Capably told story about a group of physicists who figured out how to beat the house at roulette. If you're a serious geek about risk management, bet sizing or other aspects of gambling theory I'd recommend this book, but for most readers Ben Mezrich's Bringing Down the House tells a similar story better.
That said, it was interesting to see how gambling intersected with a group of physicists during the '70s and '80s, during the days of the first widely commercialized semiconductors and computer gear that people could use to "homebrew" their own computer setups. This book was in some ways a fun retrospective on Boomer-era computer geekery, kind of like Steven Levy's (really good) book Hackers. These physicists (many of them peaceniks who refused to work for captured universities, or worse, defense contractors) formed a utopian partnership just to figure out how to beat the game of roulette and stick it to greedy casinos. It took them years and it never made any meaningful money.
Major gambling figures like Ed Thorp (famous for his blackjack book Beat the Dealer) make an appearance, there's a lot of discussion of the history of roulette and previous failed efforts to beat it, and a lot of discussion of problems ancillary to all gambling situations--problems like proper bet sizing, bankroll management, and even emotional management, all of which have to be considered when you have a system that wins, but wins in a statistically "noisy" way. It's unnerving (even for gambling experts) to know that even in instances of tremendously favorable odds you can still have plenty of risk of ruin.
Note that lot of these types of problems show up in investing: even with a proven system, you never seem to have a bankroll big enough to move the needle in terms of your profits, and it takes too long for you to bootstrap serious wealth just using your own capital. This is the paradox for individual investors: unless you're already wealthy, it takes too long to compound genuine wealth!
Finally, you can't help but think: casino gambling just pales in comparison to investing as both a "game" and a way to build wealth. Casino games are zero-sum with a large "rake": investing is mostly positive-sum with a much smaller rake. Casino game odds almost always favor the house; investing odds favor the prepared and the patient. Casino games scale poorly and you can easily get booted from any casino if you appear to be counting cards or even winning too much; in investing nobody knows who you are until you get big enough to file 13Ds!
You can see why quite a few of those who made their names gambling eventually moved on to the stock market.
Notes:
* The book starts in medias res with two members of the team entering a casino with computers in the soles of their shoes, along with transceivers/transmitters and a whole 5K of RAM! It's enough to beat roulette with a 44% advantage thanks to the program they're running.
* The advantage on the odds comes from measuring the force of the ball and various other velocity metrics, where the ball falls off, the ball's "bounce" and "scatter," and then the rate at which the rotor decelerates, also other general wheel parameters like tilt.
* Background on me to protagonists James Doyne Farmer and his partner Norman Packard (cousin of Dave Packard from Hewlett Packard). They try poker, blackjack and then settle on roulette.
* On the name of their company, Eudaemonic Enterprises: "Aristotle posits the existence of many daemons, or spirits, but his favorite among them was the eudaemon, or spirit of rationality. Eudaemonia describes that special happiness resulting from an active, rational life."
* Quite beautiful to read about these guys, their project, and their Utopian idealism.
* Sidebar chapter on the development of the computer and the integrated circuit starting with Pascal, then to Babbage, then and World War II, then to Intel's "computer on a chip" co-invented by Bob Noyce.
* It's romantic and nostalgic to read this story of entrepreneurialism, of sticking it to the Man, trying to figure out an intractable problem using relatively new computer technology, also it's interesting to see California in these days.
* "The computer can't tell you the emotional story. It can give you the exact mathematical design, but what's missing is the eyebrows." --Frank Zappa
* Mind-blowing to think about the idea that some of the card counters would "play both sides of the deck"--meaning some of them, like Larry Revere, owned a casino and gambled. You could extrapolate from here and assume that a smart casino would want to encourage card counters to go to other casinos (any casino but yours), and of course there was a constant escalation of "beat the dealer" techniques versus methods of identifying people using the techniques etc. Also, in some cases the card counters were the best rubes of all! "With the proliferation of schemes there was a war going on between the casinos and the professional gamblers. Revere himself got co-opted when he bought a casino. Soon it was impossible to tell who was whom, especially when the casinos started pushing schemes themselves. They understand that nobody loses money faster than a card counter. One mistake and you're lost.") Man, the idea of one of the greatest card counters in history buying a casino is somewhat disturbing for any of us who might try card counting ourselves.
* Note furthermore how you have to disguise your betting strategies, you have to manage your chip cashing, you have to kind of act down, as if you're losing, etc. Otherwise the casino identifies you and can throw you out.
* See also Ken Ustin, Stanford Wong (introduced team play), both famous card counters.
* Note also that Ed Thorp had tried to run a roulette system but he didn't have the same amount of adjustable parameters or the use of a computer
* History of the roulette wheel, its journey across Europe to Monaco and then the USA, attempts to beat it and various betting strategies, history of efforts with biased wheels, etc.
* Interesting to hear people's dismay at the amount of work it takes to beat a game like roulette or blackjack; even Ed Thorp, who attempted to beat roulette gave up even after the advent of microprocessors and digital computing: "I'd never go back to it, it would require a huge amount of work."
* On statistical mechanics and applying it to gambling theory, and even to the stock market; even Ed Thorp had moved on to the stock market--the odds are better!
* On betting strategies and avoiding ruin; on your bet to bank ratio (the size of each bet relative to your total capital). One unnerving aspect of this entire domain is to know that even in instances of tremendous favorable odds you can still have plenty of risk of ruin.
