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Feb 25, 2021

# How Gambling Works

Luke Seidel

Casinos are the most profitable businesses in the world. But how is it possible that these companies have profits every year, even though winning or losing in gambling is mainly the outcome of chance? We will describe all in this article, where you will learn how gambling works and how it is possible for a casino to always win.

First, let's look at what gambling is. In general, there are several definitions of gambling. If we simplify this definition greatly, we can say that gambling is a game where the outcome of which depends in part or entirely on chance.

Games of chance

For example, slots or roulette are random. In these games, the player cannot influence whether he wins or loses. The player is just watching the game and waiting to be lucky.

Skill games

Skills games like blackjack, poker or video poker. By using knowledge or skills here, the player can increase his chances of winning. These skills include, for example, card counting techniques or understanding of optimal strategies for selected games.

As you can see, the element of chance is key in casino games. But how do casinos ensure the randomness of results? In land-based casinos, mechanical devices, such as electronic card shufflers or roulette bars that reflect the ball to a random spot or a physical roll of the dice, take care of the randomness. In electronic and online games, there is an algorithm so-called a random number generator.

## How a Random Number Generator Works

Before we look at how the random number generator works in gambling, we need to clarify the difference between a true generator and a so-called pseudo-random number generator.

True random number generator

They are physical processes that generate a series of random numbers. These are usually thermal, electrical or atmospheric noise, radioactive decay of photons' radiation source passing through a semi-transparent mirror.

Pseudo-random number generator

Computer algorithms generate numerical series of numbers in this case. These are not random sequences of numbers because these numbers can be concluded if you know the algorithm. So what makes these numbers random? With really good algorithms, it is not possible to identify sequences or regularities by statistical methods.

The pseudo-random number generators are used in online gambling, which guarantees the fairness of the game. And how does it work with gambling? Let's take a look at online slots.

Imagine a simple slot with one payline and three reels. Each of these reels contains 9 pockets with 3 × 3 symbols. The individual pockets are numbered from 1 to 9.

The number generator in the slots produces numbers continuously, and as soon as the player press STOP, the process stops, and the device selects three numbers from one to nine. One number for each reel. Based on these selected numbers, it then assigns a symbol to the pocket on the reel. If three identical symbols are displayed, the player wins.

This is, of course, a very simplified example. Modern online slots have more reels and up to hundreds or even thousands of paylines. However, the principle remains the same.

❓ If the results are random, how can be casinos profitable in the long run?

## Probability and Chance of Winning

Now that we know how the results of each round are determined. Let's look at another factor that resolves whether you win or lose. It is your chance to win. We calculate this probability of winning very quickly, using a formula:

Number of winning events / Total number of events

One game can offer several types of bets for which you have a different probability of winning. A good example is a roulette. European roulette has a total of 37 numbers (0-36). If you've ever played roulette, you know you can bet on red, for example. The roulette has a total of 18 red numbers, 18 black numbers and a green 0. If you bet on red, there are a total of 18 winning events and 37 events in total. Your chances of winning are, therefore:

18/37 = 48.6%

Your probability of winning is less than 49%, which is not so bad. Statically, almost every second bet on colour is a winning one. Because the results of individual game rounds are random, you may win/lose several games in a row. The probability is more evident in the long run.

💡 See how the probability of gambling is calculated.

It brings us to the real secret of gambling and the answer to the question, "How come casinos always win?". The answer is the Casino Advantage, or payout settings do not correspond to the actual probability.

## House Edge of Casino Games

House edge is the mathematical advantage of a casino over a player, expressed as a percentage. Which is a beautiful definition, but it probably won't tell you much, will it? Basically, the casino does not have equal payout ratios concerning probability. It is the house edge that should be of most interest to every regular casino visitor. It tells us, on average, how much the casino profits from a single bet. And the casino's profit is the player's loss.

It is important to say that the advantage of a casino and the chances of winning are two very different things. The house edge is the chance of winning modified by the payout ratio. It means that even if you have a 50% chance of winning, you will still lose in the long run.

Let's take an example of a coin flip.

Each coin has only two sides. If the tail falls, the player wins; if the head falls, the casino wins. Do you remember the probability calculation Number of winning events / Number of events in total? The number of winning events here is 1 (tail), and the number of events in total is two (tail and head). The probability of winning will be ½ = 0.5, in terms of 50%. It means that the longer you play, the more the results will be fifty/fifty. If both of you wager a fair bet, no one will win or win in the long run.

But how would such a game look like in a casino? You bet. If you lose, you give the casino one dollar. And if you win, you only get 75 cents. So, how big is the house edge of this bet?

EV = (0.75 * 0.5) + (- 1 * 0.5)

EV = -0.125

This value is -0.125, which means that a player's average loss from each bet of 12.5%.

It's no secret that casinos have their payouts set up to guarantee them a long-term profit. All professional players know this and choose games according to it. And beginners should do the same. One of the fundamental lessons of gambling is: "Do not place bets with the high advantage of the casino. You will lose more in a long time". So what is House Edge for each game? You don't have to calculate anything. We did it for you.

