A few years ago we posted on luck vs. skill in poker and luck vs. skill in sports.
A new one of these came up when Palko pointed me to this disturbing news article, “They Look Like Slot Machines. They Pay Out in Cash. And Critics Say They Are Getting Workers Killed,” which reports:
Store clerks in Pennsylvania have been robbed and shot while handling payouts for “skill games,” which are not subject to the security standards required of gambling operations. . . .
They look like casino slot machines and video arcade games, but they are neither. They are skill games. Like their name implies, players must use their skills — memory, reflexes, strategy, recognition — to win cash. They don’t solely rely on the luck of the draw, like with slot machines. . . .
The Pennsylvania Gaming Control Board licenses 17 casinos and 75 truck stop video gaming terminal facilities, requiring them to have secure facilities, trained staff, and digital video recording. Their gambling machines also have to be linked to a centralized computer monitoring system. Businesses that offer skill games are not held to any standards, their critics say. As a result, some are putting their employees in danger by having them pay winners with cash. . . .
Some gruesome stories follow, along with predictable quotes from evil people making money off these things.
“Skill games”?
But here’s my question. How much skill is actually in these “skill games”? I assume not much, because, if the games really did involve skill, then skillful players could just show up and win regularly.
I guess the “skill games” could involve some small amount of skill, but not enough so that skillful players could beat the house edge.
Basic Economic Thinking (TM) tells us that if skill weren’t involved, then nobody would play and the machines would go out of business. Or someone else would build more skill-dependent machines and people would play those. So I am sure everything is fine, or at least headed in the right direction …
Dmitri:
I know you’re being ironic here, but, in all seriousness, people play slot machines, which are pure chance (except in that scene in The Grapes of Wrath). The economic theory would say that the players get a positive “consumption” utility from the gambling itself, in the same way that we get a positive utility while eating a chocolate bar.
I actually think it’s an interesting question what proportion of slot machine users have an accurate understanding of the odds (and hence are being rational, and getting an unproblematic consumption utility) and what proportion are misguided about those odds (and hence are getting tricked).
I personally find it very hard to enjoy slot-machine style gambling when the odds are against me; it just feels like throwing money away. When the odds are better, gambling is more fun. It is hard for me to believe that this is a weird personal quirk of mine.
So I have to imagine that a lot of those slot-machine gamblers are deceived in some way or another, and this deception is why they get positive consumption utility from the game.
Dmitri:
But they know that the house always wins, no? I agree with you that odds matter, as do perceived odds, but in any case it’s clearly a loser in expectation, and the fun is in the process (including things like the anticipation of excitement, etc.).
But, yeah, people don’t like to get ripped off. It seems ok to play a slot machine and accept a small expected loss as the price of the game, but it would be annoying if the vig were 50 percent.
There is a subculture of “vulture” slot players who actually can reliably win at some slot machines. Not by actually playing them with a strategy, but by wandering out looking over the shoulders of clueless other gamblers who abandon the machines when their “must hit” puts it in an +EV state. But high-roller places like Vegas don’t actually keep many of these machines around or with a high payout, and there are enough of these other vultures around, that in general you end up walking around “working” for around minimum wage, and if you’re conspicuous at all the casino can kick you at any time
There’s book-length study of the techniques that casinos use to keep customers pumping money into slot machines: Addiction by Design, by Natasha Schull (Princeton University Press, 2012). It’s quite eye-opening.
Speaking cynically, I could see three ways to profitably implement skill games
1. Make the required timing/memory/whatever basic skill so incredibly tight that no human short of a mutant or savant could have a positive expected value. Something like 1 ms reaction time or something.
2. Have the expected value increase monotonically with skilled play, but the maximum possible expected value is still below zero. One example is claw machines — you always need the spatial perception to align the claw with the price, but the claw machine also pseudoranomly decides whether or not it wants to grip. Another is the classic tower stacking arcade game–you need roughly the right timing, but the machine also adds a random amount of noise.
