Congratulations, You’ve Lost! How Slot Machines Disguise Losses as Wins

Photo: firepile

Casinos are designed for a single purpose: to separate you from your money. And they’re good at it. Commercial casinos in the U.S.  made nearly $35 billion in revenue last year, up a percent from 2009.

While they represent just a fraction of that revenue, slot machines are the casino gateway drug for the least savvy gamblers. It’s why they’re by the door. More than any other casino game, slots condition people to keep playing through positive reinforcement (bells and whistles). And the odds have gotten worse as technology has improved.

Though today’s sophisticated multi-line machines have a higher “win-rate,” the amount won is negligible, and often less than what was originally gambled. A recent study by researchers at the University of Waterloo in Ontario, finds that these multi-line machines are more effective than their single-line predecessors at taking money from the gambler by disguising losses as wins.

Casino slots today are dominated by multi-line machines, which allow you to bet on a multitude of combinations: up, down, diagonal, rather than just hoping for the three 7′s to line up across the middle on an old-school single-line machine. While that may seem like an advantage, it’s harder for the average person to accurately calculate the odds of multi-line machines.

The table below shows how losses are disguised as wins based on the number of lines the user has bet on:

Though you may win more, the pay out is often lower than what you’ve already put into the machine to begin with. So you get the bells and whistles, but it’s really just a fancy loss.

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  1. Joshua Northey says:

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    • Tim says:

      I enjoy gambling. I treat it as what it is, entertainment. I go a couple times a year, bet relatively small amounts, play games that maximize my playing time/enjoyment per dollar loss, and have a set amount I’m willing to lose as I enter the casino. Why should I be penalized by not being allowed to patron a casino because some people aren’t responsible?

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      • Calvin says:

        Since when is only “productive” economic activity legal? You’re basically making a case that all forms of entertainment should be illegal.

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      • Joshua Northey says:

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    • Dan says:

      ditto for lottery

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      • Clancy says:

        Lotteries are actually much worse. A casino takes around 5% of the money where state lotteries take around 40%.

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      • MW says:

        The difference is the ‘churn’. If you spend $50 on lottery tickets, you probably wait a week before repeating. If you take your $50 into a casino and make $10 bets on the roulette wheel at 3 minutes per game*, you go through your initial stake in 15 minutes and from then on you’re rebetting your winnings, and the casino gets another bite out of your money. After 2 hours (should you last that long), your total churn is 40 games x $10 = $400 and 5% take per game is $20 expected profit for the casino – the same as if you’d played the lottery.

        As Joe notes below, if you need to win money, you should minimize your churn. If you need $20,000 tomorrow for life saving surgery and you have only $10,000, the best strategy is to bet $10,000 on one hand of blackjack, rather than spending all day making $200 bets.

        * 3 minutes is a wild guess – I don’t use casinos.

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      • Joe Allen says:

        I live in Massachusetts, and the big thing here are the scratch tickets. The churn rate is high, and the entertainment value is low (compared to a casino).

        Even the best scratch tickets only return 60-70 cents on a dollar; those that have lost some of their biggest prizes may be worth as little as 35 cents on a dollar.

        There’s no way a state would allow a private casino to have such unfavorable returns. I’m hoping to see some casinos open in MA soon so the lottery can face some competition.

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    • Mike says:

      Gambling is a voluntary form of entertainment, highway robbery is neither voluntary nor (i assume) entertaining.

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      • emerald_lake says:

        The line that gambling is “entertainment” is brought to you courtesy of the gambling industry. Entertainment is something that is pleasurable, and that doesn’t destroy lives. Yes, there are some people who bet moderately, but casinos get the bulk of their profits from the habitual, addicted gamblers. The person who goes to a casino a few times a year, and bets a few hundred that he or she can afford to lose, and leaves, without loss-chasing, happy to have been “entertained,” — that person is not what makes the gambling industry successful. It is an industry that is parasitic on addiction.

        We don’t allow heroin or cocaine to be legally sold, and even if you think they should be, it is unlikely that the government would take out ads to encourage drug use, as my state does to encourage people to gamble.

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    • James says:

      Just the libertarian argument: no one points a gun at you and forces you to put money in a slot machine. I’ve lived here in northern Nevada for about 30 years, surrounded by slot machines (not just in casinos, but in grocery & convenience stores, among other places), yet my total lifetime spending on slots is the quarter I put in one sometime back in the ’70s, just to say that I’d done it.

      I like to think of it as a tax on stupidity :-)

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      • gotyourmoney says:

        Perhaps you think of it as a tax on stupidity, but would you actually approve of a tax on stupidity? Say someone has a low enough IQ, or bad enough grades from a certain level of education; should they be taxed on that basis?

