Advantage gambling has a long history beyond the realms of sports betting. The value bettor of today is the blackjack card counter of yesterday. Indeed, if you set your mind on beating a game of chance, you will see opportunities where nobody else assumed they existed. If you come up with your original idea you have a good chance of making a fortune. The stories of those who did inspire anyone who has set the goal of beating the betting markets. Today I would like to tell you the fascinating story of the men who cracked the roulette – Ed Thorp.
If you a regular follower of this blog, you have already read my article on Bill Benter and his horse racing model. In fact, Bill Benter was inspired by Ed Thorp’s book on blackjack card counting to become a professional gambler. In a sense, Ed Thorp has started a lineage of the sport’s betting greatest. So we could say this article is about where it all began. Let’s see.
Ed Thorp: The life of an advantage gambler
Ed Thorp was born in a low-middle class family. Due to his mathematical talent, he managed to start a promising academic career. After getting his physics degree, Thorp was admitted to a PhD in mathematics from UCLA (University of California, Los Angeles), which he graduated in 1958. Reportedly, this is where his academic interest in gambling started to grow. After his graduation, Thorp has worked as a professor in MIT, New Mexico State University and University of California, Irvine.
From mathematics to Blackjack
In the meantime, Thorp developed his theories in games of chance further. Even though Thorp was pursuing an academic career, he was not afraid to apply his theories in practice. His most notable research (and the one that would later on grant him a widespread recognition) was in the field of blackjack. Thorp developed a winning card-counting scheme and in association with pro-gambler and notable undeground figure Manny Kimmel, made his first profits in Vegas casinos.
Ed Thorp’s 10 Count System
The card counting system of Ed Thorp took advantage of the fact that casinos were not reshuffling the deck before it was dealt to the end. Observing the cards leaving the deck, the relatively simple system calculated the chances to be dealt a good card from what is left.
Ed Thorp managed to prove that the system worked in practice as well as in theory. His discovery prompted him to write the best selling book Beat the Dealer, which laid down his system in detail. This was the first blackjack card-counting system made available to the general public. The book educated the first generation of smart punters, that would use their newly learned system to try and beat the casino, among which was the very William Benter.
Unfortunately the system in itself is insufficient to beat the casino nowadays. Today, casinos shuffle cards way before the end of the deck. However, it has been the basis for some more sophisticated blackjack card-counting systems to follow. Thorp’s contribution to the field of blackjack earned him a place in the Blackjack Hall of Fame
Stepping it up – association with Claude Shannon
Ed Thorp was starting to feel the taste of success, but his biggest hit was yet to come. Directing his effort away from shady illegal bookmakers and towards some of the brightest minds he encountered in his tenure as a mathematics professor, Thorp started working with Claude Shannon to find new edges on the gambling market.
Who is Claude Shannon
Claude Shannon was an early associate of John Kelly (yes, that Kelly) in Bell Labs. The two have worked together in the field of game theory and were well aware of each others work. This would lead to Shannon being among the first to recognize the potential of the Kelly criterion and apply it successfully to gambling and investing.
Shannon became famous for his research in the field of combined application of electricity and algebra to solve numerical problems, which earned him the nickname “the father of information theory”. It is safe to say that Shannon laid the foundation for the discovery of the modern computer.
And what else would the father of information theory do in his spare time, than find ways to crack the roulette.
Ed Thorp and Claude Shannon’s joint venture: Cracking the Roulette
It was known at the time that it is impossible to beat a balanced roulette. In its most popular format, the roulette has 36 red and black sections. Those are offering a 1/36 chance to pay you 36 times your stake, for an expected value of zero each. Then comes the green 0, which doesn’t win you anything and represents the house edge (and negative expected value for the gambler from the game) of 1/37 or around 2.7%. Pretty simple and very random game known to be EV- is what the roulette was at the time.
But was it really that random?
The question Throp and Shannon asked themselves was, is the roulette really random? After careful observation they have noticed some patterns of behaviour from the dealers, who were rolling the wheel.
In order for a casino to maximize its profit, the roulette must roll as many times as possible. This puts pressure on the dealer to run the wheel as quickly as he can. A good dealer would therefore be one that can learn to do the turns as seamlessly and automatically as possible. It is a skill that is acquired in time and the experienced dealers in Vegas casinos seemed to have it.
