Don’t Expect the Expected Value

One day, over 50 years ago, we were visiting Lake Tahoe as a family, and dad went across the border to play keno. He came back elated: he had hit seven out of eight on one of his tickets, and won eleven hundred dollars. He proudly laid out fifty twenties and two fifties on the kitchen table. It was a magnificent sight.

The details of keno are unimportant here, except to note that keno is not a game of skill. Of course the house has an edge. In the long run, you will lose money playing keno no matter how you do it. Even my dad, who over the years has played a lot of keno, and won even bigger payouts, would probably admit that he might have a net lifetime loss.

So why do people play? There are lots of reasons, I’m sure, but one of them must be connected to┬áthat heartwarming anecdote: fifty years later, I remember the event clearly, as one of joy and wonder.

Let’s explore that using roulette, which is much simpler than keno. A roulette wheel has 18 red and 18 black numbered slots, plus a smaller number of green slots (often two). You can make many different bets, but we will stick with red and black. If you place a $1 bet on red, and it comes up red, you get $2 back (winning $1); if it comes up black or green, you lose your dollar.

Continue reading Don’t Expect the Expected Value