        Also, if gambling is a tax on stupidity that applies to the persons who participate in gambling itself, is, say, the ‘war on drugs’ or the ‘war’ in Iraq/Afghanistan a ‘tax’ on stupidity as well? The main difference would be that, with those wars, the people who bear the costs are not necessarily the people who willingly participate in the activity, and the costs are ludicrously high for basically the entirety of society?

        How about the mortgage crisis, couldn’t we argue that really that was a tax on the people ‘stupid’ enough not to read and fully comprehend all the fine print? I suppose this would also apply to credit cards and such as well.

        I don’t really approve of the characterisation of gambling as ‘a stupidity tax’ because the concept seems entirely ludicrous. However I have no problem with gambling, I personally don’t gamble for money but I see no reason to stop others from doing it.

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      • James says:

        Perhaps not stupidity, but on stupid behavior, certainly. Though I don’t think your examples are true cases of taxing stupidity. The War on Drugs was implemented by amoral politicians for their own purposes, so the only stupidity involved is that voters continue to elect them. A real tax on stupidity in this area would legalize & tax drug sales. Likewise Iraq/Afganistan, the only stupidity is in the strategy dictated by the politicians.

        While the mortgage crisis is in part a tax on stupidity (but of those who believed that the market would keep going up forever), there’s also a dishonesty factor. It’s akin to casino gambling, in which the casino operator cheats.

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      • gotyourmoney says:

        So, when people elect politicians who perpetuate the war on drugs (And/or the illegal, undeclared wars in Iraq and Afghanistan), which is a pointless endeavour, a money sink, then these voters continue to pay taxes which fund this endeavour, they are not behaving in a stupid fashion, whereas when someone spends money on entertainment, they are behaving in a stupid fashion? Therefore funding the war on drugs is not a stupidity tax because it is not a stupid behaviour, but paying for entertainment is a stupidity tax because entertainment is a stupid behaviour?

        Frankly I don’t see any consistency in your position. I don’t see any difference in the scenarios here. Maybe your argument is that whenever you spend more money than necessary, you are being stupid? Spending on any luxury is always stupid behaviour?

        Also, let’s look at the flip side: Are bailouts an ‘intelligence rebate’? Is being a crime lord or serial killer and not getting caught an ‘intelligence reward’?

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      • James says:

        “So, when people elect politicians who perpetuate the war on drugs … then these voters continue to pay taxes which fund this endeavour, they are not behaving in a stupid fashion…”

        Well, think about it. A majority of stupid voters continue to elect the people who perpetuate these policies, but EVERYONE pays the taxes, whether they voted for them or not. So no, stupidity is not being taxed here.

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    • Ivan says:

      The problem is that if you outlaw gambling, it will just go underground. At least in its present form, the government can somewhat regulate the activity and invest the profits from the taxes on the gambling industry into (hopefully) more productive endeavors.

      Also working in casinos provides a decent living for a very large number of people who would otherwise struggle.

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      • emerald_lake says:

        “It will just go underground.” Yeah, how many of the elderly who patronize my local casino will then seek out bookies? Sorry but you haven’t done the research. The presence of a casino greatly increases the incidence of pathological gambling in an area. And, as for the putative economic “benefit,” see the research of economist Earl Grinols, who found that when social costs are accounted for, the costs of legalized gaming outweigh the benefits, 3 to 1.

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    • Andrés says:

      Joshua, surely you realize there is a critical difference between separating people from their money willingly (gambling, prostitution) v. unwillingly (fraud, highway robbery). Surely you’ve heard the term “victimless crime”? While many debate whether activities that are deemed “immoral” by some (but carried out between consenting adults) should be regulated or even criminalized, no one in their right mind would consider even discussing legalizing activities that victimize others through violence or deceit.

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      • Joshua Northey says:

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    • Mitch says:

      Gambling is done by choice. One does not travel a highway with the high hopes of being robbed.

      There is no such thing as government money as money is a token of work. Only the populace works; the government only takes.

      Hot debate over.

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    • pawnman says:

      So then, will we outlaw Xboxes and Playstations, since these are also unproductive? Why are casinos any more or less productive than any other industry that concentrates on entertainment? Are the jobs generated by casinos not productive jobs? Are the manufacturers of slot machines somehow less economically productive than the manufacturers of pinball machines or arcade games?

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    • Arun says:

      I don’t understand the point in making casino’s illegal, going by your logic even the stock market (esp derivatives and debt instruments) should be made illegal. Highway robbery and fraud are way different, they have an ulterior human motive. Losing money in gambling is an act of randomness, a personal choice.

