Edward O. Thorp

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Edward O. Thorp
Dr. Edward O. Thorp
Dr. Edward O. Thorp
Born August 14, 1932
Chicago
Residence United States
Citizenship American
Fields Probability theory, Linear operators
Institutions UC Irvine, New Mexico State University
Alma mater UCLA
Doctoral advisor Angus E. Taylor

Dr. Edward Oakley Thorp (born August 14, 1932, Chicago) is an American mathematics professor, author, hedge fund manager, 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 University of California, Irvine.

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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 which he learned about from the 1956 paper by Kelly.[4][5][6][7] 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,[8] 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 Reno, Lake Tahoe and Las Vegas.[9][6][8]

[edit] Applied research in Reno, Lake Tahoe and Las Vegas

Beat the Dealer by Ed Thorp, 1966 edition

Thorp started his applied research using $10,000, with Manny Kimmel, a wealthy professional gambler and one-time illegal bookie with mob connections,[10] providing the venture capital. First they visited Reno and Lake Tahoe establishments where they tested Thorp's theory at the local blackjack tables.[9] The experimental results proved successful and his theory was verified since he won $11,000 in a single weekend.[6] 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. During his Las Vegas casino visits Thorp frequently used disguises such as wraparound glasses and false beards.[9] In addition to the blackjack activities Thorp had assembled a baccarat team which was also winning.[9]

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,[11] 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,[12] much to the chagrin of Kimmel whose identity was thinly disguised in the book as Mr. X.[6]

It is also worth noting that Thorp's blackjack research[13] is one of the very few examples where results from such reached the public directly, completely bypassing the usual academic peer review process cycle. Moreover, Thorp became one of the very few applied mathematicians who risked physical harm in verifying a computer simulation. He has also stated that he considered the whole experiment an academic exercise.[6] 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.[14] His team's roulette play was the first instance of using a wearable computer in a casino — something which is now illegal.[14][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 1961.[3] His achievements have led him to become an inaugural member of the Blackjack Hall of Fame.[15]

[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.[5]. Princeton/Newport Partners was Thorp's first hedge fund, achieving an annualized net return of 15.1 percent over 19 years.[citation needed] 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. [16]

[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. ^ Understanding Fortune’s Formula by Edward O. Thorp Copyright 2007 Quote: "My 1962 book Beat the Dealer explained the detailed theory and practice. The “optimal” way to bet in favorable situations was an important feature. In Beat the Dealer I called this, naturally enough, “The Kelly gambling system,” since I learned about it from the 1956 paper by John L. Kelly."
  5. ^ a b 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 and paper abstract
  6. ^ a b c d e Discovery channel documentary series: Breaking Vegas, Episode: "Professor Blackjack" with interviews by Ed and Vivian Thorp
  7. ^ The Tech (MIT) "Thorpe, 704 Beat Blackjack" Vol. 81 No. I Cambridge, Mass., Friday, February 10, 1961
  8. ^ a b American Scientist online: Bettor Math, article and book review by Elwyn Berlekamp via Internet Archive
  9. ^ a b c d It's Bye! Bye! Blackjack Edward Thorp, the pensive professor above, is shaking the gambling world with a system for beating a great card game. He published it a year ago, and now the proof is in: it works David E. Scherman January 13, 1964 pp. 1–3 from SI Vault (beta)(CNN) Quotes: "The unlikely trio was soon on its way to Reno and Lake Tahoe, where Thorp's horn-rimmed glasses, dark hair and fresh, scrubbed face hardly struck terror into the pit bosses. (p. 1)", "But Edward Thorp and his computer are not done with Nevada yet. The classiest gambling game of all—just ask James Bond—is that enticing thing called baccarat, or chemin de fer. Its rules prevent a fast shuffle, and there is very little opportunity for hanky-panky. Thorp has now come up with a system to beat it, and the system seems to work. He has a baccarat team, and it is over $5,000 ahead. It has also been spotted and barred from play in two casinos. Could it be bye-bye to baccarat, too? (p. 1)" and "But disguises frequently work. Thorp himself now uses a combination of wraparound glasses and a beard to change his appearance on successive Las Vegas visits. (p. 3)"
  10. ^ Breaking Vegas “Professor Blackjack.” Biography channel Rated: TVPG Running Time: 60 Minutes Quote: "In 1961, lifelong gambler Manny Kimmel, a "connected" New York businessman, read an article by MIT math professor Ed Thorp claiming that anyone could make a fortune at blackjack by using math theory to count cards. The mob-connected sharpie offered the young professor a deal: he would put up the money, if Thorp would put his theory to action and card-count their way to millions. From Thorp's initial research to the partnership's explosive effect on the blackjack landscape, this episode boasts fascinating facts about the game's history, colorful interviews (including with Thorp), and archival footage that evokes the timeless allure and excitement of the thriving casinos in the early `60s. "
  11. ^ Blackjack Hero profile
  12. ^ Blackjack bible article
  13. ^ A favorable strategy for twenty-one. Proceedings of the National Academy of Sciences 47 (1961), 110-112
  14. ^ a b Poundstone, William: Fortune's Formula : The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
  15. ^ Las Vegas Advisor on Ed Thorp
  16. ^ Thorp's market activities

[edit] See also

[edit] External links

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