GAMBLING ON GAMBLING: FINANCIAL IMPLICATIONS OF RAISING BET LIMITS AND TABLE DIFFERENTIALS

Abstract

The house advantage for Baccarat is known, hence the theoretical win can be determined. What is impractical to theoretically determine is the frequency and financial implications of extreme events, for example, prolonged winning streaks coupled with various betting patterns. The simulation herein provides such granularity. We explore the effect of following the ‘hot hand’, that is, rapidly escalating bets when players are on a winning streak. To minimize their exposure, casino management sets a table bet maximum as well as a table differential. These figures can and do serve as a means to differentiate one casino from another. As the allowable bet maximum increases so does the total amount bet, which increases the theoretical winnings, thus suggesting that a high bet limit and differential is beneficial for the house. However, the greater are these amounts, the greater the number of shoes that end with players losing relative to a constant betting scenario (the number of times a player wins at all can drop from ~47% of the time to less than a quarter); but there will, on occasion, be more extreme payouts to players. This simulation is therefore intended to help casino managers set betting limits that maximize total winnings while bearing in mind both the likelihood and magnitude of negative outcomes to the casino.