A Look at The House Advantage

Jeffrey Ma is the real-life inspiration behind the novel Bringing Down the House and the movie 21, both of which tell the story of the MIT Blackjack team. Since retiring from blackjack, Ma has worked as an options trader and an advisor to professional sports teams. The House Advantage represents Ma’s advice as to how to apply the lessons he’s learned in his career towards other business situations. Since I’m in the gambling business, I was most interested in how those lessons would help me improve my bottom line.

There were numerous blackjack and other references and examples in the book. Many of these are applicable to video poker:

1. He practiced four hours a day to keep his blackjack skills sharp. And this was after he knew enough to be on the team. Since most of his blackjack trips were on the weekends (he was a student midweek), this meant he spent 20 hours practicing between weekly trips. I currently study and/or practice (including teaching and writing articles) 10-15 hours a week and believe this is key to my continued success. How much time do YOU spend practicing your craft?
2. A handicapper (Dr. Bob) had a long term average of 56% football winners — which is enough to make a nice living handicapping and selling his picks to others. At one point he ran bad and went through a 5-32 slump. He assured all who would listen that his methods work and he fully expected to win 56% of his games in the future — but still a lot of his customers bailed. He followed this up with a nice winning streak. And he still said he expected to win 56% of his games in the future. Short term variation is irrelevant.
3. The first time Ma lost $100,000 in five minutes he was devastated. He took a few hours out, decided that he had played correctly and had a sizeable advantage and just got unlucky, and proceeded to go and continue to play that weekend. He made up for this loss, and more, before the weekend was through.
4. Ma knew the math and strategies cold for all of the plays. Whether he was up or down didn’t matter. He played by the strategy. I’m continually surprised at how video poker players change what they’d planned because they happened to be up or down today.

One thing I learned from this book has to do with sports betting. Say you’re thinking about betting a NFL football game between the Patriots and the Raiders. For the previous 10 weeks, the Patriots have had the fewest turnovers (giving the ball to the other team by fumbles or interceptions) in the league and the Raiders have had among the most turnovers. The Patriots are favored and you’ll have to give points if you bet on the Patriots (to make up for the fact that the Patriots are the better team) and you will get points if you take the Raiders. Which team is likely to be the more intelligent bet?

The answer is the Raiders. The public is very aware that turnovers will kill you. What the public doesn’t realize is how much luck is involved in turnovers. This means the public over-emphasizes the value of past turnovers. If the “fair” line had the Patriots favored by five points, the actual line would likely be bet up to eight points or so simply because gamblers wanted to bet on the team with fewer turnovers. Betting on the Raiders in this example you’re getting a three-point “bonus” because of this public misperception.

In his chapter called “The Impractical Search for Perfection,” Ma starts off by quoting René Descartes: “Perfect numbers, like perfect men, are very rare.” Often in our business life (i.e. in gambling), we need to make decisions based on imperfect information. Ma argues that you use the best data you can get and then you go ahead and make a decision and live with it. Many people keep holding back because they don’t have all the information and so they fail to make a decision. A video poker example of this is progressives. Let’s say you know a progressive at the M is worth 103% if you know the strategy well — but you don’t know the strategy perfectly. Ma (and I) would argue that you’re better off using the best knowledge you have and playing anyway. Even if you only played at the 99% accuracy level, the net return on the game is 102% and it’s possibly better than any other option you have. Taking the time to master the strategy, it’s likely the royal will be hit by somebody else and the opportunity missed.

Ma’s take on the hot hand theory in basketball is interesting. The hot hand theory says that if a player has hit his last few shots, he is more likely to hit his next shot. All the analysis says that this is incorrect — even though players and coaches strongly believe in it. Ma’s theory is that there is something to this — for some players. When you look at the data for all players, the phenomenon doesn’t exist. But for certain players it does. Where many players and coaches (and television play-by-play announcers) go wrong is believing it exists for ALL players. And that’s simply not the case.

I like Ma’s form of strategic thinking — perhaps because it’s similar to the type of thinking that other successful gamblers use as well. In this book, he applied that type of thinking to some areas that were new to me. I learned from The House Advantage.