Executive Summary
The House Advantage is a book written by Jeffrey Ma, and published in July 2010. Jeffrey Ma is a card counter made famous from the book Bringing Down the House and the movie 21. Both stories are based on Ma’s real life experience with card counting and blackjack.
The book is about Ma’s idea that you can play the odds to win big in business. This is a play on the fact that he is a card counter made famous for his ability to play the odds to beat the casinos. The idea of playing the odds is described in the book as using data to make the best possible decisions for yourself and your business. In order to make the best decisions, you have to analyze the data and choose the option that gives you the best chance at success, or the best odds of winning.
Ma uses his own personal experiences in the world of blackjack to relate his philosophies on business success. He is constantly referencing his playing days in order to illustrate his points. He also draws on a wealth of past life experience in the world of analytics and business to supplement his stories of blackjack.
According to the book, the key ideas for increasing your success in business are based on your decision making processes. In order to play the right odds, you have to be making the right decisions. Ma slowly guides the reader through his logics behind his school of thought. He starts with some simple notions about statistics, and then he works his way through how to apply these statistics to business.
He talks about how the past matters. Every good decision should be based on some past information or data. We should always know what happened in the past and learn from our mistakes. He also mentions the need to be like a scientist. He describes this as the ability to approach a problem and remain objective. Don’t search for the answer you want, but rather search for the right answer.
He also talks about the importance of asking questions. Not only do we need to ask questions, but we need to ask simple questions that have a purpose. We shouldn’t waste our time searching for answers that can’t lead to action. We can use the data from the past to answer our questions in a quantifiable way.
Once we’ve gotten our numbers, we need to make sure that we know what they mean. We must use the numbers to tell a full story. We must know what the data we have is telling us. We can’t allow ourselves to fall prey to fake statistics and we must not allow ourselves to skew the numbers.
He talks about the need for planning and strategy with our decisions. If we are prepared for every scenario and we have a solid strategy, there is no need to fear. He also defines what making the right decision means. A decision isn’t made right or wrong by its results. If we make the best decision we can with the data we have, we are playing the best odds we can. By playing our best odds, we are increasing our chances for success, but not guaranteeing it. This is why we must always be prepared, even for the worst-case scenario.
The ultimate purpose of the book is to give the reader guidelines for effective decision making. In order to be a good decision maker, we must make data driven decisions and prepare for every outcome. By being a good decision maker, we are effectively playing the best odds we can which will lead to a brighter future for our business and hopefully business success.
The Ten Things Managers Need to Know fromThe House Advantage
1. Statistics can be applied to any business. Using Statistics to make an informed decision can be applied to any situation, ranging from what route to take to work, to which multimillion dollar investment to make.
2. “Every good decision has some data behind it as well as a thorough examination of the specific case at hand.” (Ma 209) Every decision has some set of data that we evaluate before every decision.
3. You must have the ability to reevaluate your strategy when things change. The world is in constant motion, and your business environment will always be changing. To keep up, your business must always be changing.
4. Focus on statistic accuracy and integrity. Don’t fall into the trap of pseudo-statistics. Don’t let yourself “find” the numbers that confirm your decision. Let the number “lead” you to the right course of action. This means using the data to make a decision, not just searching for the first sign of data that confirms your preconceptions.
5. Every organization has to have uniform goals that every employee can invest in. Make sure that everyone is working towards the same objective, and that everyone realizes that success for the business means success for everyone,
6. Pay attention to the past. The past is the biggest part of making any successful decision. Study it and learn from it in every aspect of your business.
7. Ask the simple questions. Don’t always look for the really complicated problems to focus your efforts on. Sometimes the simplest questions can lead to the biggest discoveries.
8. Don’t try too hard to be perfect. Not every decision has a right answer or a perfect set of information to examine. Use what you have to make the best decision at the moment, even if this isn’t a perfect decision.
9. Planning is core to being successful in business. Every business should have a strategy to succeed and to handle any failures. “The importance of obsessive planning cannot be underestimated.” (Ma 136)
10. Presentation is important. Even the best plans, if not presented correctly, will fail to be accepted. People are resistant to change, but if you present the change in a way that they can understand, you have a better chance of making the change.
