A rule of thumb (not only) for gamblers

Andrzej S. Kozek*

*Corresponding author for this work

    Research output: Contribution to journalArticle

    5 Citations (Scopus)

    Abstract

    Let prize X in a game be a random variable with a cumulative distribution function F, E[X] ≠ 0, and Var(X) < ∞. In a Gambler's Ruin Problem we consider the probability PF(A, B) of accumulating fortune A before losing the initial fortune B. Suppose our Gambler is to choose between different strategies with the same expected values and different variances. PF(A, B) is known to depend in general on the whole cumulative distribution function F of X. In this paper we derive an approximation which implies the following rule called A Rule of Thumb (not only) for Gamblers: if E(X) < 0 then the strategy with the greater variance is superior, while in case E[X] > 0 the strategy with the smaller variance is more favorable to the Gambler. We include some examples of applications of The Rule. Moreover we derive a general solution in the Roulette case and use it to show good behavior of The Rule explicitly.

    Original languageEnglish
    Pages (from-to)169-181
    Number of pages13
    JournalStochastic Processes and their Applications
    Volume55
    Issue number1
    DOIs
    Publication statusPublished - 1995

    Keywords

    • Gambling
    • Martingale
    • Random walk
    • Ruin
    • Stopping times

    Fingerprint Dive into the research topics of 'A rule of thumb (not only) for gamblers'. Together they form a unique fingerprint.

  • Cite this