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  2. Robert says:

    I prefer to think of the casino’s edge as entertainment cost. the longer one plays the machines, the more the casino realizes it’s take – what 5-9%. However, for less entertainment, the gambler can always stand up and take any winnings that happen his/her way. But, eventually, the odds favor the casino so one needs be realistic and consider that share as cost of entertainment. With reasonable bets, even Keno will allow one to play for many hours with few dollars cost – less than a movie. Plus, if you use a casino membership card, you can get an occasional free meal. If that’s your version of fun, go for it. But if you are in it for the money – well, casinos are traps for people poor at math.

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    • Joshua Northey says:

      If I thought the majority of a casino’s traffic was there for entertainment I would be all for it, but from the people I have known who frequent casinos 90% of them as just pissing money away in the hopes of striking it big.

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      • mike says:

        So we should ban it for everyone because some people you know can’t control themselves?

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      • Joshua Northey says:

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      • Clancy says:

        The people who are being exploited, problem gamblers, and those who really can’t afford to waste their money or time at the slot machine FAR outnumber the rational-economists “just paying for the entertainment” (Protip: anyone who says that all their decisions are based on rational analysis is only fooling themselves)
        I’m sure there are plenty of people who can handle their cocaine and heroin and can lead perfectly productive lives, but most people can’t, so we ban it.

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      • SM says:

        And how well has that worked out for us? The people who want cocaine and heroin still get it, and in the meantime we’ve created a multi-billion dollar underground industry, one of the highest incarcerations rates, and all of the violent crime that goes with it. The fact of the matter is, gambling is legal in many places in this country and yet the majority of people are still living perfectly productive lives.

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      • Mitch says:

        That’s the argument over gun and drug control too…

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    • Marla says:

      There was a book out a number of years ago that I think was something like “The MENSA book to gambling”. What was rather unique about the book was it looked at all the casino games, took into account house take, bet size and how fast the game played to figure out cost per hour. A great way to look at your entertainment expense of gambling. Sports betting was by far the cheapest, while I think dollar slots was one of the most expensive. Craps and blackjack I think were fairly low.

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  3. Mayuresh says:

    I am not sure if I am reading the charts correctly.

    What these seem to tell me is that if I wager on multiple lines, my probability of a regular win increases? (with the exception of 6).
    So, If I have $300 to wager, I am better off betting $20 each on each of the 15 lines in one single spin (RW=14.2%) than betting $20 on a single line each time for 15 different spins (RW=5.1%)

    I think we need to compare this with the RW% of a single line machine.

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    • Joe says:

      What’s missing here is the mean amount won. The chart is saying that more than 14% of the time a 15-line bet returns more than you put in — but often it may return much less (as a multiple of your total bet) than a single-line bet. The intuition here is simple. Suppose the machine only had three end-states for a $1 bet on a line: Jackpot ($5000, which happens once every 10,000 spins); Cherries ($2, which happens once every 5 spins); and lose ($0). The total expected value in any bet is .5 + .4 + 0 = 90 cents out for your dollar in.

      If you bet one line, you’ll win 2001 times out of every 10,000, on average, with an average win amount of 9000/2001 (just over $4.5 per winning spin).

      If you bet on two lines (5000 plays of $1 per line), you still have an expected value of 90 cents per dollar bet (or $1.80 per play). Now, you’ll likely lose about 16/25 of the time (or be real precise, and say (7999/10000)^2). About 4% of the time you’ll win $4 (both win $2). About 1 time in 5000 you’ll win about $5000 ($5002 1/5 of the time, $5000 4/5 of the time). And the rest of the time (about 32% of the time), you’ll “win” exactly the $2 you bet. If we count those as wins (which the casino would), then your $9000 is spread across a greater number of winning plays, so your average win is smaller.

      Of course, this highlights the big difference between playing “for entertainment” and playing “to win.” If you really want (or need) to win, even knowing that you’re playing against the odds, you should put all the money you plan to bet into one wager (e.g., one blackjack hand or craps bet). If you play well, about 49% of the time, you’ll succeed (and come away with the win you need), and 51% of the time you’ll lose it all. You won’t waste any time gambling (scale to larger-odds bets and lower chances if you need to triple or quadruple your money). Some people do this, but for most of us, it is no fun.

      By contrast, if you play for hours and hours (leaving out games like poker or even sports betting, where a skillful player has an advantage), your chances of leaving as a winner at all get smaller and smaller, and the distribution shifts more and more towards losses and small gains. That’s the price you pay for entertainment.

      Personally, I’m happy with that. I don’t think we should outlaw going to baseball games either. I pay for the privilege, and when I leave I have less money (tickets, hot dogs, and the rest) and just the memory of having been (well or poorly) entertained. Society is no better off. Nothing productive has happened. And I probably enjoyed that.

