Gambler’s Ruin definition and meaning

Gambler’s ruin is a statistical concept expressed in a variety of forms. However, in its original meaning, it refers to a gambling strategy that will ruin or bankrupt any player who decides to use it. In its core, the strategy is somewhat simple; it states that a player will go broke if they raise their bet by a fixed fraction of their bankroll each time they win but fail to decrease it if they lose, even if they are more likely to win.

Let’s simplify it and give you an example.

Let’s say you have finite resources, be it $100, $1,000, or even $1,000,000. Now, let’s say that your stake is set at $1. That means that each time you win, you should raise your stake by an additional $1. If you win 100 times, you will find yourself betting $200. Win a few hundred more times, and you will be betting $700 per wager, for example. However, that also means you will be losing $700 per wager.

Now, eventually, as you continue to win, your stake will get so high that, as long as you have a finite amount of resources, it might end up taking you three loses in a row to lose it all, no matter the amount you’ve accumulated thus far. Even if you are favourable to win each time and have, let’s say 51% or even 80% to win, losing three times in a row is quite plausible. Therefore, this strategy will lead to your ruin and cause you to go bankrupt.

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