Why I love Las Vegas: The Law of Large Numbers

(View the app I created that illustrates the Law of Large Numbers either before or after reading this article here) Las Vegas is caters …

(View the app I created that illustrates the Law of Large Numbers either before or after reading this article here)

Las Vegas is caters to people’s vices of all kinds. Sheindy and I love visiting Sin City although we do not gamble, drink or partake in any of the other entertainment and activities designed to cater to human weakness. We go there because the accommodation is relatively inexpensive, family friendly shows are often free or greatly discounted, we can drive there from our home, and there is lots of really good Kosher restaurants to eat at.

So how do hotels in Las Vegas manage to offer inexpensive accommodation, cut price shows and free attractions and still make money. The answer is gambling of course. The hotels make money when they get you to gamble. The gambling subsidizes the accommodation and the cut price shows.

But how does that work? Does not gambling offer the promise of outsized wins to those that partake? Well maybe to some, but the Law of Large Numbers guarantees that the casino will never loose money and in fact will overall make loads of money. Whilst I have never gambler, since I learned this law, any attraction to gamble has vanished.

So what is the Law of Large Numbers that guarantees that the house will always make money and makes gambling so unattractive to me?

Simply put this law says that whilst you can beat the odds of something happening for a time you cannot do it consistently over and over again. Think of flipping a coin for example. It is conceivable that you can get three or four heads in a row. One can event get ten heads in a row. But if you do a thousand or more coin flips one average you will get heads fifty percent of the time and tails fifty percent of the time.  

What if someone doctors the coin and the way the weight is distributed makes it so that there is only a 20 percent chance it will land on heads and 80 percent chance it will land on tails? The Law of Large Numbers still applies. Over many, many coin flips 20 percent of them will be heads but 80 percent will be tails tails. The Law of Large Numbers as I have described it is a fact. To prove it to you I have created an app that simulates coin flips for you to try it for yourself. See here.

This is what the casinos do. The odds of you losing, and the casino winning is stacked in favor of the casino. Whilst it is entirely possible that you as an individual might win, overall, over many times, you are guaranteed to lose. Thus, the more people they get in through the doors to gamble the more money they make.

This is known as the Gambler’s Fallacy, where the gambler believes that since something has happened many times in the recent past it is less likely to happen again or if something did not happen recently is means that it is due to happen soon. People think that since they lost previously they are “due” for a win or vice versa. In reality the chances of winning in a game that depends on “luck” is completely uninfluenced by what went before or what will happen after.

This law is also at play when you buy insurance coverage and is why you should never buy the extended warranties on items you could easily afford to replace. In making decisions about life it is important to keep this law in mind. It will help you avoid drawing false conclusions that could hurt you in the long run. It will also help you avoid people and schemes that are designed to part you from your hard earned money.

This is in essence why I love Las Vegas. Where else can I go on vacation and have it subsidized by the multitudes who either choose to ignore or are ignorant of a fundamental law of the universe?

(View the app I created that illustrates the Law of Large Numbers here)

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