[POLL] Just-Dice INVESTORS: Do you agree with lowering the max bet?

[Keyser Soze]

If any investors wanted a max bet .25% of their roll they could have divested 3/4ths of their investment.

If all investors wanted this than the investors bankroll would be about 8,000 with 1% max bet , which is the same thing as 32,000 invested at .25%.  Both give a max bet of 80 BTC.

Why couldn't Doog just divest all accounts by 75% if he was scared of whales placing too big of bets. 

It would be less risky for investors to keep 8,000 with the site at 1% max bet than 32,000 at .25% max.  Now we have to trust Doog with 4x the amount in cold storage.

Now with a .25% max bet as soon as the steady profits start new investors will come which will further dilute all the current investors making it harder to recoop loses.

Whales should be treated like VIP, regardless of how they act, as long as they continue betting.  Each 300 btc bet was an expected gain of $360 to investors.

Lowering the max bet to 0.25% is not the same as divesting 75%, except in the face of bets >0.25% of the roll, which are only one user. This max bet system is a cool idea, I think that doog will definitely implement it as quickly as he can.

I think there may be some deeper insight in what VTC is saying above. 

He says investors invested at 32,000 BTC and 0.25% max bet is the same as investors at 8,000 BTC and 1.0% max bet: in both cases the max bet is 80 BTC.  In both cases the investors, in aggregate, earn the same profits, no?  But in the 0.25% case the investors risk a larger amount due to counter-party risk. 

Did I understand you correctly, VTC?

While the expected profit amount would be the same, the 8,000 and 1% would be higher in percentage terms (what actually matters). This, of course, comes with higher risk due to variance. I am intentionally ignoring counter party risk since it is hard to quantify and may differ for each investor.

It really comes down to what kind risk/reward investors are looking to achieve.

[Peter R]

If any investors wanted a max bet .25% of their roll they could have divested 3/4ths of their investment.

If all investors wanted this than the investors bankroll would be about 8,000 with 1% max bet , which is the same thing as 32,000 invested at .25%.  Both give a max bet of 80 BTC.

Why couldn't Doog just divest all accounts by 75% if he was scared of whales placing too big of bets.  

It would be less risky for investors to keep 8,000 with the site at 1% max bet than 32,000 at .25% max.  Now we have to trust Doog with 4x the amount in cold storage.

Now with a .25% max bet as soon as the steady profits start new investors will come which will further dilute all the current investors making it harder to recoop loses.

Whales should be treated like VIP, regardless of how they act, as long as they continue betting.  Each 300 btc bet was an expected gain of $360 to investors.

Lowering the max bet to 0.25% is not the same as divesting 75%, except in the face of bets >0.25% of the roll, which are only one user. This max bet system is a cool idea, I think that doog will definitely implement it as quickly as he can.

I think there may be some deeper insight in what VTC is saying above.  

He says investors invested at 32,000 BTC and 0.25% max bet is the same as investors at 8,000 BTC and 1.0% max bet: in both cases the max bet is 80 BTC.  In both cases the investors, in aggregate, earn the same profits, no?  But in the 0.25% case the investors risk a larger amount due to counter-party risk.  

Did I understand you correctly, VTC?

In my opinion VTC nailed it in all the points. JD is not a bank, it's an unregulated BTC CASINO, so you obviously want a high return on what you invest, expecting high variance especially in the very short term. And you definitely need whales for that.

Yeah, I really like VTC's line of reasoning too.  Let me try to take this a bit further:

At a given level of aggregate profits, decreasing max bet from 1.0% to 0.25% increases investor exposure to counter-party risk (as they need to deposit 4X as much to earn the same profits).

The profits that JD earns depends on bet-volume x house-edge.  And while bet volume depends on many things, I can't see how it depends on the total amount invested.  

So, does this mean that decreasing the max bet below the optimal value increases our aggregate exposure to a counter-party failure but does nothing to improve total profits?

[RationalSpeculator]

So, does this mean that decreasing the max bet below the optimal value increases our aggregate exposure to a counter-party failure but does nothing to improve total profits?

affirmative

[jgarzik]

So, does this mean that decreasing the max bet below the optimal value increases our aggregate exposure to a counter-party failure but does nothing to improve total profits?

affirmative

Correct.

