Moneypot just took a huge loss?

[Blazed]

So if I understand this correctly... tl;dr That is how plinkopot works and this guy just got really lucky? or is their an error with kelly?

[EngiNerd]

I see so plinkopot max at 999x and betterbets has 9999x which means a much smaller bet could win large part of bankroll now the odds must be astronomical to win this.

It's 1 in 65536 to end up in the left hand position, and 1 in 32768 to end up in either of the outside positions. So not really "astronomical".

If you bet once per second you would hit one of the outside pockets every 9 hours or so.

Edit: on average, of course! I don't mean every 9 hours. I mean the average time between hits would be 9 hours in the (very) long run.

if you are saying that "the chance is 1 in 32768 to end up in either or the outside positions" do you mean that for all color bet options?

in case of green it is     3X
in case of orange it is  23X
in case of red it is     121X

Yes, the odds are "1 in 32768" to end up in either of the outside positions for all color bet options. The color of the row has no impact on the odds at all, just the payout multiplier.

[dooglus]

Should they be risking that much of their bankroll in a single bet? It seems like as we've just seen, that leaves MoneyPot and its investors exposed to a whale getting lucky and wiping them out.

According to the Kelly criterion, yes they should be. You need to me risking that much to maximum the expected log of your bankroll. If you only risk 1% of your bankroll on the highest payout, you're risking much less than 1% of your bankroll on the other payouts, and those are the most common. The big payouts are rare enough that apparently it's worth risking more than 1% and relying on the fact that they don't come up very often.

if you are saying that "the chance is 1 in 32768 to end up in either or the outside positions" do you mean that for all color bet options?

in case of green it is     3X
in case of orange it is  23X
in case of red it is     121X

Those are the payouts. I'm talking about the chance of them coming up, not the payouts when they do. The payouts are much lower than the odds against them happening because you also get paid when they don't come up. If you could set the payouts to 32768 in the two outsides and 0 everywhere else, that would be a zero house edge game.

So if I understand this correctly... tl;dr That is how plinkopot works and this guy just got really lucky? or is their an error with kelly?

The guy hit a 1-in-32k shot on his 27th attempt betting 0.4 BTC on the red line. That's about a 1 in 1200 chance of happening. So he got kind of lucky.

It appears that the bet was less than a full Kelly, and that the proportion of the bankroll that Kelly tells us to risk is much higher than our intuition would suggest.

[elm]

I see so plinkopot max at 999x and betterbets has 9999x which means a much smaller bet could win large part of bankroll now the odds must be astronomical to win this.

It's 1 in 65536 to end up in the left hand position, and 1 in 32768 to end up in either of the outside positions. So not really "astronomical".

If you bet once per second you would hit one of the outside pockets every 9 hours or so.

Edit: on average, of course! I don't mean every 9 hours. I mean the average time between hits would be 9 hours in the (very) long run.

if you are saying that "the chance is 1 in 32768 to end up in either or the outside positions" do you mean that for all color bet options?

in case of green it is     3X
in case of orange it is  23X
in case of red it is     121X

Yes, the odds are "1 in 32768" to end up in either of the outside positions for all color bet options. The color of the row has no impact on the odds at all, just the payout multiplier.

are you sure? because this would be a terrible bet for a player if I see it as a standalone bet. for example I would bet 1 satoshi 32768 times (=32768 satoshi) to win a bet to get 3 satoshi - 23 satoshi or 121 satoshi

edit: I see now that dooglus answered it

[elm]

According to the Kelly criterion, yes they should be. You need to me risking that much to maximum the expected log of your bankroll. If you only risk 1% of your bankroll on the highest payout, you're risking much less than 1% of your bankroll on the other payouts, and those are the most common. The big payouts are rare enough that apparently it's worth risking more than 1% and relying on the fact that they don't come up very often.

1 in 32768 is not rare imo and it would depend on how much you will earn with those other payouts to justify such an high payout (in relation to the Bank Roll) for the outside chance.

[ranlo]

Should they be risking that much of their bankroll in a single bet? It seems like as we've just seen, that leaves MoneyPot and its investors exposed to a whale getting lucky and wiping them out.

