Never Endure From Http: Again

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Everyone knows someone who loves to gamble. Whether it's slot machines, poker, or lottery tickets, we've all seen people eagerly gamble with their money. We've also all heard claims that the lottery is "rigged" or that slot machines at a certain location "never pay out." It's obvious that the people offering these gambling venues have an edge, but if we want to gamble for fun or entertainment, how do we decide where we have the best chance of winning?

How do we figure out if we're more likely to win with a $5 state lottery ticket or with $5 worth of quarters into a slot machine? Before we jump headfirst into this, we need to decide on a standard of comparison so we can compare different games. Some gambling games are vastly different in rules and payout structure, so we need something that will be fair and accurate. This standard should incorporate all aspects of a game and give us a single number that we can use to say "game A's number is higher than game B's number, so the chance of coming out ahead with game A must be higher." As it turns out, there is such a number, but first, let's play a game.

Suppose we flip a coin that has an equal chance to land on heads or tails. If the coin lands on heads, then you pay me $5, and if the coin lands on tails, then I pay you $2. I obviously have a pretty big advantage here. Do you know anyone who would openly and willingly play this game with me? The answer might surprise you. If we flip the coin twice, then on average we'll have one heads and one tails. You will lose $3 total, or $1.50 per flip.

Since you are wagering $5 on each flip (ie: ( I'm only wagering $2), and you lose $1.50 per flip, then you're losing 30% of your wager on average. It follows that you'll retain 70% of the amount you bet when playing this game. It's this value that we'll use to compare different games--the percent of our wager that we expect to keep after each bet. This value is referred to as the payout of the game. Now that we have our standard, let's compare this game with more popular games.

For example, let's look at the NC state lottery. Remember that with the coin-flipping game, we said we doubted that anyone would play a game with only a 70% payout. After just a small amount of research, we would be very surprised to see that the NC lottery only has a 50% payout, which is 29% less than the coin-flipping game I described earlier. Imagine how many people have played the NC state lottery since it was introduced in 2006.

How imagine how many of those people would play the coin-flipping game we talked about. The lesson to be learned here is to do a little research before you decide to gamble. Gambling is fun and can be excellent entertainment, but you might as well take the time to minimize your losses in the process. It's quite a rush to pick up a $5 scratch-off lottery ticket because of the perception we have of the lottery as a part of the general public, but without knowing the numbers, we might as well be throwing our money away.