Understanding the Complex Relationship Between Volatility and the House Advantage

Published: October 23, 2014

When most players look at the numbers that describe a bet or a game in an online casino, most of what they are looking at is the house advantage. They typically want the house edge to be as small as possible, generally speaking, and this means that they want to avoid getting their money in on bets with an extremely bad house edge. However, a value that most people ignore for the most part is the volatility, and that's bad because it can be just as important as the house advantage a lot of the time, and this is especially true when it comes to slots.

Most slots have roughly the same house advantage, give or take a few percentage points. Along these lines, volatility becomes one of the most important things when deciding on how to deal with bankroll management. The relationship between house advantage and the volatility of your bets is tied together through a figure called your risk of ruin, and this is one of the main things that determines which levels of bet sizes are the best for your personal bankroll management strategy.

Here's a good example. Suppose you're playing a progressive jackpot game with an exceptionally high volatility. With all else being equal, you should play with smaller bet sizes than if you're playing a regular video slot with a low volatility. The reason for this is that you'll be dealing with a lot of crazy swings, and with smaller bet sizes, the swings won't be as bad. When you have a lower volatility, the swings aren't as bad, so you can handle larger bet sizes. Overall, the size of the volatility is inversely proportional to the size of the bet that you need to use.

The key thing is recognizing that while the house advantage is a very important number to pay attention to, it's not the only value that you need to be focusing on when you're choosing games and when you're choosing the bet sizes you're going to use with those games. If you pay attention to both of these values and the complex relationship that exists between them, however, then you can make choices about what you're doing when you're playing with more information and with a clearer eye towards having a great overall online gambling experience no matter what you play.