According to the Kelly criterion, yes they should be. You need to me risking that much to maximum the expected log of your bankroll. If you only risk 1% of your bankroll on the highest payout, you're risking much less than 1% of your bankroll on the other payouts, and those are the most common. The big payouts are rare enough that apparently it's worth risking more than 1% and relying on the fact that they don't come up very often.

if you are saying that "the chance is 1 in 32768 to end up in either or the outside positions" do you mean that for all color bet options?

in case of green it is     3X
in case of orange it is  23X
in case of red it is     121X

Those are the payouts. I'm talking about the chance of them coming up, not the payouts when they do. The payouts are much lower than the odds against them happening because you also get paid when they don't come up. If you could set the payouts to 32768 in the two outsides and 0 everywhere else, that would be a zero house edge game.

So if I understand this correctly... tl;dr That is how plinkopot works and this guy just got really lucky? or is their an error with kelly?

The guy hit a 1-in-32k shot on his 27th attempt betting 0.4 BTC on the red line. That's about a 1 in 1200 chance of happening. So he got kind of lucky.

It appears that the bet was less than a full Kelly, and that the proportion of the bankroll that Kelly tells us to risk is much higher than our intuition would suggest.

Dooglus the math wizard comes through again, :p.

To me, risking up to almost 100% of the bankroll is ludicrous. Regardless of the CHANCE of that happening, it's essentially taking the risk that at some point (which, statistically speaking, would happen given enough time) someone completely wipes it.

While the house could win 10,000 BTC before that happens, the risk of an all or nothing is still fairly great. From the player's perspective, it's a great deal -- it essentially says that if you lose enough, you can keep your bets in line with the entire bankroll and at some point win back not only ALL your losses so far, but everyone else's losses + all investments that were made.

It's definitely a system that needs to be re-evaluated risk-wise. Plinko is an interesting game due to how it works, though. Ideally, what seems the best from a non-mathematically-inclined perspective is to take the maximum win allowed (say 1%, 2%, whatever) and divide it by the highest multipliers to determine the maximum bet allowed. But I'm sure I'm missing something here...

[Quickseller]

To me, risking up to almost 100% of the bankroll is ludicrous. Regardless of the CHANCE of that happening, it's essentially taking the risk that at some point (which, statistically speaking, would happen given enough time) someone completely wipes it.

Regardless of if this bet was kelly compliant, regardless of the question of if it was appropriate to allow this bet, and regardless of what the setters of MoneyPot were under RHaver, if it is your opinion that this bet would allow excessive risks, then it is your responsibility as the owner/operator of MoneyPot to disallow such bets from being placed. As the owner/operator of MoneyPot, it is your responsibility to ensure that your bankroll investors are not exposed to excessive risk.

I would tend to agree that allowing this much of the bankroll to be potentially lost in a single bet is probably not a good idea. According to dicesites.com, many of the top gambling sites have more then ~32k bets placed every day, which puts an excessive risk on the bankroll, as if bets are large enough, then the bankroll could potentially be wiped out multiple times per day. I am not exactly sure why the kelly suggests that this would be an appropriate risk, however this would probably be an example when what the kelly say should be 'overridden' and to allow less of a risk.

[Dannie]

if it is your opinion that this bet would allow excessive risks, then it is your responsibility as the owner/operator of MoneyPot to disallow such bets from being placed. As the owner/operator of MoneyPot, it is your responsibility to ensure that your bankroll investors are not exposed to excessive risk.

The problem is he (and probably all the investors) didn't know. In fact, even dooglus's first post in this thread said "I don't understand why this bet was allowed to go ahead...I never looked in detail at how the kelly criterion works when there are multiple mutually exclusive outcomes like in the case of plinko bets" and RHaver said "I'm quite surprised it would allow 0.4 BTC bet -- that seems a bit much to me". They are only aware of what Kelly formula suggested in this case now, after seeing that bet happened and re-visiting the math behind it.

[Quickseller]

if it is your opinion that this bet would allow excessive risks, then it is your responsibility as the owner/operator of MoneyPot to disallow such bets from being placed. As the owner/operator of MoneyPot, it is your responsibility to ensure that your bankroll investors are not exposed to excessive risk.

The problem is he (and probably all the investors) didn't know.

It is his responsibility to know. If this was something that he did not fully understand, then he should not have allowed these kinds of bets in the first place.