Full Summary of The House Advantage
The Religion of Statistics
This chapter is all about the religion of statistics and gives some personal stories regarding Ma’s beliefs in statistics. The chapter starts out with Ma telling the story of his “defining moment” regarding statistics. He tells about how he lost $ 100,000 in a matter of minutes one night playing blackjack. He explains how he had to deal with the numbers being wrong. He said that the statistics behind his moves that night were correct and but there is always a chance at losing. But he tells how he decided to continue playing and eventually won $ 70,000 net.
He then goes on to tell the story of Bob Stoll. Stoll is a sport betting guru and friend to Ma. Stoll is a statistician who uses numbers to bet on sports. He even started a business selling his picks to his subscribers each week.
Ma then tells about his forays into the financial market. He tells about how the markets worked and what his job was. He explains why he left the industry, because unlike blackjack, there isn’t enough of a standard of analytics. The system he worked under in blackjack was a “sure thing”, because the numbers said so. In the financial markets, his company’s decisions were sound, and they made money, but they didn’t make statistical sense.
Ma then offers up his first two commandments of his religion of statistics. The first rule is to understand the importance of variance. Variance is the natural tendency for results to vary from expected. Just because the numbers say you have an advantage, doesn’t mean you are guaranteed a win. Ma’s second commandment is the importance of the long term perspective. Most analytical strategies are only going to give you a small advantage. And due to variance, you might hit “bad streaks.” The importance of understanding the causes of these streaks and maintaining your position will eventually lead you to your goals. You must stand behind the data and trust in the numbers.
The last thought he offers up in this chapter is the idea of an ever changing strategy. Because an analytical strategy is meant for a specific environment, as the environment changes so should your strategy. Maintain your belief in your strategy, but be able to change it as new variables emerge.
Why the Past Matters
Ma starts this chapter with a lesson in history. He explains the reason why his blackjack strategy works is because blackjack is affected by the past. For instance, if all of the aces have been played, the chance for getting a blackjack is impossible. He compares this to roulette, where the chances of a ball landing on red is not affected by how many times in the past the ball has already landed on red.
He tells the story of how card counting came to be and why it works from a mathematical point of view. He explains how Edward Thorp invented card counting by noticing the trends and patterns that emerge from a sequence of blackjack hands. The basis of it is that every card that has already been played has some kind of effect on the odds of future hands. Card counters simply bet more when their odds are increased, and bet less when the odds are not in their favor.
Ma goes on to give another couple examples about how past data can be used to confidently predict future patterns. He further explains why Stoll’s methods work. He also tells a story about how the sales in a retail store have become more accurate thanks to data mining and product mix information. This is a great example of how statistics saved the store money and improved the business.
The main idea of this chapter is that historical data is such an important tool for crafting an effective strategy. Ma also says that if you don’t already have data readily available to you, you need to create an infrastructure to start collecting data. The sooner you have historical data, the sooner you can start making effective decisions.
Think Like a Scientist
Ma starts off this chapter with a story about how he deals with the other people at the table with him. He is telling how other people get upset when he seemingly makes “stupid” plays at the blackjack table. He is referring to times when his card counting method goes against what most blackjack players follow, or basic strategy. The story involves a person who is upset that Ma is joining the table at a critical point in the deck. Then the person gets upset when Ma makes “stupid” plays and increases the chances that Ma is ruining the game for everyone and is going to cost them all their hands.
This story is used to illustrate the point of confirmation bias. Confirmation bias is the tendency for people to only remember information that proves that they were right. For instance in this story, The other player at the table would not remember that at the end of the hand, he and Ma both won regardless of his “stupid” plays. He would only remember the fact that Ma came in and took his ace and cost him a blackjack.
Ma goes on to tell other stories demonstrating how confirmation bias can come from seemingly good information. He explains the difference between correlated variable and casual variables. A causal variable is when one thing causes another. For instance smoking cigarettes causes cancer. The two variables are causal because an increase in one will lead to an increase in the other. Correlated variables are variables that are related but don’t necessary affect each other. For instance, many people who drink also smoke, but just because a person has a drink doesn’t mean they will want a cigarette.