* The players didn't just have to have disguises and disguise their actions they actually had to disguise their bets too, it's interesting to think about betting but also camouflaging the idea that you're betting in a certain way. Doing the whole thing under a type of camouflage, because there are adversaries all around you in the form of the croupier, the pit boss, etc.
* One striking scene where one of the project members was having a good evening working the roulette wheel and tipping the croupier who consistently would place the tipped bet on the number 17. When asked why, he said, "Because if I do everything just right I can actually hit seventeen. Not that I can do it every time, mind you, but I can get close to it. I set the wheel going at a steady rate and then I flip the ball in this nice regular way when the zero was lined up in front of me, and I swear I can hit seventeen with better than average odds."
* Interesting musings from the different participants on all kinds of topics; in a way this book is all over the place but it doesn't really hurt the story, rather, it makes you think. See for example this quote from one of the people in the book, a young law student from a wealthy New England family, grappling with the fact that she was born on third base, and wishing, counterintuitively, that she didn't have any money:
* One of the guys, Juano, was unlucky; he gave people around him a sense of unease because bad things seem to always happen to him. Reminds me of the Bowtied Bull comments about staying away from people who are unlucky, a type of very unusual grandmother's wisdom.
* "The allure of Las Vegas lies in money that you can finger. The New York stock exchange handles more of it every day, but the money there has been abstracted into certificates or digitized into read-outs. The money in Las Vegas is tangible and fluid."
* Sensitive dependence on initial conditions: an idea of ordered or fractal chaos with equations of motion and also of fluid dynamics, weather, etc.
* Edward Lawrence, Otto Rossler, other early explorers into chaos, contrasting with the Laplacian world of order and predictability as described by Pierre-Simon LaPlace. See also the various philosophical debates that have erupted from this about free will and how programmed reality may actually be.
* These guys really are betting like pikers worried they were going to run out of money. Some average bets were as low as 60c! Finally they have a high quality day clearing $1,000. On dealing with the notion that you have a proven system, but you don't have a big enough bank roll to move the needle in terms of your profits, so you need to obtain outside capital, it takes too long for you to bootstrap off of your own capital. This is another insight for individual investors, a paradoxical problem we all have to deal with: it takes too long to compound yourself into wealth unless you're already wealthy.
* They ran their system using "retained earnings" and then realize they should have pushed their stakes and betting a lot harder a lot earlier.
* They also needed to professionalize and miniaturize the equipment. Then the project got kind of put on ice, all the equipment got put in boxes and got mildewed, this is all the late 70s.
* Hiring a guy to design a "computer in a shoe" [hey, the first wearable!], which took more than a year.
* A huge journey here through different computer components: ROM, PROM, EPROM, CMOS, RAM, etc. And programming/chip manufacture concepts: AND/OR and NAND/NOR gates
* One character mourns: "I no longer have any romantic interest in playing roulette... But if we could make twenty thousand dollars a month, then it would be worth it." Funny how it always comes down to money...
* I'd like to thank an anonymous fellow reading geek for noting a mis-ordering of pages in this book!
* Their roulette system worked briefly and then fell victim to spurious noise problems. The team declares victory and leaves the field. "We already have our statistical victory... We just snap a few photographs and show them to our grandchildren."
* Ultimately the story ends mournfully. Everybody goes their separate ways, sets off on new and different things and different directions. It makes you think about how many business ideas actually manage to prove themselves to some small level, but just never became anything big or sustainable, and thus were ultimatley invisible and forgotten except to those who participated in them.
Vocab:
Satyagraha: a policy of passive political resistance, especially that advocated by Mahatma Gandhi against British rule in India
Syzygy: a conjunction or opposition, especially of the moon with the sun.
"the planets were aligned in syzygy"; a pair of connected or corresponding things. "animus and anima represent a supreme pair of opposites, the syzygy"
Alembic: a distilling apparatus, now obsolete, consisting of a rounded, necked flask and a cap with a long beak for condensing and conveying the products to a receiver.
Squamous: covered with or characterized by scales. "A squamous black hide." Relating to, consisting of, or denoting a layer of epithelium that consists of very thin flattened cells. "squamous cell carcinoma."
Agon: a Greek term for a conflict, struggle or contest. This could be a contest in athletics, in chariot or horse racing, or in music or literature at a public festival in ancient Greece.
Entelechy: the realization of potential; the supposed vital principle that guides the development and functioning of an organism or other system or organization.
Bacchante: a priest, priestess, or follower of Bacchus.
To Read:
Herbert Bilberman: Salt of the Earth (blacklisted film)
A.H. Morehead: Complete Guide to Winning Poker
Lawrence Revere: Playing Blackjack as a Business
Johne Scarne: Scarne's New Complete Guide to Gambling
Alexander Woollcott: "Rien ne va plus" (1932 New Yorker article)
***Richard Epstein: The Theory of Gambling and Statistical Logic
Ed Thorp: Beat the Dealer
Ed Thorp: Beat the Market
Wilhelm Reich: Character Analysis
Allan Wilson: The Casino Gambler's Guide
Fyodor Dostoyevsky: The Gambler
Ian Fleming: Thrilling Cities
James Gleik: The Information: A History, A Theory, A Flood
Mario Puzo: Fools Die