[Deprived]

So, does this mean that decreasing the max bet below the optimal value increases our aggregate exposure to a counter-party failure but does nothing to improve total profits?

affirmative

Correct.

Yes - with a minor caveat. 

Whether it ACTUALLY improves or reduces profits depends on what specific bets everyone makes that are different to what would have happened had the max bet not changed.  But it reduces expected profits (unless someone has a reason why they think betting volume would INCREASE).

[mike_c]

If your assumptions are not realistic the rest is not either.

What if you take a more realistic assumption and for example say that the whale has double the stack of the house?

What if you consider the bankroll ruined when it's ruined?

How high is the risk for ruin then?

You can't consider it's "ruined when it's ruined".  If the bankroll got down to 5 BTC then the max bet would be 1% of that = 0.05 BTC.  It never goes to 0, but when it drops low enough the site is out of business.  A whale with double the stack as house is almost the same as whale with infinite stack.

What you guys don't quite seem to understand:  A 1% max bet is INSANE for the house.  You just suffered a 25% drawdown.  With a 1% max bet that is going to happen often at these bankroll levels.

Could you walk into any casino in the world and bet 1% of their bankroll on a spin of the roulette wheel?  Not even close.  And smaller real world casinos have still been cleaned out.

If you want a long term business in JD, you need to lower the max or be fully prepared to get wiped.  If you are just looking for a fast buck, well, good luck!

[willphase]

If you want a long term business in JD, you need to lower the max or be fully prepared to get wiped.  If you are just looking for a fast buck, well, good luck!

this.

if you're looking for a fast buck, just gamble

Will

[adamstgBit]

maybe if you increase the house edge, this will make investors more able to handle lucky whales?

[adamstgBit]

So, does this mean that decreasing the max bet below the optimal value increases our aggregate exposure to a counter-party failure but does nothing to improve total profits?

affirmative

Correct.

Improving profits, is not the point.

they want to decrease the max bet to limit the risk of being ruined by a lucky whale.

[Vexual]

maths. maths. maths. maths. maths. maths. RUN!

[julz]

The 1300 incident is 60/40 Doogs fault. (40 Nak)
This is 60/40 your fault   (40 Doogs)

I think you will soon regret this, as a lot of the other top 10 investors are already are.

I was one of the top 10 investors.. though I happened to be lucky and divested before the latest couple of big site losses.
As I'm probably one of the very few larger investors who happened to still make a profit from investing - perhaps my input doesn't count much - but the risk as it stood was too high for me and I pulled my entire investment out.

Now that the max bet has been lowered.. I'm back in - but I only put 10% back in.

For those trying to get out of a hole, I can see why they're upset.. but to me it's a more reasonable investment now.
I guess this could be a double whammy for existing investors if new investors now find it more appealing and so dilute the share of existing ones.

[RationalSpeculator]

If your assumptions are not realistic the rest is not either.

What if you take a more realistic assumption and for example say that the whale has double the stack of the house?

What if you consider the bankroll ruined when it's ruined?

How high is the risk for ruin then?

You can't consider it's "ruined when it's ruined".  If the bankroll got down to 5 BTC then the max bet would be 1% of that = 0.05 BTC.  It never goes to 0, but when it drops low enough the site is out of business.  A whale with double the stack as house is almost the same as whale with infinite stack.

What you guys don't quite seem to understand:  A 1% max bet is INSANE for the house.  You just suffered a 25% drawdown.  With a 1% max bet that is going to happen often at these bankroll levels.

You are right, but even if you consider it ruined when only say 1000 btc is left, chances are negligible for that to happen.

Ok, bankruns may get you there quicker but bankruns are avoided by assuring investors that the investment continues to make sense. That would be the job of dooglus, which he failed miserably to perform during the whale episodes (pulling his own investment, remaining quiet after a whale win, accusing whale of cheating, giving irrational explanations why whale is exception, ... ).

So now the idea is to let investors choose their own maxbet. If executed there will be a high max bet again, and a whale doing the same sooner or later. Will doog believe in his system then? Or will he bail out again? And how, by changing the rules yet again screwing all previous investors? Or by forgetting to assure investors and let a bankrun happen?