(AFAIK) dooglus, nor RHaver are the ones who own MoneyPot, therefore it is not their responsibility to make sure that bets do not expose MoneyPot bankroll investors to excessive risk

[Dannie]

if it is your opinion that this bet would allow excessive risks, then it is your responsibility as the owner/operator of MoneyPot to disallow such bets from being placed. As the owner/operator of MoneyPot, it is your responsibility to ensure that your bankroll investors are not exposed to excessive risk.

The problem is he (and probably all the investors) didn't know.

It is his responsibility to know. If this was something that he did not fully understand, then he should not have allowed these kinds of bets in the first place.

(AFAIK) dooglus, nor RHaver are the ones who own MoneyPot, therefore it is not their responsibility to make sure that bets do not expose MoneyPot bankroll investors to excessive risk

But then the same could be applied to the investors. On the investment page, there is a reminder "Never invest more than you are willing to lose, and do not invest unless you clearly understand the risks and rewards." and on the FAQ page, it tells investors "We use the generalized kelly criterion, to determine if a bet is acceptable or not". I do agree with you that it may not be the best idea for sites to completely follow Kelly formula in this case though.
Yup dooglus has nothing to do with MP while RHaver no longer owns it. What I was trying to say is that even the math gurus didn't realize the potential problem before it happened and I could understand why the current owners of MP didn't know the problem.

[ranlo]

if it is your opinion that this bet would allow excessive risks, then it is your responsibility as the owner/operator of MoneyPot to disallow such bets from being placed. As the owner/operator of MoneyPot, it is your responsibility to ensure that your bankroll investors are not exposed to excessive risk.

The problem is he (and probably all the investors) didn't know.

It is his responsibility to know. If this was something that he did not fully understand, then he should not have allowed these kinds of bets in the first place.

(AFAIK) dooglus, nor RHaver are the ones who own MoneyPot, therefore it is not their responsibility to make sure that bets do not expose MoneyPot bankroll investors to excessive risk

I am not speaking on behalf of MP, I'm speaking on behalf of myself. Any official correspondence from MP itself will come from the official account. That said, I personally don't even understand Kelly, how it works, and how to break it down mathematically. It's not my area of expertise and I would never insinuate I know anything about it. I'm also not a developer, nor would I ever claim to be. As such, this entire discussion is completely foreign to me, . Things like Kelly are way over my head. Looks like it's above others', too, with Bitvest's hefty loss today (9.2 BTC loss on a 0.1 BTC bet, with a 160 BTC bankroll). Wondering what their mass loss per roll is.

[lorylore]

as being an investor for myself, i believe that the policy is made up to profit the investor and the mp. if the casino function does not follow the rules set by us, should we still acknowledge the whole bet and pay the full price???

[Quickseller]

if it is your opinion that this bet would allow excessive risks, then it is your responsibility as the owner/operator of MoneyPot to disallow such bets from being placed. As the owner/operator of MoneyPot, it is your responsibility to ensure that your bankroll investors are not exposed to excessive risk.

The problem is he (and probably all the investors) didn't know.

It is his responsibility to know. If this was something that he did not fully understand, then he should not have allowed these kinds of bets in the first place.

(AFAIK) dooglus, nor RHaver are the ones who own MoneyPot, therefore it is not their responsibility to make sure that bets do not expose MoneyPot bankroll investors to excessive risk

I am not speaking on behalf of MP, I'm speaking on behalf of myself. Any official correspondence from MP itself will come from the official account. That said, I personally don't even understand Kelly, how it works, and how to break it down mathematically. It's not my area of expertise and I would never insinuate I know anything about it. I'm also not a developer, nor would I ever claim to be. As such, this entire discussion is completely foreign to me, . Things like Kelly are way over my head. Looks like it's above others', too, with Bitvest's hefty loss today (9.2 BTC loss on a 0.1 BTC bet, with a 160 BTC bankroll). Wondering what their mass loss per roll is.

Regardless of if you are speaking on behalf of MP or not, I think it says a lot when it is one of the owner's opinion that a controversially large winning bet that was allowed to be made was risking more then what he thinks should have been risked.

Since you were offering bankroll investments, it would be your job to understand how Kelly works. If I had to guess I would say that Stunna did not know how probably fair betting works prior to deciding to open PD, however likely deals with it on a daily basis now. He previously has stated that none of the owners of PD are devs. The same is likely true for other technical aspects of PD.

