Thursday, July 25, 2013

Psychological Warfare - How they 'rig' slot machines

            A few years ago, I wrote a column about a story I read in The Economist magazine.  It described a study done testing the impact of near misses on a slot machine on the human brain.  What the researchers found out was that near misses generated almost an identical reaction in the brain as an actual win.  So, if bar-bar-plum (a loser) can make the Player feel almost as good as bar-bar-bar (as winner), all the manufacturers have to do is figure out how make near misses show up a lot and Players will feel like their winning almost all the time.  Fortunately, the regulations and the technology do not make this much of a challenge.  Slot machines can legally be programmed to generate a disproportionate number of near misses relative to what might be considered random.   So, while they might throw in some fruit salad once in a while as an ugly loser, most of your losses will appear to be 'oh so close' to winners.

            Now, a new study was released this week that says the bells and whistles used on slot machines makes the Player feel like he is winning even when he isn't.  The days of coins dropping out of the slot are virtually gone, so the casinos added sound effects to the machine.  When you used to hit a cherry and get 2 coins back and heard klink-klink, this was simply not the same as hearing 20 or 100 coins going klink-klink-klink.  But, in the digital age, no one says the sound effects has to mimic the actual win.  So, the casinos can have a simple 2-coin win sound a lot like a 10-coin win.   To prove the theory, the researchers had slot Players play with sound and without sound.  Those with sound had a stronger impression that they were winning, even when they weren't.

            While this latter concept can be used for video poker, it holds a little less water because in most varieties of video poker there is no such thing as winning but really losing.  While many hands in video poker result in a push - which may FEEL like winning because your original wager is returned (i.e. Jacks or Better), there is generally no hand that returns only a portion of your original wager.  With the new generation of slot machines it is not uncommon to wager dozens of coins.  Frequently, a 'win' will result in getting only a fraction of your wager back.  Did you really win?  If you wager 20 coins and get back 5, is this a win or a loss.  Admittedly, I am the first to argue that once you wager the money it is lost and any money you get back is a 'victory'.  This seems much more applicable to table games where you play 30-40 hands/hour rather than a slot or video poker machine where you can play hundreds of hands per hour and repeatedly wagering 20 and returning 5 can quickly wipe out your bankroll.

            So, what is a Player to do when faced with all of this psychological warfare used by the casinos?  Ironically, you have to use your own type of science against them.  The science of math.  Yes, with the exceptions of some varieties of video poker, the math says that in the long run you will lose.  I've written many times that you need to look at casino games as a form of entertainment.  The question is do you want your night of entertainment to cost $20-$40 or to cost $100-$200?  I'm guessing that you'll get a lot more value for your money if you spend less money.  Most of the games in the casino are built to allow the Player to win about a third of the time over a 3 hour session.  This assumes that you learn to play each game correctly and try to pick the right games/paytables to play. 
            While I strongly advocate for playing video poker, if you wind up playing a jacks or better that pays 6-5 (Full House/Flush), you'll be playing a game that has a payback below 96% and your chances of winning will decrease considerably.   In similar fashion, playing a full-pay game has limited value if you don't learn the right strategy.  Casinos rely on these two factors for games like video poker.  Slots have no strategy and inherently have lower paybacks, so they need to come up with ways to essentially fool the Player into thinking he is doing better than he actually is.  Video Poker doesn't need to create artificial near misses.  A deck of cards and a dealt hand do an amazing job of creating these in its natural random fashion. 

            To combat the near misses and the bells and whistles of the casino requires doing a little bit of homework to learn which games to play and to learn the right strategy for those games.    It requires some discipline to stick to those strategies and to seek out the right games.  Math can be your rock to the casino's 'psychological warfare' scissors.

Thursday, July 18, 2013

An Error of Commission?

