Edward O. Thorp | |
---|---|
Born | Chicago, Illinois, U.S. | August 14, 1932
Alma mater | University of California, Los Angeles |
Scientific career | |
Fields | Probability theory, Linear operators |
Institutions | UC Irvine, New Mexico State University, MIT |
Thesis | Compact Linear Operators in Normed Spaces (1958) |
Doctoral advisor | Angus E. Taylor |
Edward Oakley Thorp (born August 14, 1932) is an American mathematics professor, author, hedge fund manager, and blackjack researcher. He pioneered the modern applications of probability theory, including the harnessing of very small correlations for reliable financial gain.
Thorp is the author of Beat the Dealer, which mathematically proved that the house advantage in blackjack could be overcome by card counting. [1] He also developed and applied effective hedge fund techniques in the financial markets, and collaborated with Claude Shannon in creating the first wearable computer. [2]
Thorp received his Ph.D. in mathematics from the University of California, Los Angeles in 1958, and worked at the Massachusetts Institute of Technology (MIT) from 1959 to 1961. He was a professor of mathematics from 1961 to 1965 at New Mexico State University, and then joined the University of California, Irvine where he was a professor of mathematics from 1965 to 1977 and a professor of mathematics and finance from 1977 to 1982. [3]
Thorp was born in Chicago, but moved to southern California in his childhood. He had an early aptitude for science, and often tinkered with experiments of his own creation. He was one of the youngest amateur radio operators when he was certified at age 12. Thorp went on to win scholarships by doing well in chemistry and physics competitions (one instance led him to meeting President Truman), ultimately electing to go to UC Berkeley for his undergraduate degree. However, he transferred to UCLA after one year, majoring in physics. This was eventually followed by a PhD in Mathematics at UCLA. He met his future wife Vivian during his first year at UCLA. They married in January 1956.
Thorp used the IBM 704 as a research tool in order to investigate the probabilities of winning while developing his blackjack game theory, which was based on the Kelly criterion, which he learned about from the 1956 paper by Kelly. [4] [5] [6] [7] He learned Fortran in order to program the equations needed for his theoretical research model on the probabilities of winning at blackjack. Thorp analyzed the game of blackjack to a great extent this way, while devising card counting schemes with the aid of the IBM 704 in order to improve his odds, [8] especially near the end of a card deck that is not being reshuffled after every deal.
Thorp decided to test his theory in practice in Reno, Lake Tahoe, and Las Vegas, Nevada. [6] [8] [9] Thorp started his applied research using $10,000, with Manny Kimmel, a wealthy professional gambler and former bookmaker, [10] providing the venture capital. First they visited Reno and Lake Tahoe establishments where they tested Thorp's theory at the local blackjack tables. [9] The experimental results proved successful and his theory was verified since he won $11,000 in a single weekend. [6] As a countermeasure to his methods, casinos now shuffle long before the end of the deck is reached. During his Las Vegas casino visits Thorp frequently used disguises such as wraparound glasses and false beards. [9] In addition to the blackjack activities, Thorp had assembled a baccarat team which was also winning. [9]
News quickly spread throughout the gambling community, which was eager for new methods of winning, while Thorp became an instant celebrity among blackjack aficionados. Due to the great demand generated about disseminating his research results to a wider gambling audience, he wrote the book Beat the Dealer in 1962 (substantially updated in 1966), widely considered the original guide to card counting, [11] which sold over 700,000 copies, a huge number for a specialty title which earned it a place in the New York Times bestseller list, much to the chagrin of Kimmel whose identity was thinly disguised in the book as Mr. X. [6]
Thorp's blackjack research [12] is one of the very few examples where results from such research reached the public directly, completely bypassing the usual academic peer review process cycle. He has also stated that he considered the whole experiment an academic exercise. [6]
In addition, Thorp, while a professor of mathematics at MIT, met Claude Shannon, and took him and his wife Betty Shannon as partners on weekend forays to Las Vegas to play roulette and blackjack, at which Thorp was very successful. [13] His team's roulette play was the first instance of using a wearable computer in a casino — something which is now illegal, as of May 30, 1985, when the Nevada devices law came into effect as an emergency measure targeting blackjack and roulette devices. [2] [13] The wearable computer was co-developed with Claude Shannon between 1960 and 1961. It relied on a pair of operators, where one would watch the wheel and use his toe to input the cadence of the wheel, and the other would receive a message in the form of musical tones through a hidden earpiece. By betting on groups of neighboring numbers on the wheel they could gain a sufficient advantage to make a profit. The final operating version of the device was tested in Shannon's home lab at his basement in June 1961. [2] Based on his achievements, Thorp was an inaugural member of the Blackjack Hall of Fame. [14]
He also devised the "Thorp count", a method for calculating the likelihood of winning in certain endgame positions in backgammon. [15]
Edward O. Thorp's Real Blackjack was published by Villa Crespo Software in 1990. [16]
Since the late 1960s, Thorp has used his knowledge of probability and statistics in the stock market by discovering and exploiting a number of pricing anomalies in the securities markets and has made a significant fortune. [5] Thorp's first hedge fund was Princeton/Newport Partners from 1969 to 1989 based on Market Neutral Derivatives Hedging. His second hedge fund was called Ridgeline Partners and it ran from August 1994 through September 2002 based on statistical arbitrage. [13] This hedge fund was closed largely because the return of the statistical arbitrage strategies had been low since 2002. He is currently the President of Edward O. Thorp & Associates, based in Newport Beach, California. In May 1998, Thorp reported that his personal investments yielded an annualized 20 percent rate of return averaged over 28.5 years. [17]
Ed Thorp wrote many articles about option pricing, Kelly criterion, statistical arbitrage strategies (6-parts series), [18] and inefficient markets. [19]
In 1991, Thorp was an early skeptic of Bernie Madoff's supposedly stellar investing returns which were proved to be fraudulent in 2008. [20]
Blackjack is a casino banking game. It is the most widely played casino banking game in the world. It uses decks of 52 cards and descends from a global family of casino banking games known as "twenty-one". This family of card games also includes the European games vingt-et-un and pontoon, and the Russian game Ochko. The game is a comparing card game where players compete against the dealer, rather than each other.
