moo321

This is a cross-post from my blog

Introduction

I constantly hear APs tell me the standard opinion that “casinos are heavily regulated, they would never think of cheating.” Here’s how the reasoning goes:

1. Casino licenses are valuable
   
2. Casinos have regulators constantly scrutinizing their every move
   
3. Therefore, the cost of being caught cheating is higher than the gain from cheating
   
4. Therefore, casinos don’t cheat

This line of reasoning is ridiculous on its face. It’s also demonstrably false.

Poor Reasoning

This whole argument assumes casinos are rational. Anyone thinking casinos are rational actors clearly hasn’t spent a lot of time in them. Why do they put the cut card at 2 decks, costing themselves a 10%+ drop in revenue, on every table, 24 hours a day?

Don’t they know 99% of counters can’t even beat them? Don’t they know putting the cut card at a deck or lower would generally bring in more money even if they knew there was a counter on the table? It’s not like the sharp consultants like Zender haven’t been screaming for over a decade about how card counters are not a threat. They’re just stuck in their ways:

“A number of years ago I was advising executives from a small casino operation regarding the issues surrounding their poor game production and lower hold percentage.As I was explaining the importance of time and motion and the benefits from increasing game pace and decisions per hour,the marketing director informed the committee that he believed the problems in the pit stemmed from“too many card counters”coming to the casino. Suddenly, everyone in the room jumped on the bandwagon,“Yeah,that’s it.Too many card counters!”They started cross-firing solutions for stopping these “phantom”card counters:“Let’s cut off more cards,”“We need to cut the shoe in half of any player who is winning”or“Maybe we need to stop anyone from entering a blackjack game mid-shoe unless they bet $5 or less.”In a matter of seconds,my discussion on improving revenue raced off in the opposite direction based on one person’s uneducated comment about the possibility of“horde”card counting.By the way,did you notice how the“runaway”committee’s suggestions on how to solve their fictitious card counting dilemma were to institute procedures that would actually reduce revenue potential and hold percentage?”

(Side note: you should know who Bill Zender is, and read his stuff. More on this to come).

Other Regulated Businesses Cheat

According to this “rational actor” myth, no publicly-traded corporation cheats. They receive far greater scrutiny than casinos do (internal auditors, external audits by public accounting firms, external investigations). Their regulators actually send people to jail on occasion, unlike casino regulators.

Yet, Enron happened. WorldCom happened. The Great Recession happened. Bernie Madoff happened. If people with more external controls cheat with frequency, why wouldn’t casinos?

Quick Digression

Humans got thrown out of paradise over a damn apple. What makes you think they’re gonna start cutting half a deck off the shoe games?

Why do we assume that humans are rational actors? Most people are functionally emotional actors that possess rational functions. Much of the time, rationality is used after the fact, to justify the act:

“When the woman saw that the fruit of the tree was good for food and pleasing to the eye, and also desirable for gaining wisdom, she took some and ate it. She also gave some to her husband, who was with her, and he ate it…
The man said, “The woman you put here with me—she gave me some fruit from the tree, and I ate it.” (Genesis 3:6, 12).

Eve follows her emotions to eat the apple. Adam follows his emotions and goes along with his wife. Rationality only comes in after the fact when Adam blames his old lady. Aristotle discusses similar themes in Rhetoric. He discusses the interplay between emotions and the ability to rationally evaluate an argument.


Mini-conclusion: the idea that people always sit around rationally evaluating their actions before the fact is false. If you operate as if casinos are purely rational entities filled with purely rational employees, you are making mistakes. Spend time contemplating this, it has far-reaching repercussions.

Casinos Actually Cheat

None of this analysis is necessary, of course (although it is beneficial). Because we know casinos cheat. They’ve been caught red-handed. Roger Chuen Po Mok, an employee at the Venetian rigged a drawing in 2002:

“Regulators never named the employees who were responsible for the rigging of the drawings for a Mercedes-Benz sports utility vehicle and two gambling chips, valued at $20,000 and $10,000, during a 2002 Chinese New Year celebration.

Mok said he rigged the drawing because a high-roller he was hosting lost $5 million gambling and the employee “didn’t want to see him go home empty-handed.””

Regulators Are Generally Unhelpful

Casinos regulators in many places are funded with a percentage of the gross receipts of the casinos (Ohio, for example). This creates perverse incentives to protect the casinos against the interests of the public.

The regulators gave everyone a slap on the wrist. The Venetian is a multi-billion dollar property, owned by a company with a market cap of almost $50 billion. They paid a fine of $1 million. Mok got fired, and his license to work as a senior executive in Nevada was suspended. He’s not even banned from working in the industry!

Think about what would happen if you committed fraud at your job. Even if you ran the cash register at McDonald’s, there’s a good chance you’d catch a criminal charge. And you certainly wouldn’t be able to just walk across the street and get a job at Wendy’s.

Conclusion

Be a rational actor, even if your opponent is not. Casinos cheat. Regulators have reasons to do nothing. Accept it, and plan accordingly. This is unjust, but that does not change your day-to-day operations; North Korea starves their own people, yet the sun rises in the East each day.

Always remember, you are not dealing with an honorable opponent. Do not be surprised when your opponent acts dishonorably. Consider whether your honor code requires chivalry to a dishonest opponent. Always be careful doing anything that could fail if a regulator does not intervene on your behalf.