When you are managing the risks of other's money then you should understand these risks before you start offering bankroll investments. This is similar to how am escrow service should know how to keeps funds secure prior to offering his services.

[ranlo]

if it is your opinion that this bet would allow excessive risks, then it is your responsibility as the owner/operator of MoneyPot to disallow such bets from being placed. As the owner/operator of MoneyPot, it is your responsibility to ensure that your bankroll investors are not exposed to excessive risk.

The problem is he (and probably all the investors) didn't know.

It is his responsibility to know. If this was something that he did not fully understand, then he should not have allowed these kinds of bets in the first place.

(AFAIK) dooglus, nor RHaver are the ones who own MoneyPot, therefore it is not their responsibility to make sure that bets do not expose MoneyPot bankroll investors to excessive risk

I am not speaking on behalf of MP, I'm speaking on behalf of myself. Any official correspondence from MP itself will come from the official account. That said, I personally don't even understand Kelly, how it works, and how to break it down mathematically. It's not my area of expertise and I would never insinuate I know anything about it. I'm also not a developer, nor would I ever claim to be. As such, this entire discussion is completely foreign to me, . Things like Kelly are way over my head. Looks like it's above others', too, with Bitvest's hefty loss today (9.2 BTC loss on a 0.1 BTC bet, with a 160 BTC bankroll). Wondering what their mass loss per roll is.

Regardless of if you are speaking on behalf of MP or not, I think it says a lot when it is one of the owner's opinion that a controversially large winning bet that was allowed to be made was risking more then what he thinks should have been risked.

Since you were offering bankroll investments, it would be your job to understand how Kelly works. If I had to guess I would say that Stunna did not know how probably fair betting works prior to deciding to open PD, however likely deals with it on a daily basis now. He previously has stated that none of the owners of PD are devs. The same is likely true for other technical aspects of PD.

When you are managing the risks of other's money then you should understand these risks before you start offering bankroll investments. This is similar to how am escrow service should know how to keeps funds secure prior to offering his services.

I just want to say that... I'm impressed. Even when two of the more mathematically-inclined people on the forums didn't fully understand the repercussions of the Kelly algorithm, you do. From now on, I will be sure to bring any math-based questions I have directly to you, since you're obviously now the most knowledgeable person on the forums.

[Chemistry1988]

as being an investor for myself, i believe that the policy is made up to profit the investor and the mp. if the casino function does not follow the rules set by us, should we still acknowledge the whole bet and pay the full price???

All the bets have a positive EV from the viewpoint of investors and the site, but that doesn't mean investors will certainly get a profit particularly in the short run. I am not sure what you meant by "rules set by us", since there is no rule set by individual investor and all investment are treated the same way following the Kelly criterion, which unlike on some dice sites that you can set your own Kelly multiplier.

[RHavar]

I just want to say that... I'm impressed. Even when two of the more mathematically-inclined people on the forums didn't fully understand the repercussions of the Kelly algorithm, you do.

I was going to avoid this thread, but I don't think that's fair. While I indeed underestimated how much the house can "sanely" risk for many plinko bets, I didn't not fully understand the repercussions. In fact, on numerous occasions I have told investors that they could lose (almost) the entire bankroll with a single bet. (The most trivial example: A dice bet with 99.99% house edge can win 99.99% of the bankroll)

To me, risking up to almost 100% of the bankroll is ludicrous. Regardless of the CHANCE of that happening, it's essentially taking the risk that at some point (which, statistically speaking, would happen given enough time) someone completely wipes it.

While the house could win 10,000 BTC before that happens, the risk of an all or nothing is still fairly great. From the player's perspective, it's a great deal -- it essentially says that if you lose enough, you can keep your bets in line with the entire bankroll and at some point win back not only ALL your losses so far, but everyone else's losses + all investments that were made.

FWIW, even if you don't understand the maths you should at least understand the high level purpose of the kelly criterion. This is almost the exact opposite of reality, and what we just spent hours proving on your behalf.

[ranlo]

FWIW, even if you don't understand the maths you should at least understand the high level purpose of the kelly criterion. This is almost the exact opposite of reality, and what we just spent hours proving on your behalf.

Can you please tl;dr this for me then? Something I'm not catching on to I guess. If the risked amount is a % of the bankroll (as per Dooglus), that % remains the same. So let's say there's 100 BTC in the BR, and 99.84% can be lost (99.84). Player loses 100 BTC chasing it. Now there's 200 BTC there, but he can chase after 199.68 of it (meaning his 100 + 99.68/99.84 of what he was chasing), and this could go on forever.