Card counting is a blackjack strategy used to determine whether the player or the dealer has an advantage on the next hand.
The MIT Blackjack Team was a group of students and ex-students. The students were from Massachusetts Institute of Technology, Harvard University, and other leading colleges; they used card counting techniques and more sophisticated strategies to beat casinos at blackjack worldwide. The team and its successors operated successfully from 1979 through the beginning of the 21st century. Many other blackjack teams around the world have been formed with the goal of beating the casinos.
A betting strategy is a structured approach to gambling, in the attempt to produce a profit. To be successful, the system must change the house edge into a player advantage — which is impossible for pure games of probability with fixed odds, akin to a perpetual motion machine. Betting systems are often predicated on statistical analysis.
Breaking Vegas is an American television series that premiered on the History Channel in 2004. The series covers the great lengths people have gone to make money, sometimes illegally, from casinos.
In probability theory, the Kelly criterion is a formula for sizing a sequence of bets by maximizing the long-term expected value of the logarithm of wealth, which is equivalent to maximizing the long-term expected geometric growth rate. John Larry Kelly Jr., a researcher at Bell Labs, described the criterion in 1956.
John Larry Kelly Jr., was an American scientist who worked at Bell Labs. From a "system he'd developed to analyze information transmitted over networks," from Claude Shannon's earlier work on information theory, he is best known for his 1956 work in creating the Kelly criterion formula. With notable volatility in its sequence of outcomes, the Kelly criterion can be used to estimate what proportion of wealth to risk in a sequence of positive expected value bets to maximize the rate of return. As a substantial warning, the outcome for the Kelly criterion's recommendation on bet-size "relies heavily on the accuracy" of the statistical probabilities given to a gamble's positive expectations.
Donald Schlesinger is a gaming mathematician, author, lecturer, player, and member of the Blackjack Hall of Fame who specializes in the casino game of blackjack. His work in the field has spanned almost five decades. He is the author of the book Blackjack Attack - Playing the Pros' Way, currently in its third edition, which is considered one of the most sophisticated theoretical and practical studies of the game ever written. In 2023 he and Dave Brolley coauthored, The Hi-Lo Card Counting System: A Complete Guide to Index Play.
Jerry L. Patterson is an American writer. He authored several gambling books as well as a gambling newspaper column.
The Blackjack Hall of Fame honors the greatest blackjack experts, authors, and professional players in history. It was launched in 2002, and its physical premises are in San Diego, California.
Advantage gambling, or advantage play, refers to legal methods used to gain an advantage while gambling, in contrast to cheating. The term usually refers to house-banked casino games, but can also refer to games played against other players, such as poker. Someone who practices advantage gambling is often referred to as an advantage player, or AP. Unlike cheating, which is by definition illegal, advantage play exploits innate characteristics of a particular game to give the player an advantage relative to the house or other players. While not illegal, advantage play may result in players being banned by certain casinos.
Emmanuel Kimmel was a notable underworld figure between the 1930s and 1960s and the founder of the Kinney Parking Company, a chain of parking lots and garages which evolved into the media conglomerate Warner Communications and ultimately the present day Warner Bros. Discovery.
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A natural is a term in several gambling games; in each case it refers to one or two specific good outcomes, usually for the player, and often involves achieving a particular score in the shortest and fastest manner possible.
Quantitative analysis is the use of mathematical and statistical methods in finance and investment management. Those working in the field are quantitative analysts (quants). Quants tend to specialize in specific areas which may include derivative structuring or pricing, risk management, investment management and other related finance occupations. The occupation is similar to those in industrial mathematics in other industries. The process usually consists of searching vast databases for patterns, such as correlations among liquid assets or price-movement patterns.
Karel Janeček is a Czech mathematician, entrepreneur, anti-corruption campaigner, creator of the D21 – Janeček method voting system and the online game Prezident 21.
Four Horsemen of the Apocalypse is the name given by gambling authors to the four U.S. Army engineers who first discovered in the 1950s the best playing strategy in the casino game of Blackjack that can be formulated on the basis of the player's and the dealer's cards. The so-called Basic Strategy, which was subsequently refined through the use of computers and combinatorial analysis, loses the least money to the casino in the long term.
William Benter is an American professional gambler and philanthropist who focuses on horse betting. Benter earned nearly $1 billion through the development of one of the most successful analysis computer software programs in the horse racing market and is considered to be the most successful gambler of all time.
Al Francesco is an American blackjack player and gambling strategist. Considered to be “The Godfather of Blackjack”, Francesco is recognized as the creator of the team play concept, the “big player” strategy, and the drop card method. Beginning in 1971, Francesco personally recruited and trained disciplined card counters to work together in teams to beat the casinos. Franceso's teams of blackjack players would station themselves at various blackjack tables to count the decks, and when the mathematical odds turned in their favor, the counters would signal a “Big Player” to come to the table and place large wagers until the edge was lost and once again favored the dealer. While most card counters would eventually be discovered by casinos through their betting patterns and banned from further play, Francesco's unique team concept helped his players evade detection and continue winning.
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