Understanding ‘house edge’

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I didn’t think that I would ever have to explain what a house edge is in the manner I will today.

Over the past few weeks, I’ve had people pitch game ideas to me that either have no house edge or in which the supposed house edge is pretty much pulled from thin air. The house edge is the percent of each wager that the casino can expect to win on average assuming the player plays the game perfectly.

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This might seem obvious to some of you. But clearly this needs to be said and to be explained a bit further.

There are some analysts that report the house edge as the percent of the initial wager that the casino expects to win on average per hand. In turn, these analysts use the term element of risk as the percent of the average total wager to reflect how much the casino can expect to win per hand.

I’m totally fine with this. This method takes into account the average wager size when reporting the house edge and can give the player a better opportunity to compare apples to apples.

The important part of the definition is that it assumes that the player is playing perfectly, or in some cases where the strategy is nearly impossible for a human to play perfectly, a clearly defined near-perfect strategy. What it does not allow for is human error. This is a critical part of how much money a casino will win in reality, but it cannot be assumed.

As I said earlier, I’ve had people pitch games to me where the house had no edge and assumed it will come from human error. Some of these games, if played perfectly, actually have player advantages.

Admittedly, the vast majority of players will not play a game perfectly. Spend a few minutes watching any table game and you’ll figure this out quickly. But if casinos were to put out a game with a 0.5 percent player advantage (that is a -0.5 percent house edge) hoping to make money from errors, they will discover a strange phenomenon.   Players who know how to play the game at a 0.5 percent advantage will swarm the table, play at maximum wagers and happily take advantage of the situation — all while paying off their mortgages, car loans and college loans. There is a reason why these players are called “Advantage Players.” They take advantage of situations like these.

My primary purpose of this week’s column is to plead with those inventing a game to make sure it has a house advantage. There are lots of ways to create this situation. It is done with dealer qualifying, the dealer getting an extra card, the Blind wager and countless others.

But this concept is also important for the average player to understand. You don’t get to the house edge just because you sit down and play. It does not consider a reasonable number of errors by the player. It assumes perfect or near perfect play.

So if you want to play the game at a low house edge, you’re going to need to learn the strategy and play the strategy. The human errors are just gravy.

About the Author

Elliot Frome

Elliot Frome’s roots run deep into gaming theory and analysis. His father, Lenny, was a pioneer in developing video poker strategy in the 1980s and is credited with raising its popularity to dizzying heights. Elliot is a second generation gaming author and analyst with nearly 20 years of programming experience.

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