Module 5: Probabilistic Reasoning in the Service of Gambling

Probabilistic reasoning is applied to several topics in gambling. We begin with the Chevalier de Méré asking the mathematician Blaise Pascal in the early 17th century for help with his gambling interests. Pascal in a series of letters with another mathematician, Pierre de Fermat, laid out what was to be the foundations for a modern theory of probability. Some of this formalization is briefly reviewed; also, to give several numerical examples, the PascalFermat framework is applied to the type of gambles the Chevelier engaged in. Several other gambling related topics are discussed at some length: spread betting, parimutuel betting, and the psychological considerations behind gambling studied by Tversky, Kahneman, and others concerned with the psychology of choice and decision making.