The main idea of this chapter is to “think like a scientist.” The idea is to not assume that the data you have is enough to prove you are right. Theories need to be tested and results questioned. If you approach a problem like a scientist, you will not fall for confirmation bias or misinterpret a variables correlation.
The Importance of Asking Questions
Ma starts this chapter by pointing out that data is only the first step in the strategic process. What you do with the data is what really counts. It is the creative way that you look at numbers that will truly give you insight into what they mean.
Ma says that at the start of the decision making process there is a set of questions asked by someone. He says that this set of questions is your “decision frame.” He says that every good decision frame has 3 main components: purpose, scope, and perspective. Purpose is what you hope to accomplish. Scope is what you are including or excluding from the decision. And, perspective is your point of view in approaching the question.
Ma tells about football legend Bill Parcells and his response when asked about his criteria for drafting quarterbacks. Parcells list off some key attributes. By narrowing down his candidates to people with these attributes, Parcells is creating a decision frame to make the decision on which quarterback to draft.
Ma then goes on to tell a few other stories involving people asking the important questions. One man asked the question do polls mean anything. This questioning led to him creating a model that has accurately predicted several elections. Another story is about an NFL executive who asked how you measure the talent of an offensive tackle in football. From this question he arrived at several other similar but more specific questions and ultimately he arrived at a quantifiable solution to his answer.
The main idea of this chapter is to ask simple questions. These simple questions will help focus your mathematical models and ultimately help solve your bigger business problems. Regardless of the subject matter, by asking simple questions, you can arrive at some complex but useful answers.
The Impractical Search for Perfection
Ma starts this chapter by discussing the idea of having a “hot hand.” The idea is that when a player is doing well, they tend to keep doing well, or have a hot streak. He tells of his interest in the subject and various attempts at proving or disproving this theory.
He goes into great detail on some of the research done regarding the hot hand. He also talks about his interactions with people who witness the hot hand in the sports they are associated with. After much discussion he brings up the point that although this theory is interesting, it has no practical application and shouldn’t be worried about.
He then begins discussing the optimal time in basketball to take a shot at the end of a quarter. The idea is that there is a point where you have the best possibility to score, allow you opponent to have a possession, and then score again before the end of the quarter. He says that this is a much more practical application for statistical analysis because it has an actionable result. You can change your game plan based on your findings.
The main idea of this chapter is to search for practical answers. Don’t pursue theories and waste research on something that cannot be acted on. We should also be aware that not all answers are perfect. The imperfect answers or incomplete statistics can still be helpful in making your decisions. Also, don’t search for the breakthrough study, but rather, focus on smaller achievable questions that will further your business or create a competitive advantage.
Using Numbers to Tell a Story
This chapter starts with Ma referencing his card counting career again. He is telling about how he kept the count while playing blackjack and the importance of the count. The idea with this story is that numbers should have meaning. In their system, every number meant something to the game. Nothing was left to subjectivity or interpretation.
Ma then tells another story of when he worked with the NBA team the Trail Blazers. Every year his company would rank the emerging draft picks so the team would have some quantitative way to measure their potential picks. At one point the team was questioning why their numbers for players were different than Ma’s company’s numbers. They wanted the numbers to match up to confirm their decisions. Ma points out that you don’t want these numbers to be the same because the analysts are looking at it from a different point of view to offer a new perspective. He makes the point that we need to keep in mind what numbers mean.
He then starts discussing the BCS system and how it is flawed because it does not offer a true ranking of the teams. The BCS system offers up a pseudo-statistic because it bases two-thirds of its weight on a human ranking poll. This flaws the true ranking that would occur by the computer.
He also relates the television rating system to the BCS because of their use of a pseudo-statistic. He then tells a couple other stories about how some fake statistics are being used when they really aren’t giving a true view of the story. Statistics are only as useful as the story they are trying to tell.
The point of this chapter is that a number is only as good as what it represents. He says that statistics should be based on some objective measure, should be easy to understand, and should not be manipulated to support lies. The ability of numbers to tell a story is the important part of gaining a competitive advantage.
Never Fear
Ma begins this chapter with another story from his card counting days. He recalls a close call that he and his team mates had in Shreveport regarding the casino catching them in the act of counting cards.
