Decision Making and Chance

Google Tech Talks September 17, 2006 Dr. Mike Orkin is a Managing Scientist at Exponent, a publicly traded scientific consulting company headquartered in Menlo Park. Mike has numerous research publications in game theory and probability theory and has written data mining and simulation software. He is a nationally known authority on odds and gambling games and has appeared on numerous TV and radio shows to discuss gambling and odds, including CNN, NBC's Dateline and ABC's World News Tonight. ABSTRACT Certain gambling games, such as roulette and craps, are games of pure chance: In repeated play, luck disappears, and the persistent gambler will go broke. Other gambling activities, such as betting on sports or the stock market, may involve an element of skill. One way to measure this is to compare the results of a gambling strategy with chance: A skillful strategy should produce long-run results that are better than would be achieved by someone who is just guessing. One can also compare a gambler’s losses with chance to see if the gambler is doing worse than chance would allow. I will discuss two recent projects that illustrate these concepts: • Automated data mining software discovers that the Baltimore Ravens are 17-3 versus the point spread when they lost their previous game and their opponents played their previous game on the road. Do situations like this give clever gamblers an edge or are such strong win-loss records merely random flukes? • A gambler loses $30 million betting at an online casino. Is it possible to lose this much just by chance or is the gambler being cheated? Or maybe the gambler is part of a money laundering scheme.