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Game Theory: A Regulator, a Mathematician, and a Psychologist Walk Into a Casino...


Some notes from the 15th International Conference on Gaming and Risk Taking, now on in Las Vegas -- where else?

I am writing from Las Vegas, where I have come to attend the 15th International Conference on Gaming and Risk Taking. It is an academic conference, but an unusual one. Most of the ones I attend are annual meetings for narrow disciplines, centered around making contacts and getting jobs rather than advancing knowledge. They're pretty boring.

This one is different. Held about every three years, it brings together people who would never meet under other circumstances: regulators, casino executives, mathematicians, economists, psychologists -- most of whom study problem gambling, historians, advantage gamblers (people like blackjack card counters and quantitative sports bettors who enjoy a positive edge in games that are supposed to favor the house), and people who think advantage gamblers are criminals. Founder and long-time organizer Bill Eadington - who sadly died this year - described the idea:
Started in 1974 as the National Conference on Gambling and Risk-Taking, the conference began as a gathering of academics in a variety of disciplines from around the United States who were interested in the impact of gambling from several points of view, ranging from analyses of mathematical questions about gambling, to the fundamentals of pathological gambling, to understanding business dimensions of gaming enterprises, to broader inquiries into the impact of gambling on society.

The name changed to "International" with the seventh conference, and this year the word "Gaming" replaced "Gambling." The first change was a recognition of a shift that had already occurred. The second change is inaccurate, as only a minority of participants are focused on "gaming" (commercial casino games); most are interested in gambling in all of its forms.

One of the things I learned in middle age is that the things that define your life are not always the choices you make for that purpose. A lot of the important things just happen, and only afterwards come into focus. I have been going to the conferences for all of my adult life. Each one was a week taken out of whatever I was doing at the time, and each one led me to important new contacts and ideas. Also at each one, I reconnect with people on different life paths, many of whom cannot be found; they have to find you. For most of the conferences, I was an anonymous lurker, perhaps presenting a minor paper or session, but mostly going to listen, meet, and learn. At the last one, however, I was honored to give the keynote address, proof that if you hang around long anything long enough, you collect awards.

This year, I'm presenting two papers. One is co-authored with Nick Maughan and Raphael DiGuisto and involves an analysis of millions of financial bets placed at an Internet site (the company that generously provided the data is a large, publicly-listed entity that wished to remain anonymous). The data can be used to address many fascinating issues.

One is that a significant minority of bettors consistently beat the financial markets, winning up to several hundreds of thousands of dollars. This is statistically much stronger evidence than the usual studies of professional money managers. With a professional manager, you have to make assumptions about what the manager is trying to do - absolute returns, risk-adjusted returns, returns over benchmark, tax-adjusted returns, whatever. The manager has lots of constraints and costs that affect decisions. And it takes decades of data over hundreds of managers to get much statistical significance, but you cannot assume everything else stays constant over this period.
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