# Relation of Game Theory and Gambling Essay Paper

Game theory is a critical form of decision making that is used in various subjects like economy and political science. Its relevance is becoming prominent in the success rates that have come out in gambling and sports betting. The theory is basically an amalgamation of different models of cooperation and conflict between various decision makers (Myerson, 1991) Thus, it can be safely stated that the theory itself is not just one piece of information solidly put out there yet it’s a combination of different authors and experts. As mentioned earlier, the game theory has been linked to economic models, science, gambling like poker or sports betting and social situations as well. In the game theory the simplest way of putting it is analyzing the number of players and the moves that they are likely to take. Using this information, a person can guess and figure out the number of choices available and thus analyze the condition using the results of the theory applied. (Levine)

The game theory basically analyzes the situation the hand and puts use the mathematical statistics. However, when the idea of betting and putting your money on stake comes forward, a psychosocial aspect of a person’s personality and the way they would react to other situations in life as well. (Dalla, 2002) For instance, if in a casino, a person is given an option to gamble an amount of money to win double the amount, he or she would most likely go for the situation. This is to reveal that the game theory as whole is a discipline that be applied to situations filled with betting and gambling and also to real life situations as well. The methodologies created by the game theory are viewed as an umbrella that goes on to explain the rationalities of different branches of social science. (Aumann and Hart, 1992)

The basic theme of the game theory revolved around the idea of cooperation and conflict. The theory states that the actions of different players are interdependent. It would be interesting to notice that this vast field of study came into being merely to solve a mathematical curiosity. (Schmidt, 2003) The theory came into play as its own field of study in 1944 subsequent to publication by bon Neumann and Oskar Morgenstern being there. In 1950, John Nash stated that finite games have an equilibrium point. This point is basically that tie in a game when the players act according to what is best for them after keeping their rival’s choices in mind. (Turocy&Stengel, 2001) This being the central concept, was applied to things like war, politics and economics in the 1960s and 1970s.Relying on the concepts of the game theory, Chris Ferguson went on win more than a million dollars in tournament of poker in 2000. (Wilkinson, 2009) There are games which have the perfect amount of information. Games such as these are linked to the economic game theory more traditionally because of the infinitely long procedure of solving the game in the long run. (Beck, 2008)

Gambling

Gambling is basically the game or art of putting your money or available in games in which chance is involved. (“gambling,” 2012) At a time, the game used to be considered illegal and was banned in colonial America and the United Kingdom. Gambling can consist of games like poker in a casino or betting in sports as well. Both of these games have been linked to the game theory and the level of skill involved in playing. Surely, no fool would just go off and bet his or her money to play When we talk about skill, the game theory and its application on gambling comes out forward.

When the idea of game theory comes forward, so does the concept of rational players. A rational player is one who will play the most expected move and the one that will go on to benefit him. A rational player always plays a dominant move which means that he will play what will yield him the best response. A rational player plays his game after looking at his outcome and looking at what the rival will do. Game theory analysts also predict how the game will be dealt with by rational players. It hopes to tell and advice the players on how to go bout games in which the opponent is a rational player. (Turocy&Stengel, 2001)

In gambling, one can try to figure out if their rival is bluffing or not merely by using experience and judgment. (Sklansky 1989) This does not always work for a person. If the opponent has better judgment than the one playing or he is using the game theory to bluff, then the person playing can use similar theory to decrease his profit. (Sklansky 1989) In short, Skalnsky was trying to say that the game theory will work if the two players aren’t accustomed to each other’s playing styles by a lot. An example given by Swanson that it if the opener bluffs with a hundred dollars when he is suppose to put in two hundred dollars, he has done 2-to-1 on a bluff. Now the optimal response by the dealer would be that the dealer could call twice and just fold once. If this is approach given, then the probability of the dealer calling with a deuce is two out of three. However, with keeping the game theory in mine and the optimal frequency in mind, the dealer will deal with a deuce with a probability of one out of three. (Swanson, 2005) This example was when the optimal conditions aren’t known. This is to say the dealer and opener aren’t really accustomed to each other’s style of playing.