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  4. Dan says:

    I am not really sure why restaurants/movies/DVD rental/music/concerts/alcohol/cigarettes/candy/fast food/buffets are legal. They are the definition of unproductive economic activity. A lot of money spent in them is government money too as the population is so skewed towards the aged, uneducated, and unemployed.

    I mean we could legalize highway robbery too, or fraud, those would be “growth” industries, but no one thinks that is a good idea.

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    • Joshua Northey says:

      I think the idea is that in most of those cases the people are getting more or less what they expect, casinos are built around deceiving people.

      Its not a big issue for me, but I used to spend a fair amount of time playing cards for money (and winning a couple thousand/year) in some casinos, and nearly everyone I saw there who wasn’t playing cards or sports betting was there for horrible horrible reasons. Depressed impoverished low class people desperate for some glimmer of hope.

      Casinos as entertainment don’t bother me much, but at least in the native run casinos in Minnesota mostly they seem to be a way to bilk Social Security/Assistance checks and pensions out of depressed grandmas, and the unemployed. You don’t really see any well dressed or even happy looking people outside of the card rooms or sports betting areas.

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      • pawnman says:

        They are no more deceiving people than McDonald’s is deceiving people into believing the food is healthy. If you are an idiot who thinks he will strike it big gambling on table games in Vegas, then you deserve it when your money is separated from you one hand at a time. Just as alcohol isn’t exactly productive for anyone involved, and yet it is still freely available in every state in the union.

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  5. Scott says:

    I’d like to see a table showing the average payout for each number of lines bet. Or is it the same regardless?

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  6. Clancy says:

    When I first saw these “multi-line” machines, my first thought was that since many of the lines overlap, they are not independent, so playing 5 lines increases your potential loss by 5 times but increases your potential win by less than 5 times. If you only play one line, though, the machine taunts you by pointing out the combos you missed by not playing those lines.

    Also, does anyone else find it extremely creepy when “frequent gamblers” have those cards on lanyards that they plug into the machine? It’s really unnerving to see rows of people with totally expressionless faces physically tethered to the machine like some weird sci-fi dystopia.

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  7. Caleb b says:

    One othe point: casinos cannibalize other businesses, so those new casino jobs are, in some cases, entirely offset by lost jobs in surrounding businesses.

    I don’t live in, but know a lot about, Dodge City, KS. They added a casino last year and restaurants, the bowling alley, the movies, are all far less busy than before the casino. The money that used to stay in Dodge now goes to the state and private owners who live out of state. It can’t be a net win for the city economically. And the stories of farmers losing it all due to addiction keep piling up.

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  8. Steve (UK) says:

    I LOVE Freakonomics. 
    I like reading articles void of subjective opinion and ethical (mis)judgments. 
    I don’t like hating on free material published by a brand I so admire

    But…

    Sadly the observational articles that I’ve read recently just don’t compare to the studies in the books. 

    For example, compare and contrast the article above to Levitt’s sumo wrestling analysis and the significance of the conclusion drawn, most remarkably in spite of the phrase:  ‘I have never watched a sumo wrestling match but…’ 

    No-where in that table’s small print above, is a mention of EV, ROI, or average $ return. 

    I appreciate the fact there’s time constraints with these articles but authors please check the comments and:
    - raise the academic bar on the level of analysis 
    - draw more meaningful conclusions. Some of those drawn amongst the comments utilise just the data in the article yet present more succinct conclusions which better address the title of the article. 

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    • Graham says:

      The worst part is that it’s a shallow analysis (fine, it’s a blog) that links to a gated article. When research is gated like this, I assume the authors are hiding something. Simple economic reasoning would say that research isn’t free. However, I know that if I made a breakthrough, I’d want the world to know about it, as I’d gladly trade a small amount of short-term income for fame and future income.

      So I, as a lay person, conclude that the research is shoddy and reflects poorly on the authors, as they’re not shouting their result from the rooftops (or posting on arXiv.org, which admittedly has a narrower focus now than it used to). The only way to refute my argument is to release the article.

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      • Former Academic says:

        Academicians generally try to publish in the most prestigious journal appropriate to the research that they are reporting. There are no payments to the authors for publishing in academic journals. Indeed, most journals require authors to pay for page charges for the privilege of publishing an article. Publishing an article that has undergone review (typically double-blind) in a well-respected journal is “shouting their result from the rooftops” from a researcher’s perspective. Although many academic journals have made their articles available to anyone, Wiley evidently maintains a subscription requirement. However, many public libraries have subscriptions to these journals, thus enabling patrons to access them at no additional cost.

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