Edward O. Thorp

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Edward Oakley Thorp (born in 1933) is an American math professor, author, and blackjack player. He is best known for his 1962 book Beat the Dealer, which was the first book to prove mathematically that blackjack could be beaten by card counting.^[1] The technique shifted the advantage from an estimated maximum of approximately 5% for the house (this figure is for the very worst strategies, either mimicking the dealer or never busting), to around 1% for the player.^[2]

Thorp received his Ph.D. from the University of California, Los Angeles in 1958, and worked at M.I.T. from 1959-1961.

Contents 1 Computer aided research in blackjack 2 Applied research Las Vegas style 3 Stock market 4 Biographical details 5 Bibliography 6 Cited references 7 See also 8 External links

[edit] Computer aided research in blackjack

Ed Thorp used the IBM 704 as a research tool, investigating the probabilities of winning while developing his blackjack game theory that was based on the Kelly criterion.^[3] He taught himself Fortran in order to program the equations needed for his theoretical research model on the probabilities of winning at blackjack. Thorp analyzed the game of blackjack in great depth this way and he devised card-counting schemes, with the aid of IBM 704, in order to improve his odds,^[4] especially near the end of a card deck that is not being reshuffled after every deal. Thorp subsequently decided to test his theory in the real world. Las Vegas seemed like the logical choice.^[3]

[edit] Applied research Las Vegas style

He started his Las Vegas applied research using $10,000, with Manny Kimmel, a known mob associate, providing the venture capital. The experimental results proved successful and his theory was verified since he won $11,000 in a single weekend, equivalent to $70,000 in today's dollars.^[3] He could have won more in his initial foray in Las Vegas save for the fact that his uncanny ability at winning drew the unwelcome attention of the casino security, and that led to repeated expulsions from the various premises he visited that night. Casinos now shuffle well before the end of the deck as a countermeasure.

News about the incident, even though it happened in Las Vegas, didn't stay there. Word of the feat spread among gambling circles, always eager for new methods of winning, and Thorp became an instant, if unlikely, celebrity among blackjack aficionados. Due to the great demand generated about disseminating his research results to a wider gambling audience he wrote the book Beat the Dealer in 1962, widely considered the original card counting manual,^[5] and which sold over 700,000 copies, a huge number for a specialty title that put it in the New York Times bestseller list,^[6] much to the chagrin of Kimmel whose identity was thinly disguised in the book as Mr. X.^[3]

It is also worth noting that Thorp's blackjack research is one of the very few examples where its results reached the public first, completely bypassing the usual academic journal publications and peer review process cycle not to mention that Thorp became one of the very few, if any, applied mathematicians who risked physical harm in verifying a computer simulation. He is also on record stating that he considered the whole experiment an academic exercise.^[3] As well this is the first time in the history of computing that a computer was used as a gambling aid.

In addition, Thorp, while a professor of mathematics at MIT, met Claude Shannon, and brought him and his wife Betty Shannon as partners on weekend forays to Las Vegas to play roulette and blackjack and was very successful.^[7]

[edit] Stock market

Since the late 1960s he has used his knowledge of probability and statistics in the stock market and by discovering and exploiting a number of pricing anomalies in the securities markets he has made a significant fortune.^[8]. Princeton/Newport Partners was Thorp's first hedge fund, achieving an annualized net return of 15.1 percent over 19 years. He is now president of Edward O. Thorp & Associates, based in Newport Beach, CA. In May 1998 Thorp reported that his personal investments yielded an annualized 20 percent rate of return averaged over 28.5 years. ^[9]

[edit] Biographical details

Thorp was a University of California, Irvine professor of mathematics from 1965 to 1977 and a professor of mathematics and finance from 1977 to 1982.

[edit] Bibliography

• Edward Thorp, Beat the Dealer: A Winning Strategy for the Game of Twenty-One, ISBN 0-394-70310-3
• Edward O. Thorp, Beat the Market: A Scientific Stock Market System, ISBN 0-394-42439-5

[edit] Cited references

[edit] See also

• Blackjack
• Card counting
• Mathematics of gambling

[edit] External links

• The Mathematics of Gambling by Edward O. Thorp
• The Man Who Beat the Dealer
• entry on Thorp at the Wilmott Wiki