PLAYING IT SMART by ALAN KRIGMAN

Why what you learn in the casino won't help you cross the street

You can learn a lot in a casino that will be valuable in real life. But, what's most important in the casino is application of probability theory to risk and reward. Unfortunately, knowing a lot about this topic won't help much in your everyday activities.

Here's why. Using terminology originated by Nassim Nicholas Taleb in "The Black Swan," casino games may be random but are inside "the Platonic fold." That is, they're explicitly and completely defined. Few events outside the casino enjoy such rigor.

In a casino, all outcomes and their associated probabilities are fully specified. At double-zero roulette, for instance, a winning $2 bet "straight-up" on a six pays $70, and the chance of getting this number is one out of 38. Even at the slots, you'd be aware that five gold stars is possible and pays $10,000 on a certain machine; you may not be privy to the related probability, but it's an explicit percentage known to the casino bosses.

Away from the casino, you can't possibly imagine everything that can happen in most situations, let alone the precise likelihood of things you do anticipate. Consider, as an example, crossing a street at a familiar corner with a traffic signal. You may have no uncertainty that if you step off the curb when the light changes in your favor, you'll have enough time to reach the other side before it cycles back. Would it occur to you to wonder about a circuit failing while you're in the roadway and the oncoming traffic suddenly getting a green light? And, were you to envision some such condition, would you have the slightest inkling of the chance it will happen? Likewise, would you speculate about a vehicle, for a reason that might make sense in retrospect, running the light? Or, that you'd trip on your loose shoelace and be unable to get up, while a car making a legal right turn on red would run over you -- the driver failing to see you because he or she suddenly sneezed? And there's always the load of steel beams falling on you from a helicopter at just the right point above.

Interestingly, Taleb points out that casinos leave the Platonic fold when they interact with the wider world. To illustrate, he points out that the Mirage in Las Vegas is big and varied enough to depend on the law of averages for protection from losses to solid citizens, provided the joint exercises reasonable judgement with extremely well-bankrolled high rollers and guards against cheaters, dice controllers, and card counters. The Mirage has invested hundreds of millions of dollars modeling, analyzing, and insulating itself against such risks. However, he notes that the casino had some huge setbacks in the past few years, all outside their risk management models. And that the costs of these non-Platonic hits swamped anything their countermeasures could avoid.

One case was a $100 million loss when Roy Horn of Sigfried & Roy was mauled by a tiger in the act and the show closed. (Yearly ticket sales grossed $45 million.) Taleb stated, "the casino had even conceived of the animal jumping into the crowd, but nobody came near to the idea of insuring against" its turning on Roy.

In another incident, casinos are supposed to notify the Internal Revenue Service when a gambler's profit exceeds some limit. The person responsible for mailing the forms never did so, but kept them in his desk. When the problem was discovered, the casino faced a loss of its license or a suspension -- and was fortunate to get off the hook merely by paying a substantial penalty.

In a third case, the daughter of then-owner, Steve Wynn, was kidnapped and a ransom demanded which was to be paid within a short period. To get the cash quickly, Mr Wynn "borrowed" from the casino reserve. The intent was to replace the money from funds he could easily raise, but not in a timely manner. Dipping into the till was a serious violation of Nevada gambling law, whatever the circumstances, and earned the Mirage a heavy fine.

Anyway, what's the sense of defending against a highly unlikely unanticipated event that already occurred, when you haven't a clue what might be next? As the poet, Sumner A Ingmark, put it:

Despite all precautions, you're quite unprotected,
From whatever happens that wasn't expected.

(c) 2007, ICON/Information Concepts Inc

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