  

[VTC]

Thank you guys for understanding me.

That's why if Doog divested everyone by 75% when Nakowa was playing, it would lower his max bet to 80 btc as the total invested amount would drop to 8,000.  But this would also leaving 24,000 spread out in player balances.

And then those that want to invest more that .25% of there balance can feel free to do so from their account player balance.  

Now investors are at the mercy of Doog's change.  It would have been much easy to divest everyone by 75% so it can free up our coins instead of keeping them at cold storage.  Now the only way to get back to 1% risk is to buy 3 times the amount of BTC we have invested off of an exchange and invest more, introducing more counterparty risk, and a more cumbersome process.

The best would be set max bet to a flat 2%.  And you can invest 1/2 of what you would have invested for 1% risk, or 1/8 of what you want to invest for .25% risk.  Thoughts?

(I am an investor with a triple digit amount of BTC in JD)

[VTC]

The previous 1% max bet makes it exciting and dangerous for both investors and gamblers, whales and those that choose to martingale up to max bet.

This is a great form of advertising.  Now the max win is only 80BTC, which you can buy a 2nd hand Kia, not 300BTC that wins you a brand new  BMW.

Nakowa has cause quite a stir and more people are spending time on JD.  His big win will bring other gamblers.

Investors didn't have to invest in JD.  Mech could have divest 75% if he wanted less risk (and reaccordingly adjust his invested balance daily to reflect 25% of his total account).  Now everyone is punished, investors and whales.

[canth]

The previous 1% max bet makes it exciting and dangerous for both investors and gamblers, whales and those that choose to martingale up to max bet.

This is a great form of advertising.  Now the max win is only 80BTC, which you can buy a 2nd hand Kia, not 300BTC that wins you a brand new  BMW.

Nakowa has cause quite a stir and more people are spending time on JD.  His big win will bring other gamblers.

Investors didn't have to invest in JD.  Mech could have divest 75% if he wanted less risk (and reaccordingly adjust his invested balance daily to reflect 25% of his total account).  Now everyone is punished, investors and whales.

Nice insight for a guy with only a handful of posts. Maybe everyone should lurk for 7 months before posting. Seriously - it's a really smart way to frame the argument and makes it clear that Dooglus' implementation of the .25% max bet should definitely be a temporary 'fix'.

[GOB]

Thank you guys for understanding me.

That's why if Doog divested everyone by 75% when Nakowa was playing, it would lower his max bet to 80 btc as the total invested amount would drop to 8,000.  But this would also leaving 24,000 spread out in player balances.

And then those that want to invest more that .25% of there balance can feel free to do so from their account player balance.  

Now investors are at the mercy of Doog's change.  It would have been much easy to divest everyone by 75% so it can free up our coins instead of keeping them at cold storage.  Now the only way to get back to 1% risk is to buy 3 times the amount of BTC we have invested off of an exchange and invest more, introducing more counterparty risk, and a more cumbersome process.

The best would be set max bet to a flat 2%.  And you can invest 1/2 of what you would have invested for 1% risk, or 1/8 of what you want to invest for .25% risk.  Thoughts?

(I am an investor with a triple digit amount of BTC in JD)

Hey VTC. I totally understand your point and I think the CP risk is an important aspect to take into account as an investor. I'll address this again in a moment.

However, I just want to quickly point out that while divesting everyone 75% when we were at 32,000 would make the max PROFIT (not max bet) 80 just as it did by lowering max profit to 0.25% of invested funds, these are not actually mathematically equal. Remember these numbers are dynamic. For example, let's compare these two scenarios, A and B respectively if the site a player comes in and loses 1000BTC (site wins 1000 BTC):

A) Invested goes from 8,000 to 9,000. Max profit goes from             1% *   8,000 = 80        to       1%  *  9,000 = 90
B) Invested goes from 32,000 to 33,000. Max profit goes from     0.25% * 32,000 = 80        to   0.25% * 33,000 = 82.5

The same goes if a player wins 1000 BTC (site loses 1000BTC):

A) Invested goes from 8,000 to 9,000. Max profit goes from             1% *   8,000 = 80        to       1%  *  7,000 = 70
B) Invested goes from 32,000 to 33,000. Max profit goes from     0.25% * 32,000 = 80        to   0.25% * 31,000 = 77.5

Thus, what Dooglus actually did (reduce max profit to 0.25%) is fundamentally different-- it reduced risk, not just adjusted the max profit downward.

