Understanding EV, Variance and Volatility in Casino GamesBy: Adam Baker, Friday February 14th 2014
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There are three terms that are used a lot when talking about casino games, and those three terms are EV, volatility and variance. If you want to understand how games work and how finding advantages in those games work, then you're going to need to understand each of these three terms and how they can be used to describe bets and games. We're going to use a couple of examples here, but we're going to avoid getting too deep into the mathematical side of things. Instead, we just want you to have a general understanding of what these terms mean.
EV stands for expected value, and it's the average amount of money you stand to win or lose on a bet. For example, if we flip a fair coin for $1 bet, then the EV of that is going to be zero since you're not going to win or lose any money in the long run. If a casino bet has a 3 percent house advantage and you place a $200 bet, then your expected value is going to be a loss of three percent of $200 which is $6. In a game like European roulette, every single bet for the same bet size has the same expected value.
Even though that's the case, the variance and volatility for different bets can be different. Variance and volatility more or less mean the same thing for our purposes, and it refers to how often you're going to encounter big swings in wins and losses. Using the roulette example, a straight-up bet for $5 is going to have the same expected value as a bet on red for $5, but the straight-up bet will have a much larger variance (and volatility).
Volatility (and variance) both refer to the size of the risk to reward ratios. A low volatility means both the risk and the reward are low, and this is the case with the bet on red as described above. On the other hand, a high volatility means the risk and reward are both high. You'll often see this with video slots where there are some good top prizes without many small and medium payouts. Low-volatility slots, on the other hand, will have a more balanced paytable with chances to win prizes at every level, and this is how they are able to create an experience that has fewer big swings.
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