Failure of a 'foolproof' gambling system

Calculating the true odds is quite complicated, but once every 28 or so times you begin the betting sequence on a 37-number wheel, you should expect to lose your entire capital base. I've dubbed this ''the Fairstar principle'':


Risk & reward

Consistent small wins can disguise the true relationship between risk and reward. 

A lack of appreciation of this principle has cost investors billions over the past three years. Funds run by the likes of Basis Capital, as well as the implosion of RAMS Home Loans can be linked back to the Fairstar principle.

Why? Because the business models were based on strategies that involved regular small wins (and, in the case of the funds, accompanying performance fees) until, one day, the unlikely event (or ''black swan'') turns up and calls ''time'' on the party.


http://www.smh.com.au/business/failure-of-a-foolproof-gambling-system-20100428-trch.html



Here is a good comment:

Any roulette system which starts with observing the behaviour of the wheel and when some particular pattern is observed, such as the "three consecutive same colours" commences operation, supposes that the wheel (or the ball) has a memory, which it does not.

Each spin is an event in itself, and what happened before is of no matter.

There could have been 100 consecutive reds and on the next spin red and black still have an exactly equal chance of occurring, assuming that the wheel is not rigged in some way.

"Common sense" might suggest otherwise, and that after 100 reds black MUST be overdue but common sense isn't common at all!

Doubling up to chase losses is a very risky business, if Bill Gates and Warren Buffett tossed a coin for a dollar a time and went "double or quits" after each loss one would eventually bankrupt the other.

And it would only take something in the order of 36 consecutive "double ups" for it to happen.

In fact, this is why casinos have table limits. Many people think they exist to protect the punter, but in fact they are to protect the casino from a punter with sufficient resources and nerves from continually doubling up until he wins.

If more punters studied elementary probability they would lose a lot less.

Reformed Gambler | Canberra - April 28, 2010, 2:01PM

To quote Albert Einstein, who knew a thing or two about maths: "The only way to win in Roulette is to steal from the croupier when he is not looking."

Reformed Gambler | Canberra - April 28, 2010, 5:58PM

Read also:
Behavioral Finance: Key Concepts - Gambler's Fallacy