Edward O. Thorp

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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 eliminated the advantage of the house, which had an estimated maximum of approximately 5% (when following strategies with the smallest possibility of winning, either mimicking the dealer or never busting), and instead gave the player an advantage of approximately 1%.^[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, and worked at M.I.T. from 1959 to 1961. He was a professor of mathematics from 1965 to 1977 and a professor of mathematics and finance from 1977 to 1982 at UC Irvine.

Contents 1 Computer aided research in blackjack 2 Applied research in Las Vegas 3 Criticism 4 Stock market 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 in order to investigate the probabilities of winning while developing his blackjack game theory, which was based on the Kelly criterion.^[4][5] 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,^[6] 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

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.^[4] He could have won more during his initial foray in Las Vegas had his uncanny ability at winning 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,^[7] 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,^[8] 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, and 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.^[9] His team's roulette play was the first instance of using a wearable computer in a casino — something which is now illegal.^[9][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.^[10]

[edit] Criticism

Thorp's blackjack card counting system has been notably criticized by gambling expert John Scarne ^[11] Scarne's 1966 autobiography The Odds Against Me analyzes Thorp's system in "Beat the Dealer," and uncovers substantial mathematical errors. According to Scarne, the implemented system still gives a small advantage to the house. In an attempts to discredit Thorp, Scarne and the Sands Hotel and Casino released a press release on April 28, 1964, challenging Thorp to a blackjack freeze-out for $100,000. Thorp declined the offer.

[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, and he has made a significant fortune.^[12]. 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. ^[13]

[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
• Edward O. Thorp, The Mathematics of Gambling, 1985, ISBN 0-897-46019-7 (online version)

[edit] Cited references

[edit] See also

• Blackjack
• Card counting
• Gaming mathematics
• Black–Scholes

[edit] External links

• The Mathematics of Gambling by Edward O. Thorp
• The Man Who Beat the Dealer
• Entry on Thorp at the Wilmott Wiki
• Generalized Kelly Criterion For Multiple Outcomes