Loci

July 2008. Article ID 2699

How to Gamble if You Must

Kyle Siegrist

Department of Mathematical Sciences

University of Alabama in Huntsville

Abstract

In red and black, a player bets, at even stakes, on a sequence of independent games with success probability p, until she either reaches a fixed goal or is ruined. In this article we explore two strategies: timid play in which the gambler makes the minimum bet on each game, and bold play in which she bets, on each game, her entire fortune or the amount needed to reach the target (whichever is smaller). We study the success probability (the probability of reaching the target) and the expected number of games played, as functions of the initial fortune. The mathematical analysis of bold play leads to some exotic and beautiful results and unexpected connections with dynamical systems. Our exposition (and the title of the article) are based on the classic book Inequalities for Stochastic Processes; How to Gamble if You Must, by Lester E. Dubbins and Leonard J. Savage.

Technologies used in this article

Mathematical Prerequisites

The article presumes some basic knowledge of probability, calculus, and linear algebra at the level of typical undergraduate courses. Links to Wikipedia are given for standard terms (such as difference equation, random variable, or expected value) for readers who need to refresh their knowledge.

Some of the exercises, particularly in the section on Bold Play are a bit challenging. On a first reading, you may want to just accept the statement in the exercise.

Contents

Main Exposition

  1. Red and Black
  2. Timid Play
  3. Bold Play
  4. Optimal Strategies
  5. Summary

Ancillary Material