How to beat roulette
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All right. So to kick things off, how did you first become a scientist? Well, you know, I dropped out of graduate school for a while to beat the game of roulette. And that's how I became a scientist, I guess. Today, Doan Farmer is a physicist, an economist. His work helped define the field of chaos theory. But before all that, nearly 50 years ago, he was gaming casinos.

I gotta ask about the roulette. Whose idea was it to apply physics at the casino? It was my friend Norman Packard, who I'd known since we were about nine years old. Doan and Norman had been Boy Scouts together in southern New Mexico.

Silver City is on the edge of millions of acres of national forest land. It's also a university town. And both boys, self-described science kids, were inspired to go to grad school for physics.

So, by the summer of 75, Doan and Norman were very smart and very poor students. We were always trying to find a nice way to make money during our summers. Doan was making more money playing poker than at his summer job with the Forest Service in rural Montana. Reading The Complete Guide to Winning at Poker was enough to give him an edge and a taste for winning money. Norman, on the other hand, spent his summer in Vegas playing blackjack.

But then while he was playing blackjack and staring at roulette wheels, he got this idea that we were physicists, we should be able to beat roulette. Roulette is a game that feels at home in James Bond movies or Casablanca, where tuxes and ball gowns gather around the table to bet on the epitome of chance. As the spinning ball falls onto a spinning wheel, it can land on one of 38 numbers.

You can bet on the ball falling on red or black, an even number or an odd one, or cryptic combinations of numbers. But ultimately, it's simple. Predict where the ball is going to land, and if you guess right, the payout can be as much as 35 to 1. Way higher returns than blackjack or even a really good hand of poker.

The thing is, though, there's not really any strategy. There's no opponents to bluff, no cards to count, just pure random chance. But Norman saw potential. What was his pitch? Like, why should physicists be able to beat roulette? I mean, wasn't there like an Einstein quote that no one could win at roulette unless you steal the money from the table? Yes, that's right. But there's something Einstein didn't think of.

But they should have, actually, which is that roulette is just physics. There's nobody making any decisions. It's just physics. The casino croupier, not a dealer, spins the wheel one way and then spins the ball the other way. And then it's a little more complicated maybe than playing catch in the yard, but Norman and Doan's reasoning was largely the same.

If you know where the ball is, what direction it's going, how fast it's going, you can have a pretty good idea of where it'll end up. And yet, roulette is this random number generator. Even Einstein supposedly didn't think there was any rhyme or reason to it. And that's because tiny differences in the way the ball is thrown can cause big differences in where it lands. But there's an opening.

Because casinos keep the table open for bets after the croupier throws the ball. Maybe 10, 15 seconds of golden opportunity. That sweet spot after the throw that makes the ball unpredictable, but before it's had a chance to land. Doan and Norman had to figure out where the ball was going to land in those precious few seconds when roulette was just a predictable physics problem.

So how did you figure out how to beat roulette? Well, you know, we started by thinking, okay, it's a rolling ball on circular track, but it's slowing down. What causes it to slow down? We realized it's air resistance. So then we went to the library and looked up air resistance and thought about that. And so we wrote out an equation that described a rolling ball under circular track with air resistance.

and solved it. Okay. And then we bought a roulette wheel and we started doing experiments to see... Where'd you set up the roulette? Well, the roulette wheel was set up first in my dorm apartment. I was a graduate student advisor in the dorm. And then we would take it into the physics department in the middle of the night where, you know, I had a master key and

The janitor was in on it, so he didn't tell the faculty we were doing this in the middle of the night. Doan and Norman spent their nights doing experiments on the roulette table and solving their equations on bulky 1970s computers. They weren't going to make any money in an empty physics department at midnight. They needed to take their strategy to the casino, and they needed to bring their computers with them.

So naturally, they built the first ever wearable, concealable digital computer. The idea of a personal computer, let alone one that you could carry around with you, was pretty out there at the time. Doan and Norman couldn't just order up parts and start tinkering. They had to set up a shell company to buy the components they needed.

They used the same processor that went into their original Apple computer and even ran in the same circles as Steve Jobs and Steve Wozniak. Though, Doan and Norman couldn't quite imagine what regular people would do with personal computers, they were completely obsessed with roulette. Doing experiments, building computers, solving the equations, writing programs that would solve the equations on the computer we built.

The project, as they called it, grew from just Doan and Norman to about 30 people. They found that they could use their equations and computers to roughly predict where the ball was going to land. And, you know, even if the ball bounced around a little as it fell off the track, it wasn't going to bounce clear over to the other side of the wheel. They could narrow it down enough to cover the bets. They had it.

The dream was to win enough money to fund a science commune where they could live and study and work together outside of the pressures of academia. But first, they had to hit the casino floor. Support for Unexplainable comes from NetSuite. Unexplainable is all about uncertainty. We love uncertainty. If you're in a business, though, uncertainty is scary. It can be easier if you have the right tools, like NetSuite by Oracle.

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So when your business gets stuck, NetSuite can let you have the full visibility and control you need to get unstuck. If your revenues are at least in the seven figures, you can download the free e-book, Navigating Global Trade, Three Insights for Leaders, at netsuite.com slash unexplainable. That's netsuite.com slash unexplainable. Support for the show comes from Jerry. Have you ever thought, I really can't wait to shop for new car insurance?

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Schedule a pickup with the Rinse app, and before you know it, your clothes are back, folded, and ready to wear. They even do dry cleaning. Sign up now and get $20 off your first order at Rinse.com. That's R-I-N-S-E dot com. So you had the strategy, you had the math. Walk me through the heist. What was, if I'm imagining, like an Ocean's Eleven theme song playing?

