, Volume 27, Issue 4, pp 607-623

Volatility, House Edge and Prize Structure of Gambling Games

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Abstract

This study used simulations to examine the effect of prize structure on the outcome volatility and the number of winners of various game configurations. The two most common prize structures found in gambling games are even money payoff games (bet $1; win $2) found on most table games and multilevel prizes structures found in gambling machine games. Simulations were set up to examine the effect of prize structure on the long-term outcomes of these games. Eight different prize structures were compared in terms of the number of winners and volatility. It was found that the standard table game and commercial gambling machines produced fairly high numbers of short term winners (1 h), but few long term winners (50 h). It was found that the typical even money game set up produced the lowest level of volatility. Of the multilevel prize structures examined, the three simulations based on commercial gambling machines were the least volatile. The results are examined in terms of the pragmatics of game design.

The project involved simulations and therefore did not require an ethics review. The ideas expressed are those of the authors and do not necessarily reflect those of the Centre for Addiction and Mental Health (CAMH), the University of Toronto or OMHLTC.