Now, having said that, I wasn't thrilled either about him reducing the max profit, and I still believe going 100% Kelly Criterion is the way to go. HOWEVER, I understand his motivation (trying to avoid what would essentially be a bank run), and I think his new plan is fantastic!

The new plan is a combination of allowing an investor to change their Max Profit percentage to a number between, say, 0.001 and 2% (less than 1% being fractional Kelly and over 1% being a multiple of Kelly) AND also allowing players to have what I will imperfectly call fractional investing.

Fractional investing is a little confusing at first, but makes a ton of sense. Say you want to invest 100 BTC in Just Dice at 1%. Fractional investing will allow you to, say, deposit 10 BTC in Just-Dice, and tell JD that you have 90 BTC more off site. Since your total investment is 100BTC, you will be risking up to 1BTC on that first bet. If your investment increases, no problem. If it decreases, no problem as well, because if it ever dips to below 10BTC, you'll be auto-divested until you desposit more funds.

This goes back to the Counter Party Risk, VTC, that you mentioned. By allowing you to have part of your investment off site, you reduce your CP risk with sacrificing returns. For Doog this is win-win because it allows risk-seeking investors to get the returns they want while protecting more risk-averse investors. Finally, this is great for gamblers and whales, as this will tend to increase the Max Profit back up to the levels people love to play and spectate (Also, don't forget that it's max PROFIT: whales make 300BTC bets, but plenty of people make long-shot bets to try to win that much, kinda like a lottery)

tl;dr: new variable investment risk doog is implementing is great. Let's bear with him as he implements it.

[mughat]

Thank you guys for understanding me.

That's why if Doog divested everyone by 75% when Nakowa was playing, it would lower his max bet to 80 btc as the total invested amount would drop to 8,000.  But this would also leaving 24,000 spread out in player balances.

And then those that want to invest more that .25% of there balance can feel free to do so from their account player balance.  

Now investors are at the mercy of Doog's change.  It would have been much easy to divest everyone by 75% so it can free up our coins instead of keeping them at cold storage.  Now the only way to get back to 1% risk is to buy 3 times the amount of BTC we have invested off of an exchange and invest more, introducing more counterparty risk, and a more cumbersome process.

The best would be set max bet to a flat 2%.  And you can invest 1/2 of what you would have invested for 1% risk, or 1/8 of what you want to invest for .25% risk.  Thoughts?

(I am an investor with a triple digit amount of BTC in JD)

+1

I for one is goin to devest if I only get .25%. The turnower is to small for this.
Hopefully we will get the option to set the risk % individually soon.

[Peter R]

The best would be set max bet to a flat 2%.  And you can invest 1/2 of what you would have invested for 1% risk, or 1/8 of what you want to invest for .25% risk.  Thoughts?

I think I am coming around to this logic.  Let me know if we are on the same page:

The Kelly-criterion says that the optimal max bet is 1% of bankroll, but the "effective bankroll" is not what it says up there on the just-dice.com website.  The effective bankroll must include the available funds from all the people that would jump in if the "posted" bankroll got small.  Of course they would jump in (assuming no security breach) because each marginal bitcoin reinvested buys a larger slice of the pie than what it did before the whale attack.  Thus, the first investors that move in to help battle the whale will have a higher-than-normal return until enough people re-build the site's "posted bankroll", thereby diluting things back to equilibrium.

Earlier in this thread, we showed that, under certain assumptions, reducing the max bet % has no advantage for the investors in aggregate.  Total expected profit is simply volume * house_edge.  We showed that instead, reducing max bet % has the effect of increasing the aggregate exposure to counter-party and legal risk (as a larger volume of BTC must be deposited to JD cold storage to support a given bet volume [aggregate profits]).  Investors can pick there level of risk exposure simply by how much they invest.  But they need to appreciate the expected variance of their investment in order to gauge how much exposure is appropriate, given their personal financial circumstances.

