Thursday, June 07, 2007

A casino falls for the "hot hand" fallacy

We sabermetricians like to criticize sportswriters for failing to understand luck. A guy goes on a 3-for-25, and the press will be all over him wondering what's wrong with his swing and whether he should be benched. A team wins seven in a row, and we make fun of the announcer who says they're "hot" and they have "momentum" and that makes them harder to beat.

But that's the press. You'd think people that make profits by understanding how randomness works -- casinos, say – would be immune from this kind of thinking. Which makes this story so bizarre.

A high roller at Harrah's got lucky and hit a few jackpots on a video poker machine in Las Vegas. Next thing you know,
Harrah's is banning him from all their properties.

Are they kidding? Yes, there is some skill to video poker, but even if played perfectly, the advantage is still with the house. Not only that, but this particular high roller says that he already lost back 80% of his winnings.

Our innate bias, the one that makes us want to attribute events to something other than random chance, must be pretty strong. Even casinos can't resist the temptation, even when they're shooting themselves in the wallet.

Hat tip: Freakonomics

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At Thursday, June 07, 2007 3:23:00 PM, Blogger Tangotiger said...

Your link doesn't work.

In this particular case, casino don't have a prior of randomness. They have a prior that 1 in x people are cheating. I don't know if x is 100 or 1000 or 1 million. But, that's where they are coming from.

On that basis, banning one person every now and then that is the most likely to be that cheater would be prudent, in a pool of millions of bettors. It really doesn't cost them, unless of course people will turn their back on them due to bad p.r.

At Thursday, June 07, 2007 4:26:00 PM, Blogger Phil Birnbaum said...

Thanks, link now fixed.

Agreed that would be prudent if cheating were possible. But this is a video poker machine, over which the casino has 100% control.

How do you cheat a video poker machine?

At Friday, June 08, 2007 12:35:00 AM, Anonymous Anonymous said...

I know people who have come up with extremely clever ways of cheating at arcade video games just so they could get the high score (or extra credits). I imagine there are even stronger incentives when gambling is involved.

And if I were coding the software for these machines, it would be awfully tempting to build in some back door that would allow me and my friends to hit the jackpot if we came across the machine in the casino.

Or it may be that whoever did write the software doesn't understand randomness well enough, and that some hacker has figured out a pattern that breaks the machine.

Anyway, I think Tango is right, it's more about cheating than randomness.

At Friday, June 08, 2007 1:14:00 AM, Blogger Phil Birnbaum said...

I did some googling, and you guys may be right. Here's a story about some guys who actually figured out a way to beat video poker:

At Wednesday, July 04, 2007 11:27:00 AM, Anonymous Anonymous said...

This reminds me of that guy that cracked the Press Your Luck game show "random board" back in the 80's. I think the producer had to cut him a deal so he would stop...

In the end, for the casino its cheaper to have a policy of banning suspicious winners, even if 99% of people banned are truly innocent.

At Wednesday, July 04, 2007 11:37:00 AM, Blogger Phil Birnbaum said...

I think you and Tango and Jim are right ... easier to ban someone than to take the chance that he's cheating.

Haven't heard that rumor about the producers having to bribe the Press Your Luck guy ... and the GSN special didn't mention it either. But I thought it was suspicious that he stopped after enough time to exactly fill two episodes!


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