Risk estimation, also known as risk intelligence, means the ability to make accurate estimates of your odds. The most obvious application of risk intelligence is in gambling is that of the mathematician Blaise Pascal.
But risk intelligence has many more applications than just gambling. Think about investments or even warfare. In this article you will find some practical examples of how risk information can be used to make better decisions.
Risk assessment in gambling
First of all, let’s focus on gambling. It does not really make a difference whether this is live gambling or online gambling. Both involve risk.
Risk assessment in Poker
Accurate estimation of odds is crucial to winning at poker. One of the most important statistics in poker is the relationship between the player’s odds of winning and the pot odds. Pot odds are the ratio of the size of the pot to the size of the bet required to stay in the pot.
For example, if a player has to call $25 to have a chance of winning a $100 pot (not counting his $25 call), his pot odds are 4-to-1. For it to be worth calling in this situation, a player’s chance of winning must be better than his pot odds. If the player has only a 20% chance of winning, then his odds of winning are 4 to 1, which is the same as the pot odds, so his expected return is zero, and he should not call.
To make this calculation, a player must be able to estimate his chance of winning reasonably accurately. If he is overconfident and mistakenly thinks that his chances of winning are more than 20%, he will call when he should not.
Advanced players think one level further and take implied odds into account, but it’s a bit too early to go into that. However, therein lies a great advantage for the advanced player over the amateur.
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Betting on Sports
Sports betting comes in two forms, depending on how the odds are set. In the bookmaking approach, the bookmaker determines the odds. While in pari-mutuel betting, the odds evolve according to the bets placed by all bettors. But in both forms, the bettor assumes that he can make better estimates than the others involved.
Gambling on horses goes primarily into risk assessment
The gambler can come out ahead in the long run only if he or she can see “overlays.” These are occasions when the odds offered underestimate the horse’s (or teams’) chances of winning. For example, suppose the odds listed an hour before a soccer game give Chelsea a 4: 1 chance of winning, in other words, an 80 percent chance that Chelsea will beat the other team. But you’re an expert on Chelsea and you’re pretty sure they have a 90 percent chance of winning. That 10 percent difference is your advantage.
If you only accept bets like this, where you find that the odds are too low (they should be 5: 1), then you will make a profit in the long run. But of course this is only true if you are really better at estimating odds than the bookies or the other bettors. If your guesses are wrong, you will lose.
Other casino games
From casino games like Blackjack, for example, risk assessment is also very important. Here, however, you don’t have to figure that out yourself. There are plenty of tables to find and information with the right Blackjack strategy. If you follow these tactics, you can reduce the house edge in such a way that you have a good chance of winning moments. The main thing is to stop in time so that you can actually take the winnings home.