Red-Blooded Risk: The Secret History of Wall Street

Advantage Gamblers

For reasons I will postpone discussing until Chapter 12 many quants who accepted the same kinds of ideas about risk as I did became disaffected in the 1970s, too disaffected to get either academic or professional jobs. In a phrase, we were disgusted at what we saw as the hypocrisy of many conventional quantitative thinkers in that they were unwilling to bet personally significant stakes on the results of their analyses. Naturally, this sent us in search of quantitative professionals who would bet on their analyses. Mostly we found them among gamblers. So the rocket scientists moved to Las Vegas.

One camp gravitated toward blackjack card counting and other advantage gambling (playing standard casino games in a way that the odds favor the player instead of the house). These people are frequentists. They make money from superior prediction of the frequency of various results of repeatable experiments. This route required no social skills; you didn't have to get a game together and get invited back, and you didn't have to collect from losers or master whatever games other people wanted to play. In later years it required more and more skill at deception to avoid casino countermeasures, but unlike the flamboyant misdirection described in Ben Mezrich's Bringing Down the House (Free Press, 2002) and Busting Vegas (Morrow, 2005), these guys preferred quiet camouflage.

Advantage gamblers were apt to sneer at the rest of us, calling us hustlers who conned people. While ...