Relationship Between Edge and Risk.

I've been thinking about the player edge as it relates to risk incurred.
Let me give a video poker example. (Cause I posted in the VP section)

Let's say I have two different options for a 2% edge.
Option 1: Play Triple Double with promotion A
Option 2: Play 9/6 Jacks with promotion B

The key thing here is that each of them result in a 2% player edge for the same amount of time / number of hands / denomination....
Easy choice right? Pick the game with the lower variance... 9/6 Jacks.

How would you calculate the edge where someone is indifferent between the two options?

What I'm really trying to get to is figuring out what edge I should be looking for on events that occur in the 1 in 2000 to 1 in 3000 range if I'm comfortable with X% on a 1 in 500 shot or Y% on a 1 in 200 shot.

Hope this makes sense... I'm going to go poke around some finance web sites and see what they have as it relates to betas while you guys noodle.

Thanks in advance for any and all responses.
100x thanks for good responses.
:-)

prozema,

What you are asking is related to the "risk premium" in finance, or the "certainty equivalent" in gambling. To get started, read this Wikipedia article:

https://en.m.wikipedia.org/wiki/Risk_premium

Hope this helps!

Dog Hand

Quote: DogHand

prozema,

What you are asking is related to the "risk premium" in finance, or the "certainty equivalent" in gambling. To get started, read this Wikipedia article:

https://en.m.wikipedia.org/wiki/Risk_premium

Hope this helps!

Dog Hand

I like this.
100x thank yous awarded!

I worked with TomSki on this problem about 20 years ago.

TomSki was afraid to play $5 single line VP due to swings, e.g. you could lose $20K+ in a week which is still a lot of money today (in 2019)!! The elusive RF was about 2% of the return in VP games in general.

I worked with TomSki on risk reduction VP strategies, e.g. in full pay Pick’em you keep Big Pair (99+) over any 3 to Royal Flush even though 3 to RF had the higher EV. The goal was to trade EV for lower variance.

It turns out TomSki solved your problem and was rumored to help kill off positive EV plays across USA with his software. This software was TSI or TomSki Index.

TomSki’s first software was VPSM that generated strategy and TSI was a module to VPSM to help player discern which play was better based on EV, variance, single line vs N-Play, denomination, game speed, W2G’s, etc.

The guts of TSI was based on CE. And TomSki gave TSI software away for free (not the smartest business decision).

I searched the web and one website had this to say about TSI:
“The TomSki Index – The TomSki Index (TSI) is a tool to help determine the attractiveness of alternative video poker opportunities. It relies on a concept known as Certainty Equivalence. (CE) to determine the risk-free alternative to a gambling proposition.“ source: (dot)com/video-poker-strategy/

In summary, you are asking a gambling problem in general and a VP problem specifically ... the VP problem was answered about 20 years ago. Brings back memories of my contributions to the VP & AP world. On Skip Hughes message board, I was the one that got AP’s to adopt basis points since I worked in Fixed Income on Wall Street at the time. Before basis points (10,000 bp = 1 so 100 bp = 1%), AP’s were quoting cash back rates at 3/10th of 1% or 0.3% and then the AP world found bp to be easier to use like 30 bp, especially when it was 42.7 bp cash back.

In summary, if you use risk reduction VP strategies then it means you get the problem. In your question, nothing is stopping me or anyone from using risk reduction VP strategy for Triple Double or any other VP game. You have to think outside of the box.

Good luck.

The source got cut off so I will try again ninjalovespirate (dot) com/video-poker-strategy/

TSI was very popular in the early 2000 and then faded once the good opportunities went away. Maybe TSI was a bit too effective.

Quote: prozema

Let's say I have two different options for a 2% edge.
Option 1: Play Triple Double with promotion A
Option 2: Play 9/6 Jacks with promotion B

The key thing here is that each of them result in a 2% player edge for the same amount of time / number of hands / denomination....
Easy choice right? Pick the game with the lower variance... 9/6 Jacks.

Interesting and perhaps not entirely coincindental that a certain casino in Nevada has these two themes as their top two paytables.

I used to play 9/6 Jacks, then switched to the 9/7 TDB. Don't ask me why. TDB is now kicking my ass and it sucks. So, if you had to ask me I would prefer JoB (unless I was winning on TDB) :)