each choice is as important as the last to create a steady constant gain. If you find you are not making enough choices or taking enough gambles you may have to go looking for gambles to make. You should look for gambles that you can tend to win. Knowing what you are going to tend to win starts with the things you are good at. What are you good at and how can you exploit it?? What steps can you take to make an immediate gain and what steps can you take to ensure future gains?? Some choices the answer will not be so clear but some answers will be crystal clear. If you have something to gain and it has no cost then you are winning by trying to gain. If you have to risk something against the gain then which side of the choice tends to be more winning??

THE BET

I bet you!!!! Thats right I bet you that if you seriously try to apply this to your life for 30 days you will not only make a gain in your life you will feel like a winner over all. Try it. Buy a small notebook from the store either tonight or tomorrow and try to keep track of all the choices that you make. Write down the choices and after you made the choice no matter how small it might be write if you feel like you won the bet or lost. Treat every choice as important as the last choice and seriously think about the side you most tend to win on, then make the choice. Do this routine even for choices that seem to be easy. Come back in 30 days and tell me if you are a winner!!

Will you take the bet???

[homedawg]

[NevadaJay]

Great post beerman. When I first opened it up I was thinking 'this is too much to read'....but I guess I took the gamble and read the post. I'm glad I did.

[FlyersFan]

[beermantm]

This was an answer to a question about probability and if we should apply it to a wager that would only be made once. The answer was so well written that I thought I would share it with everyone here. It was written by Jason1990 on 2+2 and although I have understood these concepts for quite some time I would never be able to explain them so clearly. Hope you enjoy.........



In Euclidean geometry, the word "point" is undefined. Rather than being explicitly defined, it is characterized by the axioms of geometry. A point is any object which satisfies those axioms. Similarly, the probability of an event is simply a number between 0 and 1 which satisfies the axioms of probability. There is no mathematical definition beyond that.

What you are wondering about is the interpretation of probability. There are many competing philosophical interpretations of probability. The four major competitors are the frequency, propensity, subjective, and logical interpretations.

Here is a very loose description of the four interpretations. Imagine we flip a biased coin and we wonder about the probability of heads. According to the frequency interpretation, we can only talk about this probability if the flip is part of a long sequence of flips. In that case, the probability of heads is simply the limiting ratio of the number of heads to the number of flips. This is what you mentioned in your OP. If the coin is only flipped once and then subsequently destroyed, then according to the frequency interpretation, it does not make sense to talk about the probability of heads.

The propensity interpretation, however, does not require a long sequence of flips. Suppose we claim the probability of heads is 0.6. According to the propensity interpretation, this means the coin (or rather, the entire experimental setup, including the coin, the flipper, the air in the room, etc.) has a propensity for producing, in the long run, 6 heads for every 10 flips. It does not matter if the coin is destroyed after one flip. The probability of 0.6 refers to the potential frequency that would arise if we could flip it many times.

Both the frequency and propensity interpretations regard the probability of heads as describing some real physical property. With frequency, it is a property of the sequence. With propensity, it is a property of the experimental setup. The subjective and logical interpretations, on the other hand, do not regard probabilities as representing physical realities. Instead, they represent degrees of belief.

Suppose Joe says the probability of heads is 0.6. According to the subjective interpretation, this means that if Joe was offered a choice between these two bets:

(a) win $4 on heads, lose $6 on tails,
(b) lose $4 on heads, win $6 on tails,

then Joe would be indifferent as to which bet to take. The probability of 0.6 represents Joe's personal betting preferences regarding this event. Another person, say Jack, may have different preferences. Jack might, for instance, say the probability of heads is 0.3. In the subjective interpretation, neither is right or wrong. The statements they are making are not contradictory. They are simply subjective. This looks like it might be a totally useless interpretation, but there is one caveat which somewhat fixes this subjectivity. In the subjective interpretation, Joe's and Jack's probabilities must be "coherent," which means that they must obey the axioms of probability. These axioms ensure that if the coin is flipped many times, then Joe and Jack will no longer disagree about the probability of heads. Their subjective opinions will get closer and closer to each other, and in the limit of infinitely many flips, they will exactly agree on the probability of heads. In fact, their subjective opinions will match the frequency of heads to total coin flips. However, if the coin is flipped only once, then their opinions may differ dramatically, and (in the subjective interpretation) no one can say who is right or wrong, because in fact neither is right or wrong.

The logical interpretation is similar to the subjective. Probabilities represent degrees of belief, but they are not meant to be subjective. In the logical interpretation, probabilities arise because we have uncertainty about some proposition or event. This uncertainty exists because we have only partial information about the thing in question. In the logical interpretation, it is postulated that there exists some ideal form of reasoning that can be applied to this partial information which will yield a probability. In other words, if Joe and Jack have the same information about the coin flip, then they should arrive at the same degree of belief. In the logical interpretation, probabilities do not belong to the person stating the probability, but rather to the information which that person possesses.

Notice that it is only the frequency interpretation (the one you described in your OP) which forbids probabilities for one-time events.

Now, you also brought up EV and decisions. Probability theory (and science in general) cannot tell you what decisions you should make. It can only tell you the consequences of the various decisions you are considering. It is up to you to decide which consequences you prefer. Physics, for example, cannot tell us whether we should split an atom. It can only tell us what will happen if we do. The same is true of probability theory.

As far as EV is concerned, the relevant theorem is the Law of Large Numbers (LLN). The LLN, as you probably know, says that if you perform a sequence of independent and identically distributed wagers, then the overall average rate of change of your bankroll will converge to the EV of a single wager in that sequence. People often ignore the details of what the LLN says, and simply act as though it says you should always maximize your EV. But it is a mistake to ignore the details. In particular, it is mistake to ignore the fact that the LLN contains hypotheses which must be satisfied before it can be applied. In particular, the LLN requires not only that you have a sequence of wagers, but also that they are independent and identically distributed.

For example, suppose you are offered a 3:2 payout on the flip of a fair coin. What percentage of your bankroll should you wager on this bet? If you unthinkingly try to maximize your EV, then you will bet your entire bankroll. However, if you did this many times, you would eventually go broke. The LLN does not apply to a sequence of wagers in which you always bet a fixed proportion of your bankroll, because these wagers are not independent and identically distributed. The Kelly criterion will recommend a fraction smaller than 100% of your bankroll. If you accept Kelly's recommendation, then on a single wager, your raw EV will be smaller than it would be if you bet your whole roll. So Kelly, strictly speaking, is not recommending that you maximize your EV. If you study the Kelly criterion, you will find theorems that explicitly describe the long term consequences of following the Kelly system. The theorems do not say, "follow the Kelly system." They say, "if you follow the Kelly system, then here is what will happen." In some circumstances, the LLN is valid. In others, the Kelly theorems are valid. And in still others, neither might be valid and we may need to turn to something else in order to discover the consequences of our considered actions.

If you truly only make one wager ever, then the LLN simply does not apply. But in reality, you will probably make many wagers. If you define "wager" more broadly as any decision under uncertainty, then life is one long sequence of wagers. Even so, the LLN may not apply if the wager you are considering is not part of some subsequence which is independent and identically distributed. In that case, it may or may not be a good idea to maximize EV. The Kelly criterion illustrates a concrete example of this.

[Big Pimpin]

Easiest thing to do is just fade Rothko's picks......leads to a solid 74.53% hit rate