Edward Thorpe is the Warren Buffett of the gambling world

Mathematics in gambling is needed more than anywhere else. Being able to count and memorise cards gives you an advantage over the dealer. Edward Thorpe, an American mathematics professor, was the first to conduct a scientific study on the subject. He proved it was possible to win consistently at blackjack by counting cards. The publication of the book “Beat the Dealer” in 1966, caused confusion in casinos in Las Vegas and Atlantic City.

What’s behind the genius

Edward Thorpe was born into a poor family struggling to survive at all costs. His childhood took place during the Great Depression, so poverty forced him to study hard. His efforts were rewarded – he received a doctorate in mathematics from UCLA. This happened in 1958.

After training Edward worked at MIT for 2 years. In 1961 he got a job as a professor of mathematics at a public educational institution in New Mexico. In 1965, he moved to the University of California. For the first 2 years he taught mathematics and later finance. His work at the prestigious universities contributed to his scientific research.

A scientist’s first steps in gambling

During his studies Edward was not at all an avid gambler. His interest in blackjack stemmed from a casual conversation in a university corridor. Several professors were discussing gambling – they argued that it was impossible to win at a casino because of the establishment’s advantage.

By that time, the mathematician was already familiar with the Kelly Criterion financial strategy, which appeared in 1956. This approach pushed him to test his professors’ theory about the impossibility of winning consistently at casinos. The future bestselling author took up the study of blackjack. Mathematician immediately noticed some features – the more in a deck of large cards, the greater the advantage of the player.

At MIT, Thorpe had access to an IBM 704 computer. To learn how to operate it, he learned the Fortran programming language. Computing allowed him to do probability calculations and test how missing cards affected the final blackjack result. From the data, a simple scheme was developed that increased the player’s advantage from 0.27% to 0.61%, depending on the rules.

On paper, the strategy looks simple:

  • A group of cards from A to 9 is assigned +4.
  • From 10 to K -9.

If the player gets a positive number by the end of the deck, his chances of winning increase. In this case it is advantageous to raise the bet. In the long run, the system player will be on the plus side.

From theory to practice

As a scientist, Edward Thorpe understood that practical research was needed to prove the system’s effectiveness. To do this, he invested $10,000 of his personal funds and took Manny Kimmel, a former bookmaker and wealthy professional gambler, as a partner. They first went to casinos in Reno and Lake Tahoe. The first results of the experiment were successful – the mathematician won $11,000 over the weekend.

His method was soon widely discussed by casino staff. Many establishments refused to let Edward in, so in Las Vegas he used a disguise. Rounded-edged sunglasses and a false beard were enough to get him through the main entrance without a problem. Thorpe’s success was talked about by gambling enthusiasts, which prompted him to publish a book, “Beat the Dealer” in 1966. It sold 700,000 copies – enough to make The New York Times bestseller list.

Parallels between gambling and investment

Edward Thorpe is considered one of the most successful money managers. The Princeton Newport Partners hedge fund had an average annual return of 19.1% for 20 years. The mathematician’s success in the casino and the stock market allowed him to draw parallels, giving 5 tips for gamblers and investors.

  • Both can be analysed. Blackjack and the stock market have a set of data. These can be analysed to see what results actions can lead to. Gambling is a closed system with fewer factors, so it is much easier to make predictions than in the stock market.
  • Developing a strategy. By looking at different courses of action and the results obtained, it is possible to create successful tactics. Thorpe’s scoring system is no longer effective in blackjack, but his book was the source for the development of other casino winning techniques.
  • Testing the strategy. You don’t have to wager real money to be convinced of its effectiveness. The processing power of modern computers is hundreds of times greater than IBM 704. This is enough to test any technique. The main thing is to consider all the variables in the formula.
  • Capital management. According to Edward Thorpe, the Kelly Criterion is one of the best ways to calculate a bet. This approach allows you to find the optimal balance between risk and return.
  • Mental toughness. No strategy will give a 100% advantage, so in practice there remains the possibility of going into deficit. If the bank is reduced, it is important not to lose heart and continue strictly following the tactic. As a last resort, calculations can be made and the methodology tested.

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