A Slot Machine Riddle

Here is a riddle I came across while reading a speech by the wise Charlie Munger (transcribed by Whitney Tilson):

“You own a small casino in Las Vegas. It has fifty standard slot machines. Identical in appearance, they’re identical in the function. They have exactly the same payout ratios. The things that cause the payouts are exactly the same. They occur in the same percentages. But there’s one machine in this group of slot machines that, no matter where you put it among the fifty, in fairly short order, when you go to the machines at the end of the day, there will be 25% more winnings from this one machine than from any other machine. Now surely I’m not going to have a failure here. What is different about that heavy winning machine?”

Now before you read ahead for the answer think about it.  I sure did, and didn’t really come up with a good solution.  Here’s a hint: it involves a psychological factor.

Give up? Well, let’s reason through it.  If one slot machine in particular keeps making more money, more people must be playing it (and losing).  But why are they playing it more?  Well, since the machines look identical, it must be something involved with the slot machine game mechanics.  But they are all paying out at the same rate.  So what’s left that could vary?  The human factor.  People are playing it more because everytime they lose, it’s a near loss!  Cherry… cherry… grapefruit.  “I almost won, I’ve got to keep going!” they’ll say.

The point Charlie is making here is that there are several simple principles that make sense out of our irrational human tendencies, and going through life without understanding them is like “a one legged man in an ass-kicking contest.”  Despite learning about logic and quantitative calculations, there’s still much to learn about logically thinking about the illogical systems (i.e. human systems and interactions).  And much of the difficult problems in life can be attributed to this one topic.

As for me, I think I’ll be just fine so long as I can avoid landing on my butt too often.