Understanding the House Edge

Introduction

One of the biggest myths floating around the internet today is the myth that the casino cheats and they take your money through cheating. Now, this is a gigantic myth and you need to remove that idea from your mind for the simple reason that it is not true. The casino does not cheat in the games for the simple reason that they do not need to cheat in the games. Except for certain types of blackjack and video poker, every casino has a house edge on every bet that you make. They have organized the games to have a built in statistical edge and therefore a profit for them and therefore in order to win money from you over the long run, they do not have to cheat but merely have to wait.

Understanding Odds and Probability

To understand the house edge, you first need to have some understanding of odds and probability. When you flip a coin, you probably intuitively know that the chances of the coin landing on heads are the same as the chances of the coin landing on tails. This is known as an equal odds situation and the probability of either event taking place is 0.5 or 50%. If you were to flip a coin with a partner and bet a quarter on heads each time, what you would find is that over the long run nobody would win because you are betting a quarter to win a quarter (a ratio of 1 to 1 for winnings to bet) on a proposition that will be true half the time (a ratio of 1 to 1 for wins to losses).

However, what if you changed the proposition slightly? What if, instead of paying a quarter when you lose, you would have to pay 30 cents when you lose? So you win 25 cents and lose 30 cents for a ratio of 5 to 6 and your chances of winning are still 1 to 1. This means that you are being paid less than the true odds of the proposition and therefore in the long run you are going to have to lose money because of a built in statistical edge for one side.

Another way to look at this is from the point of view of changing the game rather than the betting. Say that if the coin landed on heads, before you win you would need to roll a die and not roll a 1. If you roll a 1, the bet wouldn’t count. This means that 1 out of every 6 times that you win, the game would not count. This means that the ratio for your wins to losses is now 5 to 6 with 1 not counting and the payout is still 1 to 1 meaning that you are going to lose more money than you win over the long run. These situations combined with the above situation are the two ways to nudge the statistical edge in your favor and this is exactly what the casino does in most of their games.