One thing that strikes me is how bizarre it is that we accept doing this kind of thing to children. Arcades used to have actual games–absurdly difficult ones, to suck quarters, but they were actual games. Now arcades just have a kind of slot machine with reverse training wheels–the games have a little bit of complexity and skill to them, but also a lot of luck, so the kids can be trained to appreciate the more “adult” slot games, which are the ones with no skill and no complexity whatsoever.
two ways*
Technically, blackjack has a skill component to it, but it’s still basically just gambling.
Monty:
For blackjack, I’ve conjectured that the well-known existence of successful card-counting strategies is ultimately a net win for the casinos, because (a) to count cards successfully, you have to be really careful and disciplined, and I’m guessing that lots of would-be card counters break down and don’t follow their own rules, and (b) when somebody goes to Vegas and actually wins at blackjack, they probably then go and lose it all back at poker or sports betting or whatever.
Andrew: There’s enough careful and disciplined card-counters that it’s a real issue. There’s a whole subculture around this stuff. It’s successful enough that casinos have changed the rules of the game over the years, to make the strategies less helpful. And also not letting those careful and disciplined people keep playing if they’re consistent large winners.
Seth:
Yes, I’ve read about this, and I could well believe that if the casinos allowed card counting with no restriction, they’d lose money. They have to put in the effort to detect and eject that counters, and that takes effort. Still, I suspect that counting is an overall net win for the casinos when accounting for all the suckers who are drawn in. I could be wrong, though.
Isn’t the standard way to handle this just banning winners? So a game can require skill but you just select who plays.
Regarding the specific use of “skill” as a word — seems like more of a legal issue thingy where someone is just banking on enough ambiguity to confuse any regulatory process.
It was very annoying when the big daily fantasy companies appeared and sold themselves as not-gambling. I dunno if they still stick to that line or not, but I remember friends making that argument to me which was frustrating (I’m not a regulating agency — no need for the smoke and mirrors!).
Dinosaur:
A casino can ban winners. But I don’t see how a convenience store could do it.
I was assuming pay with credit card would be an easy way to achieve this (I’m pretty sure the online gambling/fantasy places do this).
I searched some cabinets and they had cash slots, so I guess that’s not how it’s done here tho.
Yeah, actually the whole point of the news article was that people play the games for cash, and then this makes the store owner a target for robbery.
I have a little experience doing matched betting on sportsbooks and I don’t think they take any measures to prevent it. I made a whole series of R scripts to solve for the optimal bets. In theory it would be easy for books to partner and figure out who’s gaming the system, but in practice the earnings are pitiful after the sign on promos end. I think it’s similar to what Andrew proposed with blackjack. Technically positive expectation, but one mistake with a high wager and you can completely undo your winnings. I was regularly throwing around hundreds of dollars to win less than $20. Once I matched wrong and bet across two different games because I didn’t realize the same baseball teams will play each other on consecutive days… That alone could have put me in the negative.
And then taxes roll around and you realize that the government’s cut means your minimum wage hustle is a barely-break-even hustle…it was fun, though!
Another interesting phenomenon along these lines where I live is the non-luck-based slot machine. There’s a little picture in picture on the bottom showing the result of the next pull and whether it wins. Every time you pull the lever, you do so already knowing the outcome. Only the picture-in-picture changes, so each pull you learn whether the *next* pull is a winner or not. They were around a few years ago, not sure if legislation has caught up with them yet.
I hadn’t heard of those. Maybe the sleight of hand is enough to confuse some kind of regulator, but it seems like it’s still a luck-based slot machine–the difference is, you’re looking at the little picture instead of the big one, and when you finally see a winner there you have to play one more time to collect a prize.
My understanding of the legal distinction between games of skill and games of chance is that in the former, you can play to lose. (I think of this as a definition that originated with the Nevada regulatory boards but I can’t find a source to back that up.) In other words, a player who determines and selects a losing course of action can guarantee a return of zero in these games, as opposed to a slot machine where there is no action a player can take to prevent winning once the game has begun.
Does that mean a player can win any given game of skill, even if they possess the necessary understanding and ability? Indeed no.
For a long time, pinball machines were illegal in NY because of anti-gambling laws. They only became legal in 1976 when there was testimony that they were games of skill, not chance.
