RAM LAL ANAND COLLEGE

DEPARTMENT OF STATISTICS

Law of Large Numbers

used in Gambling
SUBMITTED BY -DIKSHA SINGH
University Roll no. – 19058568012
College Roll no. - 5024
Paper Name – Sampling Distribution
Course – B.Sc. Statistics Hons. (III Sem)

Guide –
Dr. Rita Jain
 LAW OF LARGE NUMBERS
The law of large numbers has a very central role in probability and statistics.
The law of large numbers states that an observed sample average
from a large sample will be close to the true population average
and that it will get closer the larger the sample, as the sample size
increases the estimates are more likely to be nearer to their
parameters that they are estimating.
The law of large numbers is twofold: the weak law of large
numbers and the strong law of large numbers. Both the weak and
strong laws refer to convergence of sample mean to population mean as the
sample size grows. However, they differ in the way of describing the
convergence of the sample mean with the population mean.
 WEAK LAW OF LARGE NUMBERS
The Weak Law of Large Numbers, also known as Bernoulli’s theorem,
states that if you have a sample of independent and identically distributed
random variables, as the sample size grows larger, the sample mean will
tend toward the population mean.

If, X1, X 2 ,... be a sequence of independent and identically distributed random variables, each having
finite mean E[Xi ] = μ , then, for any ε > 0,

As the sample size n grows to infinity, the probability that the sample mean x-bar differs from the
population mean mu by some small amount epsilon is equal to 0.
According to the mathematical definition of the weak law of large numbers, its graphical
representation could be as
STRONG LAW OF LARGE NUMBERS
The strong law of large numbers is probably the best-known result in probability
theory.
It states that the average of a sequence of independent random
variables having a common distribution will, with probability 1,
converge to the mean of that distribution.

If X1, X 2 ,... be a sequence of independent and identically distributed random

variables, each having finite mean E[Xi ] = μ, then, with probability 1,
According to the mathematical definition of the strong law of large numbers, its
graphical representation could be as
Law of Large Numbers and Probability in Gambling

The sole winner of the Law of Large Numbers are the casinos. The house always
wins saying is based on this theory.
The law of large numbers allow casinos to have reasonable expectations of what to
expect from the gambling tables. This enables long-term planning and also alerts them if
something is wrong—if a certain employee/team of employees/table is consistently under
performing it must be investigated.
But, They know some of the players are going to go home winners in the short run. In
fact, they’re counting on it.
If no one ever went home a winner, no one would ever play a casino game to begin
with.
But for every gambler who has an exceptional winning session, another gambler is almost
certain to have an exceptional losing session—especially when you start dealing with
thousands of players over the course of a year.
And since casinos have a relatively unlimited bankroll compared to most
gamblers, they can afford to wait for the edge to kick in.
Factor to Consider - THE HOUSE EDGE
The casinos don't beat the players because they get lucky, they beat the players
because the odds are stacked in their favour. This built-in advantage is called
the house edge. The house edge is defined as the casino profit expressed as
the percentage of the player's original bet.
We all know that the casino wins in the long run. The house edge tells us how
much the casino will win on average. The longer you play, the closer your
losses will get to the house edge.
Each game has a house edge built into it, representing the average loss over the
initial bet. Some sample edges are –
* Blackjack – 0.75%
* Baccarat – 1.2%
* Craps – 1.4%
* Roulette – 5%
* Slot machines – 5-10%
ROULETTE SPIN
The American roulette wheel has 38 congruent sectors numbered 0 and 00 and 1
through 36. The sectors 0 and 00 are green. Half of the sectors 1 – 36 are red and the
other half black.
In spinning the roulette wheel, the ball can land on any one of the 38 sectors at random.

In general, for a given bet, the odds against the player are expressed as q to p where p +
q = 38 and the number p is the number of sectors that correspond with the event that
the player winning the bet.
So, If the player places a bet on the red for example, then the odds against the player are
expressed as 20 to 18 since there are 18 sectors in red.
And, As Stated as probability, the probability of the player winning a given bet is p/38.
The house edge (also called the expected value) is the expected percentage of the player’s money
that is expected to go to the house. For any type of bets that can be made on the American
roulette wheel the house edge is always 5.26%.

When performing a random experiment (e.g. making bets at the roulette table), the individual
observations are not predictable. However, the long run average of many independent
observations is predictable and stable. This is called the law of large numbers.

So, after 100 spins you might have a big profit. After 1000, 100,000 or 1,000,000 rolls your
percentages will start to move closer to the ‘house edge’ on whatever variant of roulette
you’re playing. In any one bet, the player may win or lose. But in the long run, the player
will lose (and the casino wins).

In the long run, the casino will win 5.26 cents for each dollar wagered at the roulette table
A player may feel lucky on a given night at the table. But if the player plays long enough, the
casino wins. The results of individual bets made at the roulette table may be unpredictable.
But the long run average of making thousands of bets at the roulette table is
predictable and stable. This is the essence of the law of large numbers.
 Common Gambling Mistakes and Misunderstanding

Gamblers often fall in traps due to misunderstanding of the law

of large numbers and probability in general. People’s
reasoning is plagued by all sorts of biases and heuristics that
result in logical fallacies. To no surprise, the most notable ones
are called the Gambler’s fallacy AND Hot-Hand Fallacy.

Such a fallacy are the result of mistaken thinking that

the outcome of a random event is influenced by
outcomes of prior circumstances when in reality, each
occurrence stands on its own.
 GAMBLING FALLACY
If observing a series of random events, say the flipping of a fair coin,
and we note that the last two tosses resulted in heads, we may expect,
incorrectly due to a misinterpretation of the law of large numbers, that
the next flip of the coin will result in tails. As we know a fair coin has a
50% chance on each flip to land on heads or tails, therefore, for any
given set of trials the results should be evenly split between the two
outcomes.

Gambler's fallacy is the mistaken belief that, if something

happens more frequently than normal during a given period,
it will happen less frequently in the future (or vice versa).
 HOT-HAND FALLACY
Another common mistake related to streaks is the expectation that a given outcome is
hot and will continue to appear. This is the so-called “hot hand fallacy”, which originally
says that if a player is in a scoring streak, he’ll keep on scoring. This is also
applied to roulette (hot and cold numbers), slots (hot and cold symbols), and any other
game with various outcome combinations.

In reality, hot numbers don’t have to keep coming up. Streaks can end at any given time,
and then resume after couple of alternative outcomes. Randomness and
unevenness go hand in hand. Just like the gambler’s fallacy, the hot hand fallacy
stems from the underestimation of the independence of future outcomes in
law of large number theory.
 CONCLUSION
• The Law of Large Numbers is why casinos win in the long term. Even with a
slight benefit of the odds in the game, in the long term, the results of all the
bets and chances will reflect the odds. Sure, there is variation, sometimes you
win, yet on average with many attempts, the house wins.
• In a short summary, we must mention again that there’s more to
gambling than knowing the odds. Players often misinterpret numbers
because of their biases. This escalates quickly as gamblers fall victims
to outright fallacies. Therefore, the best advice is to be prepared, to
know your facts, and to remember that your own mind can trick you.
This way you’ll be able to avoid the traps and remain sharp. Having
decent knowledge in probability and the law of large numbers will help
you make more adequate decisions under uncertainty.