By Robert Wachtel
The backgammon money management tool the Kelly criterion tells you how much to bet with a given advantage; but for most of us, that just raises a new question: how are you supposed to figure out what your advantage is? Begin by using these rules:
Remember to enter into your calculations all of your expenses. Under this category comes the rake you pay at a card club or online backgammon site, travel, hotel, food etc. The time you consume in gambling should also be counted as an expense, especially if there is some other profitable way you could have spent it. The more you study these numbers, the more you will be motivated to find bets or games that are not time-consuming and that you can initiate from home or your neighborhood.
Always try to rely upon logic and mathematics rather than short-term results when estimating how much you rate to win in a given situation. Disregarding this rule has been the ruin of many a wannabe professional gambler. Usually just a backgammon player of ordinary skill who has gotten extremely lucky for a while, this unfortunate character jumps to the conclusion that living is easy and (usually) that he is a genius. Grossly overestimating his advantage and expecting that he will keep winning at an obscene rate, he spends the money on the high life that should have been committed to his bankroll. All it takes then is a small gust of bad luck to blow down his house of cards and end his “career.”
Playing with Cheaters
Take into account the likelihood (in informal or personal gambling) that you may be getting stiffed or cheated. These last two items are terribly important: if you are being cheated, you may have absolutely no chance to win, and your estimated advantage might go (for example) from +15% to -100%.
Being stiffed is just as bad, but generally, it is something over which you will have more control. If you play backgammon against a big fish whose credit is not perfect, you can often limit your win to a size that is within your adversary’s payment range. Just like people who have bad credit in the “real world,“ a stiff will generally pay if the amount he owes is not too overwhelming. A few misjudgments in situations like this can ruin your entire year; but as the credit card companies know, customers have bad credit histories not because they are unethical, but because they are irrational. Just like the lending institutions, you should find a way to keep their business.
Also, a smart gambler will not necessarily avoid playing with cheaters. In poker or backgammon, you might encounter a player who is absolutely terrible, but tries to get a little bit of his loss back by putting one less chip in the pot or by wrongly scoring a game. Often the best policy in dealing with this kind of character is to consider these minor cheats as part of your expenses, the “cost of doing business” with him. If you still have a nice advantage after factoring in this cost, do not be afraid to play. Some of the gambling world‘s biggest losers are cheaters!
Play Backgammon or Bet on Sports
Remember that the further away you are from an event the less accurately you will be able to understand it. What this means in practical terms is that you should be much more willing to make a betting commitment when you are on the scene and can thoroughly judge what is going on. For example, if you have a chance to use your money to play backgammon or poker or make a few sports bets with a friend whom you know very well, that opportunity would in general take precedence over investing it in a stock tip that comes to you third hand, through the broker of a friend of an acquaintance at work. In the one case you can estimate your advantage quite accurately. In the second, you could hardly be in a worse position to judge your advantage (if you had any) and decide how much to bet.
Unless you have a very good reason for doing so (for example, for advertising purposes) you should never bet when you are sure you don’t have an advantage. In other words, do not play casino games unless you can be the house!
Incorporate into your advantage-calculations the hidden cost of going broke. When you bet a big piece of your bankroll, even with a huge advantage, you may lose it all. You then will need to deal not only with your own feelings of shame or embarrassment but also with the practical difficulty of scraping together a new stake with which to begin betting again. Depending upon your personal circumstances, this may be a formidable task, and one you should avoid by betting a bit more conservatively from the start.
Always bet against the apocalypse! The world is rife with super-pessimist types who gain a lot of attention (and sometimes respect) by predicting calamities and disasters. You should always make an effort to bet against these prophets of doom, for two reasons: (1) because they are never right, and (2) if ever they were right, you would certainly not have to pay! To take a silly but illustrative example; let’s say that you had a chance to bet with some of the Heaven’s Gate followers (the crazies who committed mass suicide in 1997 in San Diego, California because they thought that the Earth was about to be “cleansed” by aliens in a space craft that was trailing the Hale-Bopp comet) that their doomsday scenario was true. If they turned out to be right, we would all be far past the point where anything like a financial structure or payment of debts would exist! Your advantage on bets like this will always be huge… unless, of course, your counterparty kills himself before you can collect!