When I started writing The House Advantage, I realized that blackjack is the poster child for data driven decision making. The rules never change. The information is perfect. Human irrationality has no impact on the results i.e the dealer must act in a predictable manner at all times. Every decision at the table can be proven right or wrong based on math.
For seven years during the 1990's we had tremendous success beating the casinos. We employed a strategy called card counting where we tracked the cards we'd seen so that we could predict the card we would see. When we'd seen a lot of low cards we knew that there were a lot of high cards left and the odds were in our favor. In these instances, we would increase our bet.
If, to the contrary, we had seen a lot of high cards, we knew there were a lot of low cards left and therefore our odds of winning had decreased. In these instances we simply walked away from the table or bet less.
Our methods and story were the subjects of the movie 21 and the book Bringing Down the House but both largely ignored the important business lessons that one could learn from card counting.
Blackjack was introduced in the casinos in the 1930s and card counting was discovered in the 1960s. That means that for nearly 30 years, people lost because they failed to utilize the data in front of them. Of course there was a small issue with technology back then, but the fact remains that in the 1960s, a pioneer named Ed Thorp challenged convention and discovered card counting by using the past to predict the future.
The value of data and using the past to predict the future is at the core of the first lesson in my book. This lesson transfers well to business where the most advanced companies in industries like medicine, media and retail are achieving success by capturing data and then using it to predict the future.
The byproduct of this data revolution in business as it was for us in blackjack is the ability to take emotion out of the decision making process. Emotion consumes us in many parts of our lives but when it colors our business decisions, we can get ourselves into heaps of trouble.
Similarly, at the blackjack tables divorcing emotion was core to our success. In the movie 21, there is a scene where the character played by Jim Sturgiss, based on me, gets emotional after a big loss and loses control. When I saw this scene in the original script, I was bothered by this scene and asked the writers to take it out because it was something we would never do. In fact in my defining moment at the tables I lost $100,000 on two hands, yet somehow managed to keep it together. I certainly didn't let emotion get the better of me.
That fateful weekend I actually rallied back and ended up positive winning back my $100,000 and then some. It was only through a firm belief and commitment to analytics and data driven decision making that I was able to achieve this.
One of the reasons that I wrote The House Advantage was to allow smart but non-math people access to the power of math in business. I figured by keeping the analogies wrapped in gambling and sports I'd be able to recruit a whole new audience to our statistical revolution and thereby move things forward.