A highly skilled professional pinball player testified and also called his shots live. It seems odd to me that anyone would want to ban pinball. In addition to it being rather obviously based on skill, pinball machines also don’t pay out. It could only ever be a game you play because it’s fun–no gambling involved. Maybe pinball machines used to be different? Or maybe the ban was for its entirely superficial resemblance to slots?
“…pinball machines also don’t pay out.”
The pinball machines I remember from my youth didn’t pay out cash, but if you scored high enough, you were rewarded with 1 or more free plays.
Roger:
Yeah, I saw that movie! It was pretty good. It brought back memories. My friends and I pumped lots of quarters into arcade games in our teenage years, and pinball was my favorite, even though I wasn’t very good at it. I had one friend with steady hands and excellent powers of concentration who was good at all these games.
Decided to go down the rabbit hole to learn a bit about Pace-O-Matic, the company that makes these skill games, and it’s pretty much what one should expect from a company with “O-Matic” in its name.
“According to a joint investigation by Pennsylvania State Police and the Office of Attorney General, Goodling — while employed as the Director of National Compliance for Pace-O-Matic — accepted hundreds of thousands of dollars in payments from non-compliant distributors and operators instead of reporting the non-compliance. Those payoffs were then laundered through a fictitious company created by Goodling called Rest and Relaxation, LLC.”
https://www.attorneygeneral.gov/taking-action/former-executive-of-pace-o-matic-pleads-guilty-to-money-laundering-payments-from-gaming-machine-operators/
Trivia games are undeniably games of skill, but one can easily restrict the payouts so that the game is negative sum for the players, no matter how skillful they are. One dollar to enter, a top prize of .8xtotal entrants, for example. One can obviously create lower tier prizes as well. Horse race betting is a game of skill, but the pari-mutuel system endures that the game is, in aggregate, negative sum (for the bettors.)
A thing that I have read is that there exist professional slots players. They work by driving around those states that allow slots in places like gas stations, looking for machines that are 1) a bit wonky and 2) in a place remote enough that they are not likely to get maintained on a regular basis. And they basically work those machines. I can’t remember the exact amount, but their winnings were not terribly impressive. Not sure if this is relevant or not.
Just so people know, these “skill games” are formatted sort of like those arcade games where you hit the button to stop a spinning wheel. Then, if you lose (which you inevitably do), you get the chance to play a pretty long Simon Says sort of pattern matching game to “reverse” the loss.
So the idea is that most people won’t be good enough to reverse the losses, making them function effectively like a slot machine. Or even if you’re good enough, it takes so long that you don’t do it.
You may want to check out this paper with two measures of skill-vs-luck in soltaire games, including an empirical comparison between BlackJack and Archery! https://dl.acm.org/doi/10.5555/2936924.2936959
1). Games of skill exist, as do players who play them profitably. Sports betting is probably the biggest current example. Sportsbooks protect themselves with low limits, with banning winners, and sometimes by simply refusing to pay winners.
2). Blackjack is similar. Andrew’s intuition that the idea that the game could be beaten with skill would draw in enough unskilled payers to keep the casino ahead was true 50 years ago, but less true now; there just aren’t enough sufficiently unskilled players, and they tend to play small bets. Nowadays, casinos deal from six- or eight-deck shoes, which both reduces the value of card-counting and increases the house advantage that a skilled player needs to overcome. Many of the games raise that house advantage even more, by paying 6-5 rather than 3-2 on blackjack (in the 70s, casinos sometimes paid 8-5 or even 2-1 as a promotion. Those days are gone.) Many casinos use continuous-shuffle machines, obviating card-counting completely. And players are still backed off (told not to play) or barred if they show ability and willingness to win nonetheless.
3). In England 30 years ago I was told there were quiz games in the pubs. Those were skill games, but very few people had the skill to beat them. One player I knew was almost smart enough, and he turned himself into an overall winner by coming to London each Saturday when the new questions were put on the machines there, and playing at low bets to learn 500 or so new “right” answers, then returning north to play at higher bets all week with the advantage of knowing those 500 new answers as well as his basic knowledge of trivia. He did get barred at a few places, but made a good profit anyway. That’s the problem, from a pub’s point of view, with skill games: people win. But as long as the winners are small and rare, that’s just the cost of doing business.