What was the heist that you guys did? Yeah. So we'd start out by, in our apartment, we would suit up, which meant putting on the computer. All right. You know, the computer was strapped under one arm. There was a 12 AA battery strapped under the other arm. Back in those days, it took a lot of power to run a computer, and we could only run for about an hour and a half. Okay. So you'd strap on the battery pack.

It was all sewn into this belt like weightlifters would use. And then we had switches in each of our shoes with wires running up. Like up your leg? Up our legs. And we had a kind of radio transmitter around our shoulders. And we had little buzzers. So the buzzers, they were like thumpers. So they'd give us a low-frequency thump, medium-frequency thump, high-frequency thump.

On your chest? Actually, the men typically put them kind of under their belts and the women had them sewed into a bra so they would give them a vibration in their bra. Okay. So we would suit up in the apartment and suiting up already was kind of tricky because you had all these wires and things you had to plug together. And then we would get in our car, it was usually my 1966 Dodge van, and drive to the casino.

- Doan and the team made 11 trips to Nevada in all. They'd spill out of Doan's van, adjusting the wires in their belts and bras, and head into the casino. - And then we would look around for roulette wheels with a little bit of tilt. Turns out only a tiny bit of tilt would make the dynamics much more predictable, 'cause it caused the ball to be more likely to land on one side than the other. - And then one of them, usually Doan, approached the table.

He'd act stupid and loud, call himself Clem, and bet small stakes. But all the while, Doan was using his big toes to click the switches inside of his shoes to program the computer tucked into his weightlifting belt.

Using all this, he'd measure the speed of the ball and the rotor turning the wheel. Depending on the friction and the rotor, it might slow down faster, or the ball's a little more dense, or even if the barometric pressure's changed, the ball will accelerate faster or slower. Once he had a feel for that particular tilted wheel, with that specifically dense ball, on a fair-weather desert night,

Doan and his computer were ready. I would signal the other player and I would just be betting red or black. And I'd say switch to betting even odd. So the other player would know, ah, now he's ready. And then the other player would take their place on the opposite side of the table. And my computer would relay to their computer when the ball was about six seconds ahead of falling off.

It would tell them what part of the roulette wheel was the best part to bet on, and they would have memorized a pattern. So if they got a buzz that meant, say, seven, they'd know, okay, that's the seventh octant, and the numbers in there are 14, 32, and three. And they'd lay down bets on those numbers, which were all in about the same part of the wheel, and that's how it worked.

Yeah. And this is all on taps in the shoes and thumps under the belt or in the bra. And that's how you're communicating, trying to stealthily do all these calculations. That's exactly right. This system...

It was complicated. We always had a lot of problems with hardware. For every hour we spent playing, we probably spent five hours fixing our equipment. And it didn't always go as planned. It could drive you crazy because the ball would land just short, just right next to the number you made your bet on. You could be making good predictions and still end up losing just from bad luck, which is part of why we were always nervous about having a big enough bankroll to

to outlast the bad luck. But trip after trip, it paid off. We make predictions, and they were far from perfect, but they were still good enough to give us about a 20% edge over the house. So in other words, every time we laid down a dollar on average, we got $1.20 back. Nice. That was pretty good, but we were always a little cowardly about scaling up to big stakes because every time we started to do that, we'd fill a lot of casino heat.

Interesting. Feels like a lot of trouble to go through for a little extra pocket money, if you consider all the man hours put in. It was. It was. But it was a lot of fun, I must say. It was an engineering project where we had to do the basic science. We had to do the math. We had to do experiments. We had to build a device. We had to get the device to work in the field.

My thesis advisor said, actually, you could just write your thesis about this if you wanted. And I decided not to. I didn't think that really would qualify me to do much else. But it did actually in the sense that it taught me a lot about predictions. About a decade later, Norman, Doan, and some friends founded the Prediction Company in 1991.

They kept up the grad school vibes, setting up their company in a barely-furnished adobe house in Santa Fe, and basically sharing one business suit between them to wear to meetings with investors.

Just like their days playing roulette, Doan and Norman harnessed the underlying science, invented the technology they needed, and profited by finding predictable patterns where others saw randomness. We knew a lot. We'd learned an awful lot from that first enterprise. And we put a lot of the things we'd learned into practice, beating financial markets,

At a time when trading floors still ran on brokers in colored blazers shouting out orders and throwing up hand signs, the prediction company used computers, mountains of data, and even some early machine learning to find these predictable patterns and automate trades. In stock markets and bond markets and commodities markets, foreign exchange markets,

Basically, they started one of the very first quantitative hedge funds. Exactly. That's what we did, inspired by, in many respects, by our time in the casino. And we did succeed in making a decent amount of money. We made a pretty good amount of money doing that.

If you want to hear more about Doan's work, teasing out those patterns he keeps seeing in the economy, check out our episode, Embracing Economic Chaos. This episode was produced by me, Meredith Hodnot. I also run the show. We had editing from Jorge Just, sound design and mixing from Christian Ayala, music from Noam Hassenfeld, and fact-checking from Melissa Hirsch. Julia Longoria's looking a little green. And Bird Pinkerton got to the airport.

She waited till twelve and made her way outside, and at the far end of the abandoned runway, she saw a pigeon. Ah, she thought, that must be Aaron Bird. But next to him, she saw something else, hiding in the tall grass. It couldn't be. A platypus?

Thanks as always to Brian Resnick. Hey, O'Brien. Thank you so much for creating the show. And if you have thoughts about the show, you should send us an email. Brian, specifically, you should email us, but also any other listeners. We're really excited to hear what you think about the show. We're at unexplainableatbox.com. You can also leave us a review or rating wherever you listen. Really helps bring new listeners into the fold. Totally.

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