            A couple of weeks ago I discussed methods used by game developers to create a house advantage.  I realized that I left off two common one.  They are somewhat related as the second one was created in attempt to get rid of the first.  The first method is called taking a commission, which I've generally thought of as a misnomer, because it only applies to winning bets.  In the games of Pai Gow Poker and Baccarat, certain wagers pay a 5% commission when they win.  Another way of looking at this is that the Player is paid 19 to 20 for a winning wager, which I think is more accurate.  Commissions, to me, are paid on a wager, not on a winning wager.  If you pay a commission to a real estate agent, you don't pay it if you get a good deal or only on your profit, you pay it when your house sells - on the gross sales price.

            If you wager $20 and you lose, you lose $20.  If the wager pushes, you get your full $20 back.  If you win, you get $39 - your $20 plus the $19 you win.  So, in reality, you're simply making a wager that pays a little less than even money.  In Pai Gow Poker, this applies to the base wager.  A mechanism such as this must be used because the only other advantage that the House has is that it wins hands that are copies.  But, with a 2-card hand and a 5-card hand, ties are not that common.  While this provides some advantage to the house, it simply isn't enough.  So, they pay 19 to 20 for winning hands.  At first glance, this might seem to create a 2.5% house advantage because the Player and Dealer win nearly the same number of hands.   However, since it is paid only only wins and about 42% of all hands finish as pushes, we find that it really only generates a little under a 1.5% house edge.  When combined with the house edge generated by the house winning copies and the overall house edge is about 2.73%.  This is offset somewhat if the Player chooses to act as the banker which provide an edge for the Player.  But, I'll save that for another day.

            In Baccarat, the Player has the option to wager on either the Player or the Banker hand.  In reality, it is more like Hand 1 and Hand 2 because no hand really belongs to the Player if you can wager on the other hand.  Based on the drawing rules used in Baccarat, the Banker hand has a small advantage.  Because the Player can wager on this hand, this translates to an advantage to the Player.  To offset this, the House again takes a commission on winning wagers on the Banker Hand.   Again, winning wagers on the Banker Hand pay 19 to 20.  The net impact is that the Banker Hand wager has a 1.06% house edge, which is actually LOWER than the Player Hand Wager without a commission.

            The problem with paying commissions is not that it costs the Player money.  Every casino game costs the Player money.  The real question is not what mechanism is used to generate the house edge, but how much of a house edge it generates.  In the case of these two games, it generates a relatively normal sized edge.  Pai Gow's edge is a little on the high side and Baccarat's is on the lower side.  But, nothing incredibly unusual about either.  The issue is that the commission is slow and messy.  Players don't always wager in multiples of $20.  In these cases, the casino might use some method to accrue the commission and then take it when the amount adds up to a round amount.  Calculating a 19 to 20 payback is also not a simple thing for the Dealer.  Sure, a $100 wager pays $95 which is easy enough, but still messier than paying $100.  But, what about when the Player wagers $75?

            These issues led to a desire to do away with the commissions in these games.  In both cases, a similar mechanism was used.   In the case of Pai Gow, a hand that is normally a sure loser for the House is turned into a Push.  In one common version of 'commission free' Pai Gow, if the Dealer has a Queen High Pai Gow hand, then the hand is automatically a Push.  This creates a house advantage nearly identical to the commission.   Now all wins can pay even money and the game is cleaner and simpler.   Only in the occasional situation where the Dealer has this hand is the normal flow interrupted at all, and the impact is relatively minimal to game speed.

            In Baccarat, one of the common mechanisms is to take a sure winner for the Banker hand and turn it into a Push.  The most common hand is a Banker 3-card 7 which wins.  The impact, like in Pai Gow is a virtually identical payback but with the messy commission removed.  Now all wagers can pay even money and the only impact is that special Banker Hand and even when that happens it simply becomes a push.

            In order to be an Expert Player, a Player needs to understand that all casino games are built with a House edge.  The edge comes from a variety of mechanisms.  The specific mechanism is not important to the end financial result.  It can impact the feel of the game and a Player may prefer one mechanism vs. another.  However, that House edge will be there no matter what.  If you play a no-commission version of Baccarat or Pai Gow, mathematically you're playing a nearly identical version of the game.  If you like the simplicity of the no-commission version, play that.  If you get annoyed and pushing hands you should win, then maybe these versions aren't for you.  At the end of the night, you'll probably be a nearly similar financial situation.