Edward O. Thorp

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Dr. Edward O. Thorp
Dr. Edward O. Thorp

Dr. Edward Oakley Thorp (born in August 14, 1932, Chicago) is an American mathematics professor, author, and blackjack player. He is widely known as the author of the 1962 book Beat the Dealer, which was the first book to prove mathematically that blackjack could be beaten by card counting.[1] The technique elevated the advantage of the house from an estimated maximum of approximately 5% (when following strategies with the smallest possibility of winning, either mimicking the dealer or never busting), to around 1% for the player.[2] He is also regarded as the co-inventor of the first wearable computer along with Claude Shannon.[3]

Thorp received his Ph.D. from the University of California, Los Angeles in 1958, where he afterwards became professor of mathematics in 1965 to 1977 and a professor of mathematics and finance from 1977 to 1982, and worked at M.I.T. from 1959 to 1961.

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[edit] Computer aided research in blackjack

Ed Thorp used the IBM 704 as a research tool in order to investigate the probabilities of winning while developing his blackjack game theory, which was based on the Kelly criterion.[4] He learned 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 to a great extent this way, while devising card-counting schemes with the aid of IBM 704 in order to improve his odds,[5] especially near the end of a card deck that is not being reshuffled after every deal. Thorp subsequently decided to test his theory in practice in Las Vegas.[4]

[edit] Applied research in Las Vegas

Beat the Dealer by Ed Thorp
Beat the Dealer by Ed Thorp

Thorp 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.[4] He could have won more in his initial foray in Las Vegas if his uncanny ability at winning had not drawn the unwelcome attention of the casino security, which led to repeated expulsions from the various premises that he visited that night. Casinos now shuffle well before the end of the deck as a countermeasure to his methods.

News quickly spread throughout the gambling community, which was eager for new methods of winning, while Thorp became an instant 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,[6] which sold over 700,000 copies, a huge number for a specialty title which earned it a place in the New York Times bestseller list,[7] much to the chagrin of Kimmel whose identity was thinly disguised in the book as Mr. X.[4]

It is also worth noting that Thorp's blackjack research is one of the very few examples where results from such reached the public first, completely bypassing the usual academic journal publications and peer review process cycle. Moreover, Thorp became one of the very few, if any, applied mathematicians who risked physical harm in verifying a computer simulation. He has also stated that he considered the whole experiment an academic exercise.[4] This also marked 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, who brought him and his wife Betty Shannon as partners on weekend forays to Las Vegas to play roulette and blackjack, at which Thorp was very successful.[8] His team's roulette play was the first instance of using a wearable computer in a casino -- something which is now illegal.[8][3] The wearable computer was co-developed with Claude Shannon between 1960-61. The final operating version of the device was tested in Shannon’s home lab at his basement in June of 1961.[3] His achievements have led him to become an inaugural member of the Blackjack Hall of Fame.[9]

[edit] Stock market

Since the late 1960s Thorp has used his knowledge of probability and statistics in the stock market by discovering and exploiting a number of pricing anomalies in the securities markets he has made a significant fortune.[10]. Princeton/Newport Partners was Thorp's first hedge fund, achieving an annualized net return of 15.1 percent over 19 years. He is currently the 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. [11]

[edit] Minor biographical details

[edit] Bibliography

[edit] Cited references

  1. ^ Beat the Dealer and Kelly criterion
  2. ^ The Mathematics of Gambling by Edward O. Thorp (Online Book)
  3. ^ a b c The Invention of the First Wearable Computer Online paper by Edward O. Thorp of Edward O. Thorp & Associates
  4. ^ a b c d e Discovery channel documentary series: Breaking Vegas, Episode: "Professor Blackjack" with interviews by Ed and Vivian Thorp
  5. ^ American Scientist online: Bettor Math, article and book review by Elwyn Berlekamp, (John L. Kelly's research assistant)
  6. ^ Blackjack Hero profile
  7. ^ Blackjack bible article
  8. ^ a b Poundstone, William: Fortune's Formula : The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
  9. ^ Las Vegas Advisor on Ed Thorp
  10. ^ THE KELLY CRITERION IN BLACKJACK, SPORTS BETTING, AND THE STOCK MARKET by Edward O. Thorp Paper presented at: The 10th International Conference on Gambling and Risk Taking Montreal, June 1997
  11. ^ Thorp's market activities

[edit] See also

[edit] External links

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