Intuitive Probabilities – Blackjack and Loss Rebates

eWallstreeter | eWallstreeter | May 23, 2011 3:27 pm

I was recently discussing an article with some friends where the author described a guy who was a big winner at blackjack in the Atlantic City Casinos. The article mentioned that the casinos offered this player a 20% rebate on his losses. In other words, If he won $1 mm, he got to keep the million, but if he lost $ 1mm, he only had to pay $ 800k. Now, obviously, this rebate is on the entire session – the overall loss total – not on each individual losing hand. One of my friends suggested that this was why the guy was a big winner, but I thought otherwise.

It seemed intuitive to me that most people would overestimate the value of this rebate for longer sessions of gambling play – ie, more trials. I thought that the casino would be able to afford to offer the loss rebate and…