I am thinking that the optimal max bet % is high, but still low enough so that investors can jump in quickly after a whale attack to prevent the max bet (in absolute BTC terms) from jumping around too much [so that we don't annoy the whales].  I think 2% would be a good start too.

[Peter R]

Hey VTC. I totally understand your point and I think the CP risk is an important aspect to take into account as an investor. I'll address this again in a moment.

However, I just want to quickly point out that while divesting everyone 75% when we were at 32,000 would make the max PROFIT (not max bet) 80 just as it did by lowering max profit to 0.25% of invested funds, these are not actually mathematically equal. Remember these numbers are dynamic. For example, let's compare these two scenarios, A and B respectively if the site a player comes in and loses 1000BTC (site wins 1000 BTC):

A) Invested goes from 8,000 to 9,000. Max profit goes from             1% *   8,000 = 80        to       1%  *  9,000 = 90
B) Invested goes from 32,000 to 33,000. Max profit goes from     0.25% * 32,000 = 80        to   0.25% * 33,000 = 82.5

The same goes if a player wins 1000 BTC (site loses 1000BTC):

A) Invested goes from 8,000 to 9,000. Max profit goes from             1% *   8,000 = 80        to       1%  *  7,000 = 70
B) Invested goes from 32,000 to 33,000. Max profit goes from     0.25% * 32,000 = 80        to   0.25% * 31,000 = 77.5

Thus, what Dooglus actually did (reduce max profit to 0.25%) is fundamentally different-- it reduced risk, not just adjusted the max profit downward.

Now, having said that, I wasn't thrilled either about him reducing the max profit, and I still believe going 100% Kelly Criterion is the way to go. HOWEVER, I understand his motivation (trying to avoid what would essentially be a bank run), and I think his new plan is fantastic!

Would this analysis change if we assume that the marginal investor sitting on the sidelines, waiting to get in to a lucrative investment, can jump in quickly?  He has incentive because each new BTC invested after the whale attack gets a bigger-than-normal piece of the pie (until it reaches equilibrium)? 

If we assume the marginal investor (waiting on the sidelines) can respond instantly, then perhaps the two cases *are* mathematically the same?  (Well except for the fact that with the lower max bet % comes increased counter-party and legal risk.)

[GOB]

The best would be set max bet to a flat 2%.  And you can invest 1/2 of what you would have invested for 1% risk, or 1/8 of what you want to invest for .25% risk.  Thoughts?

I think I am coming around to this logic.  Let me know if we are on the same page:

The Kelly-criterion says that the optimal max bet is 1% of bankroll, but the "effective bankroll" is not what it says up there on the just-dice.com website.  The effective bankroll must include the available funds from all the people that would jump in if the "posted" bankroll got small.  Of course they would jump in (assuming no security breach) because each marginal bitcoin reinvested buys a larger slice of the pie than what it did before the whale attack.  Thus, the first investors that move in to help battle the whale will have a higher-than-normal return until enough people re-build the site's "posted bankroll", thereby diluting things back to equilibrium.

Earlier in this thread, we showed that, under certain assumptions, reducing the max bet % has no advantage for the investors in aggregate.  Total expected profit is simply volume * house_edge.  We showed that instead, reducing max bet % has the effect of increasing the aggregate exposure to counter-party and legal risk (as a larger volume of BTC must be deposited to JD cold storage to support a given bet volume [aggregate profits]).  Investors can pick there level of risk exposure simply by how much they invest.  But they need to appreciate the expected variance of their investment in order to gauge how much exposure is appropriate, given their personal financial circumstances.

I am thinking that the optimal max bet % is high, but still low enough so that investors can jump in quickly after a whale attack to prevent the max bet (in absolute BTC terms) from jumping around too much [so that we don't annoy the whales].  I think 2% would be a good start too.

I was just reading up on the Kelly Criterion (KC) and saw something interesting. Just as the KC maximizes bankroll growth, apparently risking 2x KC (in our case 2%), results in ZERO expected bankroll growth. Beyond 2x KC, expected bankroll growth is negative. So just keep that in mind when speaking of setting max profit to 2%.