However, what this learned automation leads to, was that a dealer would (unknowingly to himself) tend to roll the wheel exactly a certain amount of times every time he rolls. A novice dealer would make, say, 27 to 31 rolls of the wheel. An experienced one, on the other hand would stay between 28 ¾ and 29 ¼.
The edge this discovery could yield was massive. Restricting the possible number of outcomes by half could enormously increase the EV of the gambler. He only needed to identify in which area of the wheel the ball was expected to land. To find this out was a difficult problem. But not so much for Thorp and Shannon.
The first wearable computer
Chances are you already have seen one of these:
The iWatch is the Apple model of a smartwatch, a.k.a. a wearable computer. Those things are quite popular nowadays. Their uses include measuring your heart rate while doing sports, checking the weather or making a phone call. But they were actually invented for gambling by, you guessed it, Ed Thorp and Claude Shannon. In other words, none of those fancy gadgets that millions of people are wearing today wouldn’t have existed, if not for those two smart men spending months sitting and thinking of ways to make some money on the roulette in Vegas. Remember that for the next time someone tells you gambling is immoral or a zero-sum game.
The two have tested the prototype of the first wearable computer in Shannon’s home basement in 1961. After the tests were successful, they have put it to good use in a number of casinos. The computer was counting the revolutions of the wheel and transferred the results via an electrical signal. It then transformed the signal into a sound played into the player’s ear, in what was an early form of a micro earpiece. Granted, the whole thing was a bit bulky and nothing that you can sell in an iStore nowadays. But it did the work, allowing its wearer to place a roulette wager with an estimated 44% edge over the house.
A money-printing machine?
The edge was indeed massive and there was enough unassuming casinos around there willing to take the action. This is not to say the scheme didn’t have its weak spots. For example, the connection to the earpiece was causing a lot of trouble. Therefore, it had to be fixed live every now and then, as Thorp recalls. Nevertheless, partly as a result of Thorp and Shannon’s invention, the state of Nevada banned the use of wearable devices in casinos later in 1985.
Today, the wearable computer is part of the exhibition of the MIT Museum in Cambridge, Mass.
What came next?
It quickly became apparent that for a mind of the caliber of Thorp, sharp gambling is too small of a playing field. Thorp applied his earned capital and mathematical insights in the financial market, which has since earned him hundreds of millions of dollars. However, he will always have a special place in hearts and minds of the gambling community due to his contributions to the field. Thorp’s work inspired the first generation of smart gamblers, who would employ mathematical and statistical models and use the assistance of electronic devices to win in games of chance.
From there on, the computer model of Bill Benter that beat the racetrack was only a matter of time and, of course, finding the right man for the job. Until today, when all sorts of sophisticated algorithms are being applied en masse to predict the outcome of a sporting event and beat the betting market. It was a fascinating development, that opened great opportunities in front of mathematically gifted people, but also continuously narrowed the playing field for everyone else. We shall see what the future brings in that regard.
Ed Thorp on the web
If you would like to dive deeper into Throp’s life story you can check his biography. It lays out the details around his discoveries and includes many interesting anecdotes. Furthermore, on Mr. Thorp’s website, you can find, among other things, a lot of great free articles on the topics of finance and gambling written by him, where you can learn a thing or two about his methods.
Finally, The Investor’s Podcast has done an interview with Ed Thorp, where you could hear the man speak:
As is obvious from the name of the podcast, the episode revolves more around finance. I find it an interesting piece nevertheless.
This was my report on the fascinating story of Ed Thorp and his gambling success. Being perhaps the first prominent advantage gambler, Ed Thorp contributed tremendously to the fields of blackjack, roulette and games of chance in general. Furthermore, he was ready to share chunks of his knowledge along the way by writing bestselling books and regularly appearing in the public via interviews or his own writings. In that way, he paved the way for many future betting legends such as Bill Benter, Zeljko Ranogajec, Tony Bloom and others.
The road to success is long and hard, but I hope Ed Thorp’s story gave you some inspiration to continue on your betting journey and perhaps a few ideas to work on. Next in line I have a few articles in mind about live betting, the progress of my LoL model and some interesting betting tools. If you subscribe to my Twitter channel and my newsletter on the upper-right corner of your screen, you will make sure not to miss any of these. I hope you enjoyed the article and see you around!