Tuesday, February 27, 2007

Worst Adverse Selection Problem EVER

There's a theory in economics called "adverse selection" which basically states that if a deal is too good to be true, you'll get the wrong people signing up for it. The classic example used to illustrate this theory is insurance. Let's say you want to set up a very low cost car insurance policy but only for drivers who never get into accidents. Unfortunately, bad drivers are more likely to sign up since good drivers probably have cheap insurance anyhow. Another related economic theory is "moral hazard" which states that entering into a transaction changes behavior. In this case, having insurance actually causes people to drive more carelessly.

Anyhow, I was at the airport security line today when I noticed a piece of luggage with a Hedonism bag tag. For those of you who don't know, Hedonism is an adult-oriented all-inclusive vacation resort where people basically go to hook up with strangers. I quickly scanned the surrounding area to discern whose bag it was. The candidates were either a hippie woman in her late 40s who looked like the love-child of Sheryl Crow and a California Raisin or a sweet old grandmother in her 70s. I just assumed it was the hippie and thought to myself, "Adverse selection in action."

I started wondering if there's also moral hazard at work at Hedonism. Do people just lower their standards and really just start hooking up with strangers they normally wouldn't? As I was thinking about this, I saw the Sheryl Crow/California Raisin woman walking to the gates without the Hedonism bag! I guess there's some fire left in grandma after all!

Monday, February 19, 2007

Vegas Myths

I've been getting a lot of questions about casino operations from my friends. Here's the top few questions and their answers.

Q. Is it true the carpet is intentionaly ugly so that people have to look up at the slot machines?
A. No. The carpet is intentionally ugly to hide drink stains and heavy traffic.

Q. Architects make casinos difficult to exit on purpose to keep people on property, don't they?
A. Not really. The main reason casinos are so confusing is that most of them have evolved over many years. Building a casino is VERY capital intensive and as such most companies are stretched as thinly as possible when the facility opens. After a few years, the casino has some success and money to expand. The architects then squeeze the new amenity into whatever space is available and try to integrate it into the old structure which causes the confusing layout.

Q. Is there really a back room where they rough up cheaters?
A. No. Liability is too high to rough up "advantaged players" (the euphamism for card counters). Actual theives are turned over the police department. Casinos make a special effort to keep very good relationships with the local police departments.

Q. Do casinos really pump oxygen into the building to keep people awake and playing more?
A. No. Costs too much.

Q. Are there really cameras watching everything?
A. Yes. Every square inch with the exception of bathrooms and guestrooms can be monitored from a central location. In fact, I'm pretty sure there's a camera on me in my office right now. Not kidding.

Q. Do casinos give away free drinks to get people drunk so that they'll gamble more?
A. Um, why else would they give away drinks?

Q. Does the mob run Vegas?
A. Not anymore. There are some stories the old timers tell about the mob but that's been gone for well over 4 or 5 years now....

Q. How do they make money on the buffet?
A. A surprisingly large component of a restaurant bill is the labor portion. Buffets essentially limit the direct labor costs.

Q. What's the best bet in the casino?
A. Backing odds on craps and 100% video poker payback machines.

Q. What? There are video poker machines that guarantee over 100% payback?
A. Yes. However, the player must play PERFECT strategy which is very difficult to do.

Q. Can casinos set the odds on the slot machines?
A. Technically, I don't believe you can set the odds but you can manipulate the payout.

Those are the ones I can think of off the top of my head. If you have any casino questions, e-mail them to me and I'll try to answer them if the information isn't proprietary.

Saturday, February 10, 2007

Vegas - LA Commute

It's official. Door to door, I can drive back to LA from Vegas in the same amount of time it takes to fly. The main reasons include:

1. Taxi line at LAX being ridiculously slow
2. Inefficient airline check-in procedures post-9/11
3. Poor design of Vegas airport terminals
4. Air traffic out of Vegas airport
5. Oft-delayed flights out of Vegas
6. Lack of traffic flowing from Vegas to LA on a Friday night

I wish they'd finally builld that bullet train from LA to Vegas I've been hearing about since I was a kid....

Tuesday, February 06, 2007

Coolest Vegas Website

No, this isn't a plug for the company I'm currently working for. Sadly, our website is very pedestrian. If you have a minute, check out the website for the MGM Grand. Although it may take a little while to load the first time, this website is easily the coolest one around. A colleague of mine who is in advertising estimates the production costs alone to be north of $2 million!

Friday, February 02, 2007

Wanted: Fantasy Baseball Participants

With Spring Training just around the corner, it's time to gather up player for Fantasy Baseball! Let me know if any of you are interested in joining the league I've been in for the past 3 years and I'll send you the details. The buy-in is very low (like $40 or so) and it's basically for bragging rights more than anything else.

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