Bet doubling in gambling and investing

ISSN： 1526-5943

Source： The Journal of Risk Finance Incorporating Balance Sheet, Vol.12, Iss.4, 2011-08, pp. : 291-305

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Abstract

Purpose ‐ The purpose of this paper is to analyze strategies for gamblers/investors to increase their chances of reaching certain monetary and/or survival goals while facing a losing proposition. Design/methodology/approach ‐ The paper investigates the use of credit by gamblers/investors as a means of increasing their expected survival time and thus their likelihood of winning. The paper considers a strategy in which a gambler/investor engages in bet doubling and uses credit to maximize the probability of winning a specified amount. Findings ‐ The model presented in this paper identifies the amount of credit that will make it possible for a gambler/investor to become a winner with an arbitrarily high degree of probability, even while facing a losing proposition. However, bet doubling can lead to large losses, and negative profits can be expected if the gambler/investor is faced with unfavorable odds. As an extension, the paper considers the impact of limited liability and finds that in that case, total losses are restricted and the gambler/investor can expect a positive net gain even while facing a losing proposition. It is also shown that the cost of obtaining credit is an important consideration and that it is ill-advised for a gambler/investor to engage in such a strategy when the cost of credit is high relative to the probability of winning. Originality/value ‐ Although bet doubling is not new to the gambling literature, this paper considers the use of credit as a means of increasing survival time and expected net gain. Applications of the model are particularly useful to gamblers/investors when credit can be obtained at low costs.