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October 25, 2014

The Odds in Zero Sum Games and Martingale


Financial StatsGambling involves betting money on an event that has an uncertain outcome, such as a sports game, in order to profit by betting on the correct outcome. Frequently, gambling is also used in the world of finance, where – for example – the scarcity of a commodity can be bet on. Long term weather patterns may be studied, for example, to bet on whether a particular crop will have a good yield in a given season. Therefore, investing in that particular crop or investing in other crops to the detriment of that crop may result in a profit. Scarcity of wheat may lead to a rise in its price. Similarly, the price of oil or natural gas may rise or fall due to the discovery or otherwise of oil fields over a given period. Whether you are talking about a football season or the seasons of the year, there is a kind of gambling for everyone.

Zero sum games – in this context – may result in the establishment of a pot of money. In this context, all of the monies put into the pot by individuals betting on a number of outcomes, will be split among the winners. A zero sum game at a very basic level could be described as a game where a winner “wins” at the expense of the loser “losing”. The winner or winners will take and split the pot, the losers lose what they bet and take home nothing.

Bets are sometimes spread by a gambler to cover as many likely outcomes as possible. A gambler may bet on a horse or a greyhound “to place” at the racetrack rather than to win. This means that should the horse or dog come first, second or third in a race, the gambler will profit. However, because the stakes are higher if the person gambles on a win alone, he or she will make more money.

The technique known as martingale is an example of covering bets in such a way as to gain profit. Martingale is a gambling technique that was originally developed in France more than two centuries ago. In essence, it began as a wager on the betting of which side a coin would land. If it came up heads, the gambler would win, and with tails, he would lose. The technique demanded that after each loss, the gambler doubled the bet so that when the coin did come up heads, he would get a small dividend after covering all of his losses as well.

The gamble would ultimately pay off when the coin finally did come up heads because probability was in the gambler’s favor. Many casinos are said to operate policies to stop practices that are similar to Martingale. However, the fact is that statistically, a martingale type of gambler has just the same odds as anyone else at the casino. What little profit he or she makes is offset by the chance that he or she will result in a disastrous loss by adopting this kind of strategy.


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