The term gambler's ruin is a statistical concept expressed in a variety of forms:
Contents
- History
- Reasons for the four results
- Fair coin flipping
- Unfair coin flipping
- N player ruin problem
- References
The concept has specific relevance for gamblers; however it also leads to mathematical theorems with wide application and many related results in probability and statistics. Huygens' result in particular led to important advances in the mathematical theory of probability.
History
The earliest known mention of the gambler's ruin problem is a letter from Blaise Pascal to Pierre Fermat in 1656 (two years after the more famous correspondence on the problem of points). Pascal's version was summarized in a 1656 letter from Pierre de Carcavi to Huygens:
Let two men play with three dice, the first player scoring a point whenever 11 is thrown, and the second whenever 14 is thrown. But instead of the points accumulating in the ordinary way, let a point be added to a player's score only if his opponent's score is nil, but otherwise let it be subtracted from his opponent's score. It is as if opposing points form pairs, and annihilate each other, so that the trailing player always has zero points. The winner is the first to reach twelve points; what are the relative chances of each player winning?
Huygens reformulated the problem and published it in De ratiociniis in ludo aleae ("On Reasoning in Games of Chance", 1657):
Problem (2-1) Each player starts with 12 points, and a successful roll of the three dice for a player (getting an 11 for the first player or a 14 for the second) adds one to that player's score and subtracts one from the other player's score; the loser of the game is the first to reach zero points. What is the probability of victory for each player?
This is the classic gambler's ruin formulation: two players begin with fixed stakes, transferring points until one or the other is "ruined" by getting to zero points. However, the term "gambler's ruin" was not applied until many years later.
Reasons for the four results
Let "Bankroll" be the amount of money a gambler has at his disposal at any moment, and let N be any positive integer. Suppose that he raises his stake to
The gambler playing a fair game (with 0.5 probability of winning) will eventually either go broke or double his wealth. These events are equally likely, or the game would not be fair (ignoring the fact that his bankroll might jump over one event or the other, this is a minor complication to the argument). So he has a 0.5 chance of going broke before doubling his money. Once he doubles his money, he again has a 0.5 chance of doubling his money before going broke. Overall, there is a 0.25 chance that he will go broke after doubling his money once, but before doubling it twice. Continuing this way, his chance of going broke is 0.5 + 0.25 + 0.125 + . . . which approaches 1.
Huygens' result is illustrated in the next section.
The eventual fate of a player at a negative expected value game cannot be better than the player at a fair game, so he will go broke as well.
Fair coin flipping
Consider a coin-flipping game with two players where each player has a 50% chance of winning with each flip of the coin. After each flip of the coin the loser transfers one penny to the winner. The game ends when one player has all the pennies.
If there are no other limitations on the number of flips, the probability that the game will eventually end this way is 1. (One way to see this is as follows. Any given finite string of heads and tails will eventually be flipped with certainty: the probability of not seeing this string, while high at first, decays exponentially. In particular, the players would eventually flip a string of heads as long as the total number of pennies in play, by which time the game must have already ended.)
If player one has n1 pennies and player two n2 pennies, the probabilities P1 and P2 that players one and two, respectively, will end penniless are:
Two examples of this are if one player has more pennies than the other; and if both players have the same number of pennies. In the first case say player one
It follows that even with equal odds of winning the player that starts with fewer pennies is more likely to fail.
In the second case where both players have the same number of pennies (in this case 6) the likelihood of each losing is:
Unfair coin flipping
In the event of an unfair coin, where player one wins each toss with probability p, and player two wins with probability q = 1-p, then the probability of each ending penniless is:
This can be shown as follows: Consider the probability of player 1 experiencing gamblers ruin having started with
where W denotes the event that player 1 wins the first bet. Then clearly
Denoting
which we can solve using the fact that
N-player ruin problem
The above described problem (2 players) is a special case of the so-called N-Player ruin problem. Here