A cap would prevent this, is my understanding (based on a few others also breaking it down). But am I misunderstanding something with the above?

And I absolutely thank you for your help better understanding this, and Dooglus as well, . Despite the hiccups, I think it was fairly alerting.

(Also, I wasn't trying to be abrasive or devalue your assistance and/or previous/current knowledge on the subject, but rather explain that if people that deal with this a lot weren't completely aware, then to expect someone -- since he calls out me, specifically -- with no math background to know it all is a bit asinine)

[RHavar]

Can you please tl;dr this for me then? Something I'm not catching on to I guess. If the risked amount is a % of the bankroll (as per Dooglus), that % remains the same. So let's say there's 100 BTC in the BR, and 99.84% can be lost (99.84). Player loses 100 BTC chasing it. Now there's 200 BTC there, but he can chase after 199.68 of it (meaning his 100 + 99.68/99.84 of what he was chasing), and this could go on forever.

So for argument sake, lets use a gambler with infinite money.

The site starts with a 100 BTC bankroll, this means using Dooglus' payouts the gambler would have to bet 1524 BTC to aim at winning the 99.97% of the bankroll. As the gambler loses money, to the house, the more and more he needs to bet. By the time the gambler wins the 99.97% of the bankroll, he will have probably grown the bankroll so much that the remaining 0.03% is far bigger than the initial bankroll.

So even with infinite money, the gambler is still -EV and the casino still have +expected bankroll growth

[ranlo]

Can you please tl;dr this for me then? Something I'm not catching on to I guess. If the risked amount is a % of the bankroll (as per Dooglus), that % remains the same. So let's say there's 100 BTC in the BR, and 99.84% can be lost (99.84). Player loses 100 BTC chasing it. Now there's 200 BTC there, but he can chase after 199.68 of it (meaning his 100 + 99.68/99.84 of what he was chasing), and this could go on forever.

So for argument sake, lets use a gambler with infinite money.

The site starts with a 100 BTC bankroll, this means using Dooglus' payouts the gambler would have to bet 1524 BTC to aim at winning the 99.97% of the bankroll. As the gambler loses money, to the house, the more and more he needs to bet. By the time the gambler wins the 99.97% of the bankroll, he will have probably grown the bankroll so much that the remaining 0.03% is far bigger than the initial bankroll.

So even with infinite money, the gambler is still -EV and the casino still have +expected bankroll growth

Ahh, I see now. He had said that Plinkopot didn't allow higher multipliers but MP does, which led me to believe that the bet needed would be much, much smaller than that. This makes sense. So essentially, a median needs to be reached between BR risk and allowing that thrilling chance (likely through a capped "if max. win > x% BR, decline, even if it meets Kelly" setup), so as to protect investors and still allow risk-takers to get their fix. And we can essentially classify the bet in question as being a rare event, but still something that's concerning solely because of its impact.

[RHavar]

@Dooglus an interesting note:

Taking the payout line that was used:

[ 121, 47, 13, 5, 3, 1.4, 1, 0.5, 0.3, 0.5, 1, 1.4, 3, 5, 13, 47, 121 ]

We naively assumed the house had a 1% edge, but actually it's an illusion.

We can actually normalize this payout line to:

Code:

[ 172.42857142857144,  66.71428571428572, 18.142857142857142,  6.714285714285714,  3.857142857142857,  1.5714285714285712,  1,  0.2857142857142857,  0,  0.2857142857142857, 1,  1.5714285714285712,  3.857142857142857,66.714285714285714,  18.142857142857142,  66.71428571428572,  172.42857142857144 ]

So when betting 0.7 BTC, it's an identical bet! The EV stays the same (-0.01 BTC or what ever), but now we calculate the house edge, we'll figure it out as 0.01 / 0.7 ... or 40% higher.

The "super payout" line you had, just exacerbates the problem. The most you could lose was ~4% of your bet, so with a 1% house edge, the *real* house edge, after you normalize the payouts would be 25%!

So while crazy, it's not as crazy as you'd first think!

--

One take away for plinko players would be that the house edge is rather misleading. You actually pay the house edge on the entire bet, rather than just what you're risking.