Another example presented by Swanson was that if the dealer attains ace and the opener attains checks. Now the question here is that whether the dealer should bluff or not. Now there are two options that determine whether he should bluff or not. If the opener goes on to hold the trey, the bluff will not work and will go in vain. On the other hand, if the opener keeps on the deuce then the bluff will work for the dealer. Here comes the idea if the dealer is aware that the opener will go for betting when he holds the trey. The dealer can then know for sure that the opener will hold the deuce and thus he will go onto bluff. In this instance there arises a question with whets the optimal frequency after keeping the game theory in mind. If the dealer knew about the opener, then there is no saying whether the game theory can be applied to this instance or not. (Swanson, 2005)

Going about the game with rationality in mind will never make you successful. That is to say that one person can never be victorious by using the optimal strategy. (Swanson, 2005) With this strategy, you can make sure that your rival doest gain any profit through superior play. Similarly, you cannot cause any damage or loss to your opponent either if you play optimally. In consequence, by playing optimally, the actions you take will have no impact on your EV and you cannot really win. The game theory allows you to see when your opponent is playing optimally and when he is not. The person sees that whenever the person deviates from playing optimally, then the person should also go for playing in a deviant manner that will enable the person to capitalize on the stupid mistakes the other person does. (Swanson, 2005) An example of this is that your opponent starts to bluff more than he should. To combat with this, you should go for calling more than you should. The frequencies of calling and bluffing would oscillate between who is doing more of it and who is doing less. However, in this form, there is no gain in the EV and no clear winner as such. This point would be known as an equilibrium as mentioned earlier in which both the players have attained an optimal frequency of let’s say bluffing and calling. Playing optimally will not provide for you a sure shot at winning. Optimal play can come handy when the rival is playing really stupidly. Such that your opponent’s stupid mistakes allow you to play optimally and cash those only because he was going negative due to himself and not because of you. All in all, to know how to win in casino gambling, you should be aware of what the optimal strategy really is so you would avoid it and end up winning in the long run. (Swanson, 2005)

Sport Betting

Sports betting in games like boxing, football, basketball and baseball have increased in America in all states despite being stated illegal. A big number of countries in the Caribbean and other areas have been popular in sports betting especially on online casinos. Even though internet sports betting is considered illegal under the federal Wire Wager Act, it still continues off and on. (“gambling,” 1994) An odd thing to see is that the World Trade Organization declared this act only applicable in the United States and not in other countries around the world. Regardless, United States still agrees to apply its rules all over the world. (“gambling,” 2012) Americans have a long history and an unfortunate predisposition to betting. Americans are known to take a risk on an idea or a game just so they can attain more profit from it. (Millman, 2007) Seeing how sports have engulfed every aspect of life, it is an important part of the everyday routine. Unfortunately, the controversies and scandals of sports betting range from high school level to international level sports. (Putnam, 1999)

When it comes to sports betting, gambling becomes an even more risky and dangerous business. A lot of people play games different and who exactly will you choose. It’s not likely that people in a match or in a tournament will play according to who you want, then how possibly can a person place a theory on something like humans who are so predictable and random all the time. (Heap & Varoufakis, 1995) Sports betting markets are a sort of prediction markets in which analysis is quite necessary. That is to say those lots of different variables and derivatives prices affect the outcome. The forecasts which have been made can only turn out to be accurate if certain factors and variables are kept under control. (Nisan, 2007) One strategy that many put into play by using game theory and sports betting is the fact optimizing on the favorites. In sports betting, the deal doesn’t have to be with two people, it can be with more than one person. A smart way to play is such that regardless of who wins, the person earns a net profit.

Practical example:

A Practical example is suppose there is a super bowl match between the Washington Red Skins and the Dallas Cowboys. Seeing how this is practical example, the amounts are kept small and simple. In real life the amount is big and in millions and billions. Person A thinks that the cowboys will be victorious with a probability of .75. On the other hand, Person B. thinks that redskins will win with a probability of 3/5. The game theory puts forward for the fact that the loss always should be lesser as opposed to the gain. In the above scenario, if you come in and you want to do a bet with both these people but you assign the winning amount in a smart manner. You tell A that you will give him four dollars if the cowboys are victorious, but he will pay you four dollars if they lose. The EV in this scenario for A is a positive one and he will go for the bet. That is keeping his probabilities in mind and what he thinks the end result will be, A thinks that he will win about 1.75 dollars if he wins. On the other hand, you are dealing with person B. that if the redskins win, you will give him four dollars but he will give five dollars if they lose. Seeing how EV is positive for him as well, he will also go for the bet. Now, you have dealt yourself with two different people and regardless of who wins or loses, you will end up with a dollar profit.

