In its simplest form, Gambler’s ruin theory deals with how much money a player needs, what advantage he needs, and at what level the player should play. It is a necessity for any serious benefit player to maximize the win rate while minimizing the risk. At some point during your game, most likely during a long losing streak, you will be tempted to exaggerate your advantage. This can lead to very poor results.
The term random walk is an analogy used by mathematicians, in which you equate the desired result, the EV being realized when the number of events (hands) increases. The analogy is equated with a drunk who runs out of a pub and tumbles to the bus stop. He will arrive at the bus stop at some point, but the path will be subject to many obstacles. The path is not the most direct.
The downside is that gambling with an edge is also at risk, and the player has to take reasonable precautions to ensure that they don’t lose their money. The precautionary measures provide that there is enough bankroll to withstand any negative fluctuations. Think about it like this: You are playing the classic coin toss against me with your head or number. Every time the head comes, you get two euros and lose one when the number comes – sounds like a profitable bet for you. But you should have more than five euros to wager because a series could very easily come up. You have to survive this possible streak to win in the end, so you need an appropriate bankroll.
Additional risk management strategy
An additional risk management strategy is to cut your steak in half after losing half of your original stake. The overall probability of ruin is reduced to the original risk of ruin multiplied by the square root of the original risk of return. This should not be used as a reason for betting too high.
Another consideration is the player’s financial strength. If you have a solid six-figure income, you can afford not to be too conservative with your bankroll. This also affects the general psychological factors that come into play. As already mentioned, playing has an enormous psychological component. A certain level of mental hardness is required to overcome the negative fluctuations and persevere until positive expectations are fulfilled.
Gambler’s ruin theory is a key concept to ensure that players don’t go bankrupt. In this way, you will find the right balance between risk and return. If you are too aggressive, you increase the likelihood of bankruptcy. If you are too conservative, leave money behind and do not maximize earnings potential. Every player will suffer a defeat at one time or another and will want to deviate from the set strategy to get the money back quickly. But it is important that we trust mathematics and “wait” for the money. Don’t force it, and it will come. In this case, patience is a virtue.