Casino Standard Deviation

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The luck factor in a casino game is quantified using standard deviations (SD). The standard deviation
of a simple game like Roulette can e calculated using the inomial distriution.
!n the inomial distriution" SD # sqrt (npq )" where n # numer of rounds pla$ed" p # proailit$ of
winning" and q # proailit$ of losing.
The inomial distriution assumes a result of % unit for a win" and & units for a loss" rather than '% units
for a loss" which doules the range of possile outcomes.
(urthermore" if we flat et at %& units per round instead of % unit" the range of possile outcomes
increases %& fold.
SD (Roulette" even'mone$ et) # ) sqrt(npq )" where # flat et per round" n # numer of rounds" p #
%*+,*" and q # )&+,*.
(or e-ample" after %& rounds at % unit per round" the standard deviation will e ) - % - sqrt(%& - %*+,*
- )&+,*) # ,.%. units. /fter %& rounds" the e-pected loss will e %& - % - 0.).1 # &.0,. /s $ou can see"
standard deviation is man$ times the magnitude of the e-pected loss.
The standard deviation for 2ai 3ow poker is the lowest out of all common casinos. 4an$" particularl$
slots" have e-tremel$ high standard deviations. /s the size of the potential pa$outs increase" so does the
standard deviation.
/s the numer of rounds increases" eventuall$" the e-pected loss will e-ceed the standard deviation"
man$ times over.
(rom the formula" we can see the standard deviation is proportional to the square root of the numer of
rounds pla$ed" while the e-pected loss is proportional to the numer of rounds pla$ed.
/s the numer of rounds increases" the e-pected loss increases at a much faster rate. This is wh$ it is
impossile for a gamler to win in the long term. !t is the high ratio of short'term standard deviation to
e-pected loss that fools gamlers into thinking that the$ can win.
!t is important for a casino to know oth the house edge and variance for all of their games. The house
edge tells them what kind of profit the$ will make as percentage of turnover" and the variance tells
them how much the$ need in the wa$ of cash reserves.
The mathematicians and computer programmers that do this kind of work are called gaming
mathematicians and gaming anal$sts.
Casinos do not have in'house e-pertise in this field" so outsource their requirements to e-perts in the
gaming anal$sis field.
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