The game theory basically sums up what a certain person is likely to do in a situation. Surely, if two teams are playing, they both want to win. This comes back to the concept of factors that determine the outcome in sports. In games of chances such as gambling and poker, it all depended on probability and which number or which deck of cards a certain person is likely to get. In this instance, however it is the fact that the people playing can be of a different built. In majority of the sports, the fitness level of the athlete really determines whether he or she is likely to score well for the team or not. If there is a player who always plays well and is likely to score may three pointers in a game, there will be positive betting for him. Let’s say that same player goes on to injure his leg minorly. Even though he might not sit out, his performance will be affected by that injury. It is factors like that can render the theory not applicable to sports betting.

Another factor that affects sports betting is team work. There is no guarantee that when one person of a team plays in the positive direction of the bet, so will the others. Taking again the example of cricket, if the batters go on to make a good score in the first inning, they are relying on the bowling power in the next innings. If the bowlers are pathetic and not able to defeat the rivals in batting, then the good scoring would be of no use.

When it comes to the idea of individual players, the game theory can still be applied. The bookies or people, who set the bets, take good notice of who is playing well and who isn’t. They are well accustomed to the playing style of the person and how they are likely to react in a certain situation. A professional bettor looks at patterns and statistics. For instance, if there is baseball better, he will notice that whenever the team starts off with a left-handed pitcher following a loss, it is likely to win that game that day. The bettors look at records and statistics like these and then go on and make their bets. A single coincidence can be considered a fluke and thus can be rendered inadequate to place a bet. In this instance, it was noted that it was only due to the presence of the left handed pitcher, the team won. Thus the game theory can be applied in sports betting when certain abilities and disabilities of players are kept in mind.

References

Anon. (1994) Gambling. In The Columbia Encyclopedia. (6th ed) n.a: Columbia University Press

Anon. (2004) Gambling. In The Columbia Encyclopedia. (6th ed) n.a: Columbia University Press

Anon. (2012) Gambling.In The Columbia Encyclopedia. (6th ed) n.a: Columbia University Press

Aumann, R. And S. Hart (eds) (1992) Handbook of Game Theory. Amsterdam: North-Holland.

Beck, J. (2008). Combinatorial games: Tic-tac-toe theory. Cambridge: Cambridge University Press.

Dalla, N. (2002). Game Theory .net – News stories by field of study. [online] Retrieved from: http://www.gametheory.net/news/items/095.html [Accessed: 25 Dec 2012].

Good Math, Bad Math (2009). Introducing Game Theory. [online] Retrieved from: http://scienceblogs.com/goodmath/2008/03/19/introducting-game-theory / [Accessed: 25 Dec 2012].

Heap, S.H., & Varoufakis, Y. (1995). Game theory: A critical introduction. London: Routledge.

Levine, D. (n.d.). What is Game Theory?. [online] Retrieved from: http://levine.sscnet.ucla.edu/general/whatis.htm [Accessed: 25 Dec 2012].

Millman, C. (2001). The odds: One season, three gamblers, and the death of their Las Vegas. New York: PublicAffairs.

Mindyourdecisions.com (2010). How to bet on sports and the Super Bowl using game theory – Mind Your Decisions. [online] Retrieved from: http://mindyourdecisions.com/blog/2010/01/26/how-to-bet-on-sports-and-the-super-bowl-using-game-theory / [Accessed: 25 Dec 2012].

Myerson, R.B. (1991). Game theory: Analysis of conflict. Cambridge, Mass: Harvard University Press.

Nisan, N. (2007). Algorithmic game theory. Cambridge: Cambridge University Press.

Putnam, D.T. (1999). Controversies of the sports world. Westport, Conn: Greenwood Press.

Schmidt, C. (2003). Game theory and economic analysis: A quiet revolution in economics. London: Routledge.

Sklansky, D. (1989). The Theory of Poker. Las Vegas, Nev: Two Plus Two Pub.

Swanson, J. (2005). Game Theory and Poker. [e-book] http://math.swansonsite.com/instructional/game_theory.pdf [Accessed: 25th December 2012].

Thesportsgeek.com (2000). Sports Betting Math – % Needed To Win at Sports Betting. [online] Retrieved from: http://www.thesportsgeek.com/sports-betting/math / [Accessed: 25 Dec 2012].

Turocy, T. And Stengel, B. (2001). Game Theory. [report] London: Academic Press.

Wilkinson, A. (2009). What would Jesus Bet. The New Yorker, March 30, pp.30.

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