### The house edge of casino games

 Game Bet/Rules House edge Baccarat Banker 1.06% Player 1.24% Draw 14.36% Blackjack about 0.5% Craps Pass/Come 1.41% Don´t pass/Don´t come 1.36% Keno 25 up to 29% Roulette European 2.70% American 5.26% Video Poker Jack or Better 0.46% Online slots 2 % up to 15%

## Return to Player at Slots

Some gambling games, such as slots, use an inverse value. That's why you're talking about Return to Player. On the contrary, it tells us how much the player returns on average from one bet. Calculating the return for players is virtually impossible for slots because we lack knowledge about the distribution of symbols on the reels. The good news, however, is that all online slots list this return.

In general, we can say that online slots offer a slightly higher return than electronic and mechanical ones. Many more people are playing online games simultaneously, and online casinos do not have to set such high profitability. On average, the return on online slots ranges from 95% to 98%. Mechanical ones, especially the older ones, can return only 80% to 90%.

### Games with Player's Advantage

At this moment, everyone is undoubtedly interested in whether there are games in which the player would be in the so-called "advantage". And yes, there are!

Selected video poker

Video pokers like Deuces Wild or Double Bonus have a return of more than 100%. But it has a catch. The player must use the so-called optimal strategy designed for these specific games. Surprisingly, casinos do not hide these games but have them displayed and lit. It is a lure for players. Most players do not know the optimal strategy. The loss for the casino is thus minimal.

Progressive jackpot games

Progressive jackpots are jackpots that grow until someone wins them. Games that offer these jackpots have a so-called turning point. At this point, the bonus is so high that it flips the return to the player's side. However, this only applies to the situation where the player is qualified for the jackpot win. (e.g. they must meet the condition of the maximum bet, etc.)

Blackjack - card counting

Card counting in blackjack is one of the most well-known strategies. Thanks to these techniques, the player can determine when the game is favourable and increase or decrease the bet accordingly. Although card counting is legal, casinos don't like it, and if they catch you, they won't let you continue to play.

## Gambling Volatility

Volatility is a term in economics defined as: "Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security" In general, the term volatility is used to describe the riskiness and profitability of an investment. The higher the volatility, the higher the risk, but the higher the return. Conversely, the lower the volatility, the lower the risk.

The concept of volatility has also taken hold in gambling.

🔺Games with high volatility pay out winnings less often, but they are higher. These include, for example, slots with a smaller number of pay lines, roulette number betting, insurance bets and more.

🔻 Games with low volatility pay out winnings more often, but they are lower. This group includes, for example, slots with a high number of pay lines, roulette colour betting, baccarat banker's bet and more.

Volatility does not affect the house edge. No matter what game you play, you will always end up at zero. So does volatility matter? Yes. When playing games with high volatility, you have a higher chance of winning more even if you place small bets.

On the other hand, with increasing volatility, the chances of losing your entire bankroll rise. As a result, it depends on your preferences on how you want to play. Do you prefer a more aggressive play with the vision of a big win, or do you like to enjoy a longer game with lower risk?

In the table, you can see the results of the analysis of three-game situations:

• The player bets €5 on the colour
• The player bets €5 on a specific number
• The player bets €2 on a specific number

In all cases, the player starts with €100 and bets until he/she plays 100 games or the bankroll drops to zero.

 Bet Bet Type % of winners % winners with 100 up to 200 € % winners with 200 up to 500 € % winners with more than 500 € Chance to play 100 rounds €5 Color 35.6% 34.1% 1.5% 0% 95.7% €5 Straight 24.6% 7.4% 7.8% 9.3% 24.6% €20 Straight 46.2% 33% 13% 0.2% 61.4%

## Tips on Responsible Gambling

No matter how you play, keep in mind that the casino will always win. Although there are techniques such as bonus hunting at online casinos or card counting at blackjack, which give you a mathematical advantage over the casino. These techniques and strategies are incredibly time-consuming to learn and implement. It is most likely to be better to invest the time in something else and look at gambling as entertainment.

Although gambling is all about chance and luck, some proven tips help you minimize your losses and avoid getting into an unfortunate life situation. Although they may seem trivial at first glance, they do work and are worth following.

Don't play with money you can't lose

Rule number 1, which all professional players follow. Create a separate budget of money that you can lose without getting into a financial crisis. As one beautiful saying goes, "Eat your betting money but don't bet your eating money."

Know the game

This rule applies especially to beginners. Find out all the information about the game before you start playing for real money. What are the possible bets and payout ratios? What is the house edge of a game? Does the game offer additional or insurance bets? Are there different variants of this game? And if so, which is the most advantageous? Ignorance will cost you more money than you need to.

Learn optimal strategies

Some table casino games like blackjack and different poker variations have something called optimal strategy. It means that there is a "right" decision for every situation that arises in the game. With these strategies came statisticians and mathematicians, and with them, you will achieve the maximum return on the game. Which, however, is still negative.

Set up self-limiting measures in an online casino

Most online casinos offer a great feature that allows you to limit your betting as you wish. You can set the number of logins per week/month, the maximum bet, the maximum bet per week/month, etc. It is one of the great benefits of playing in online casinos.

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