Ace
Joined: Aug 15, 2013
• Posts: 43
July 11th, 2015 at 11:36:54 AM permalink
I've read that one reason someone might take insurance is to reduce the variance in Blackjack since it's not correlated with the main bet. So always taking insurance raises the house edge by about 30 basis points. But I just ran a calculation and the standard deviation came out .02 higher always taking insurance. Can someone explain how this reduces variance ?
andysif
Joined: Aug 8, 2011
• Posts: 433
July 12th, 2015 at 9:38:10 PM permalink
taking insurance ALWAYS get you even money if you have a BJ
Variance is zero.
So the phrase "to reduce variance" only applies when you have a BJ.

if you are not having a BJ then you are betting 3:1 that the hole card is a 10. that's why the variance is higher.
Romes
Joined: Jul 22, 2014
• Posts: 5518
July 13th, 2015 at 11:28:40 AM permalink
Your insurance bet isn't directly correlated to your blackjack bet, but both bets are correlated to your bankroll. This will increase bankroll variance because you're betting more. Anytime you're betting more you'll see more variance (your standard deviations will grow). As you correctly pointed out always taking insurance is a horrible idea and as was also pointed out would take away the BJ players biggest advantage: the 3:2 on blackjacks.
Playing it correctly means you've already won.
odiousgambit
Joined: Nov 9, 2009
• Posts: 8647
July 13th, 2015 at 1:12:17 PM permalink
I've said it before and I'll say it again, it is *not* true that BJ has high variance as a game. Card counters experience high variance because of the bet spread they employ.

Don't agree with me? Sorry, this is a known value. The standard deviation is 1.15 [varies depending on rules] according to the Wizard. http://wizardofodds.com/gambling/house-edge/

Generally speaking, this means that notions to decrease the variance are generally misplaced; the recreational flat-betting BJ player desperately needs more variance - yet players come up with ideas all the time to reduce it, like not doubling each and every time it is recommended.
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!” She is, after all, stone deaf. ... Arnold Snyder
AceTwo
Joined: Mar 13, 2012
• Posts: 359
July 13th, 2015 at 1:21:42 PM permalink
Taking Insurance will reduce Variance for Hands that you are likely to win if the dealer does not have BJ, like 20 v A.
And it will increase Variance for Hands that you are likely to lose if the dealer does not have BJ, like 17 v A.

A quick calculation shows variance for 20 v A dropping from around 0.85 to 0.27 AND
For 17 v A increasing from around 0.46 to 0.61

Without insurance your possible outcomes are 1,0,-1.
With insurance they are 0.5, 0 , -0.5, -1.5

With Bad Hands the effect of the -1.5 (ie delear wining without BJ) has more effect on increasing variance as it is more likely.
AceTwo
Joined: Mar 13, 2012
• Posts: 359
July 13th, 2015 at 1:40:02 PM permalink
Quote: Romes

Your insurance bet isn't directly correlated to your blackjack bet.

The insurance bet is directly correlated to the BJ Bet.
If the 10 comes, that is 30% of the time the dealer will have BJ and your BJ bet will lose and the insurance bet win. (of course depending on your hand the BJ bet will lose additionally to this 30%)
Say in a rich 10 remaining decks this prob increases to 40%, then the above 30% increases to 40% for both BJ and insurance bet.
For the event of a 10 coming the correlation is 100% (1 wins and 1 loses 100% of the time)

And there is correllation if the 10 does not come. Then the Insurance bet loses 100% of the times and the BJ bet wins a high % of the time (which is higher for better hands like 20). The corellation is not 100%, it is less than 100%, but there is corellation.