PLAYING IT SMART by ALAN KRIGMAN

Do you count on, or disregard, aberrations in gambling?

Infrequent casino visitors rarely have strategies to manage wins and losses. They may say they'll quit if they get ahead after being in the hole, or if they're up then drop back by some amount. But they hardly ever follow through. Instead, they use what they bring to try to get as far as they can.

It's unfair to fault once-a-year or once-in-a-lifetime players for acting like this. As long, to be sure, as they don't go to the cash machine if they lose their initial stakes. They're out for entertainment rather than serious gambling. Their bankrolls are the cost of the ticket into the amusement park.

Calling such behavior a "strategy" would be using the term too loosely. Underlying a serious gambling strategy is the trade-off between frequent small losses in pursuit of sporadic large gains, and regular moderate gains while conceding the inevitability of intermittent substantial losses.

It helps, at either extreme or in between, to hold the house to the lowest possible edge. Either through the choice of games or by making statistically optimum decisions during the course of the action. More important, for determining where along the spectrum session results are likely to fall, is playing in a manner that controls volatility and skewness.

Quest of a major gain, understanding that most sessions will show affordable losses, implies high volatility, skewed so that a big portion of the overall return is concentrated in a major victory. This can be achieved making low-probability large-payoff bets. An example would be a slot machine which took $1 per spin and promised a jackpot of $10,000, $25,000, $100,000, or more. The same effect, more moderated, would characterize betting exclusively on single number at double-zero roulette for one chance in 38 at a 35-to-1 return. Parlaying wins likewise induces high session volatility and skew.

The converse, targeting recurrent moderate profits while realizing that a big loss is possible, albeit unlikely, is best achieved with low volatility and skew. Draw from a large bankroll for small wagers with close to 50 percent chance of success, that pay approximately even money. Banker or Player at baccarat, Pass or Don't Pass at craps with no Odds, and most blackjack situations come to mind. Go further in this direction, for example betting $1 on each of 31 numbers at double-zero roulette. You have 31 out of 38 chances -- almost 82 percent -- of netting $5 versus only 7 out of 38 -- only about 18 percent -- of losing $31. You could do something similar on multi-line slot machines, betting one coin on the maximum number of lines.

In this context, assuming edge could be equalized, the rational choice would seem to be shooting for the moon and taking losses that don't hurt much along the way. Lots of solid citizens indeed do just this. No single visit will be devastating, but one lucky spin can repay years of small losses -- and then some.

The problem is that few folks who gamble regularly are psychologically disposed for the emotional fatigue associated with extended series of even small setbacks. The logical part of the brain may approve of focusing on long term hopes for an eventual reward, but strings of losses can have an impact comparable to that of Chinese water torture.

The opposite approach, as pointed out by Nassim Nicholas Taleb in The Black Swan, amounts to risking dollars to collect pennies. Those who follow strategies of this type tend to succeed what seems to be an incredible fraction the time. Their confidence is reinforced by runs of triumphs. Emotion again overwhelms logic.

Hazards loom either way. The elusive big hit may never come. And the remote disastrous blowup may occur at any moment. You can chart a course between these extremes, although not many have the discipline to balance the logical and the emotional parts of their psyches. For, as the poet, Sumner A Ingmark, wrote:

Decisions in gambling about winning cash and all,
Are often not made using reasoning rational.

(c) 2007, ICON/Information Concepts Inc

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