where did the slot machine definition of volatility come from?

Variability is a concept in statistics that describes dispersion in a dataset: it tells how much spread exists in the data. Measures like variance and standard deviation describe the average difference between the values of the set and the mean while something like interquartile range is a measure of the difference between the 75th and 25th percentile (how "wide" the middle 50% of the data is). At least in math.

The term "volatility" is used to describe variability in slot machines. That variability is reported using a volatility index. The volatility index is the standard deviation times the critical value (two tail) for the confidence interval desired, which is usually either 1.645 (90% confidence) or 1.96 (95% confidence). This value is then divided by sqrt(n) to give the uncertainty and report the upper and lower values for the confidence interval for some number of plays (which I am not even sure is legal as it usually is sample variance and mean and not population variance and mean, but stats was a really long time ago). It seems pretty math-like so far, right?

But the definition of volatility for slots is always something like:

Quote: bonus.com/slots/volatility/

Slot volatility represents how often a slot triggers a win and the typical size of the wins. A slot with high volatility typically pays out big wins spread apart while a slot with low volatility pays out small wins in quick succession. However, all slots can pay out both small and big wins, and any slot can provide a hot streak and a cold streak. Where the slot falls on the Volatility Index (VI) is simply the average experience.

or

Quote: pokernews.com/casino/slots/understanding-slots-volatility.htm

Put simply, when we are talking about Slots, the volatility is the frequency that payouts occur.

or

Quote: chartsattack.com/slot-volatility-guide-for-beginners/

Volatility, often interchangeably used with the term ‘variance’, refers to the risk level associated with a slot online machine. It indicates how often and how much you can expect to win during your gaming sessions.

And there are more like this. And not just people posting lies on the internet. Pragmatic defines volatility as

Quote:

High volatility games pay out less often on average but the chance to hit big wins in a short time span is higher

Volatility seems to be most often described as hit frequency, which I do not think is correct, but I am a big dumb. Hit frequency and volatility are unrelated. A game with a high hit frequency can have the same standard deviation as a game with a high hit frequency. Standard deviation is not measuring how often a player wins. If std dev is the same for each game, then the volatility index would be the same. Beyond that when it comes to sessions, low volatility games will have a higher likelihood of winning sessions when the number of games played is small, but as the number of games increases, winning sessions will be more likely on higher volatility games. In general with a normal prize structure where the contribution of the return decreases as prize value increases.

It all seems misleading to me, so I wonder how this definition came about. Of course, there is a very good chance that I completely wrong. like 99.999999999%.

The slot volatility comes from MOST spins being duds, break evens, or just a little over the bet, but ONE spin being a HUGE win such as a $4,000 win on a .40 bet. I personally witnessed someone getting a $4,000 win on only a .40 bet. (The $4,000 Progressive dropped. 😀 10,000 times her bet. 😀 She was happily stunned. 😀

Yes, how does one quantify slot volatility?

Quote: itsmejeff

But the definition of volatility for slots is always something like:

The problem is that those links are for a non-technical audience and don't actually contain a definition of volatility. If they did very few people would understand or read it.