The importance of this story is showing how judgment and planning led to their success in Shreveport. By making sure that they didn’t play too long or get too greedy, they were able to escape before the casino could really catch them in the act. Planning is important too because they had planned out exactly what they were going to do if “the heat,” or casino management showed up.
Ma discusses the team dynamic in their card counting games. He explains what each person’s role was and how it helped out the team. Their preparation and their strategy is what led to their success.
He then goes on to tell the story of the financial giant LTCM. LTCM had a winning strategy that allowed them to earn tremendous profits. One day the markets entered into turmoil and LTCM eventually lost 91% of its capital. Because of this event they had to reveal some of their secrets in trading. Once their secrets were revealed, their competitors would buy or sell stock before LTCM causing LTCM to lose profits. The moral of this story is to keep your competitive advantages as close guarded of a secret as you can.
Another lesson from this story is the lesson of planning for the worst case scenario. You have to have a plan to deal with the worst of times if you want to be successful. Just like in blackjack, there will be bad hands that you have to weather through in order to realize an ultimate profit.
This is the key idea in this chapter. Obsessive planning leaves you no reason to fear. If you can keep your advantages in your favor, and you plan for everything from the best to the worst case scenarios, then you will be successful and don’t need to fear failure.
Making the Right Decision
Ma begins by discussing what a right decision is. Most people believe that if the result is positive then the decision was right. But this is false. A good decision is right regardless of the outcome. The decision and the outcome are separate entities. The quality of the decision can only be judged by the logic and information you used in arriving at your decision.
Ma then goes on to tell a story about playing at the MGM grand. He made some seemingly ridiculous decisions during his time at the table. He ended up winning $ 28,000 on one hand, but his comments are about the decision. When it came time for him to increase his bet at the table, he didn’t hesitate because he knew based off the number, his decision was right.
He then goes on to analyze a decision made by New England’s head coach on a fourth and two play. The outcome of his decision to go for it was that his team lost, but Ma analyzes if this was still the right decision. After much analysis he deduces that even though the outcome was bad, the decision was correct.
He tells other similar stories from the business world. He relates all of this to the need to make the right decision regardless of what people will think or what the outcome is. This is the key concept of this chapter. Making better business decisions is a matter of looking objectively at a problem, understanding the alternatives, and then choosing the one that gives you the best odds of success.
When I Won, We All Won
This chapter begins with the explanation of how the blackjack team received funds and how the “investors,” or players, were paid out. He tells a story about how they would set goals, and once they reached those goals everyone would receive their portion of the profits.
Ma says that establishing unity was paramount to their success. They all had a unified goal, and achieving this goal was the most important thing they could do. Ma says that the main problem in the business world is when self interest trumps this team goal.
He relates this to coaches. Sometimes coaches will make a decision to make sure that people think they are doing the best job. Their ultimate goal is to win a championship, but going for it on fourth and 2 late in a game is seen as a bad decision and can hurt a coach’s personal interest.
The main point of this chapter is to work as a team. Make sure everyone’s goals are aligned and that everyone is working together towards those goals. In order for a business to be successful, employees must realize that the company’s success means their success.
Why People Hate Math and What to Do with Them
This chapter begins with Ma reminiscing about the first time he tried to talk to his dad about card counting. His dad turned him away because his father didn’t want to believe the numbers. He couldn’t believe that casinos could be beaten.
Ma then discusses him starting his business and trying to convince sports people to sign on with a statistical company. He tells how he had to convince the anti-math people that this numbers business was useful and profitable.
The key idea of this chapter is that presentation is everything. By presenting his proposal to them in the right way, Ma was able to convince these people that his system worked. If he had not presented it with simplicity, humility, and with a sense of collaboration, they would not have accepted his ideas. He says it is important to think of analytics as a new way to make decisions, not just math or numbers.
The Brain Cells in Your Stomach
The last chapter begins with the discussion of intuition. He says that most people don’t like numbers because they rely on their gut, or intuition. He decides to test out what intuition really is.
He interviews several people throughout this chapter about their thoughts on intuition. He wants to know what is the process behind these gut calls. Because of his business of counting cards, where nothing was left to gut decisions, he cannot understand the concept of a gut driven decision.
