Blackjack Legends: Edward O. Thorp

“My goal wasn’t to make money. It was just to do things I enjoy and have fun. It just so happened to make a lot of money too.”

You’d think that the man who figured out how to Beat the Dealer by developing a systematic blackjack strategy, including inventing the concept of counting cards, would be in search of fortune or at least fame, but that’s not the case with Edward O. Thorp.

Photo: MarketWatch

The House Doesn’t Always Win

Before Thorp’s seminal work, common knowledge was that the house always wins in the end. While some people had tried to figure out a way to beat blackjack, most considered it a fool’s errand.

After Thorp received his mathematics Ph.D. from UCLA in the 1950s, he soon got a job teaching at MIT. Around the same time, he took a trip to Las Vegas with his new wife, and, although he never gambled before because he knew it was a losing proposition, he decided to bet $10 at the blackjack table. He may have lost that first bankroll in 40 minutes, but he came away with an interest in the statistics behind it and asked himself whether he could beat the game.

So he went back to MIT, taught himself computer programming, and used the refrigerator-sized IBM 704 to work through the calculations. The end result was the first paper that proposed what we now know of as optimal blackjack strategy and hi-lo card counting.

He went on to test his theory in Vegas, and within a single weekend he had doubled $10,000 into $21,000 or made about $110,000 in today’s money. As it turned out, that was exactly what Thorp had predicted he would make based on his calculations.

Once he published his findings in a book, the practice of card counting really took off. Today, although it may not be illegal, casinos are constantly on the lookout for card counters, and they often kick people out if they suspect a player of using Thorp’s strategy.

Beyond Blackjack

Edward O. Thorp has one of the greatest minds for probability, perhaps ever, and he applied his thinking to much more than blackjack. Alongside another MIT professor named Claude Shannon,

Thorp invented a device to beat roulette, and in doing so also created the first ever wearable computer. These devices are now banned from casinos.

Thorp went on to make even more money when he got into what is perhaps the biggest casino of them all: Wall Street. He created what we now know as quantitative investing, and, when he applied his theories to his hedge fund, he consistently Beat the Market and made fistfuls of cash along the way.

He admits that he certainly enjoys his riches, but, for him, it’s more about having the independence to do what he wants to do, to learn what he wants to learn and to be able to apply himself to tough statistical problems.

If any man has figured out how to play the odds, it’s Edward O. Thorp.