Through the several interview with varying sports stars and statistics experts, he arrives at the conclusion that intuition is direct perception of truth independent of any documented reasoning process. Basically he is saying that even with intuition, there is reasoning behind the decision. Whether it is past experience or hours of film study, every decision has a reason to the decision maker.
The main idea in this chapter is that in every decision, there is data at its core. We must base every decision we have on the data we have available, even if that data is our past experience or gut feelings.
The Video Lounge
This clip has a guy discussing good decision making. The author spend much of the book emphasizing good decision making and the process of framing a decision, using data to make the decision, and deciding if the decision was right. This guy talks about many of the same ideas and methods.
http://www.youtube.com/watch?v=Q3YMb4w-FvU
Personal Insights
With business conditions today, what the author wrote is true because:
The subject matter in this book is very relevant to the business world today. His thoughts on using the past and data to make informed decisions are paramount to any business’s success. In the age of technology that we live in, it is so important to use the data that is available. It is easier than ever to track past performance and research relevant variables in any business. Ma’s ideas on how to approach this process in our modern world are systematic and applicable. His methods on controlling your emotions and using the best data you have to make decisions are so true in today’s business environment.
If I were the author of the book, I would have done these three things differently:
1. I would have spent more time on the business ideas. Sometimes the book appears to be more biographical than instructional. At times, the big ideas get lost in reading about Ma’s personal stories.
2. I would have also tried to explain the sports references a bit better. The book is written assuming that the person reading it is familiar with baseball, football, and basketball.
3. I would have presented the chapter ideas earlier in the chapters. Sometime the idea of a chapter isn’t fully explained until the very end. He builds up to the idea a bit slowly at times.
Reading this book made me think differently about the topic in these ways:
1. Statistics can be applied much more broadly than I realized. Data can be used to model any situation as long as you put it in the right frame of reference and gather enough information to ensure the accuracy of your mode.
2. Statistics can lead to finding a competitive advantage you didn’t know you had. Data and research can show you things that you wouldn’t’ normally have found in day-to-day operations.
3. Emotions play a bigger role in the decision making process than I originally thought. If a decision is made with too much emotion or with the wrong intentions, it can lead to bad results.
I’ll apply what I’ve learned in this book in my career by:
1. I will definitely be more open to data and statistics when they are available.
2. I will try to make every decision with the ultimate goal in mind. I can’t let the short term results tarnish the long term goals for my decision.
3. I will try to approach every decision as rationally and scientifically as possible. A rational and emotionless decision will often produce better results than an intuitive one.
Here is a sampling of what others have said about the book and its author:
Brad Feld praises the book in his review for the technology website Technology Review. He says how he really liked the way Ma used his interesting background in card counting to bring up relevant points in the business world. One quote from the review which sums up his thoughts on the book is, “As I was reading it, I kept thinking ‘every CEO I work with and every investor I’ve ever met should read this book.’ After I finished, I thought ‘every academic researcher who has ever written a paper should read this.’ None of the statistics concepts are complex, but they are regularly misused, abused, and confused. Or ignored.”
Publishers Weekly gives Ma rave reviews for his simplified approach to business decision making. They comment on how the stories from card counting and Ma’s past give the book a boost.
Bibliography
Feld, Brad. (2010, July 31). The House Advantage, Technology Review. Retrieved November 8, 2010 from http://www.technologyreview.com/blog/post.aspx?bid=358&bpid=25553
Ma, Jeffrey. (2010). The House Advantage: Playing the Odds to Win Big in Business. New York, New York: Palgrave Macmillan.
Publishers Weekly. (2010, August 3). Vol. 257 Issue 18, p40-40
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Contact Info: To contact the author of this “Summary and Review of The House Advantage,” please email Christopher.Raleigh@Selu.edu.
Biography
David C. Wyld (dwyld.kwu@gmail.com) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/), a hub of research and news in the expanding world of competitive bidding. Dr. Wyld also maintains compilations of works he has helped his students to turn into editorially-reviewed publications at the following sites:
Management Concepts (http://toptenmanagement.blogspot.com/)
Book Reviews (http://wyld-about-books.blogspot.com/) and
Travel and International Foods (http://wyld-about-food.blogspot.com/).
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