When I was an 18-year old high school senior, my best friend Nate and I enjoyed jumping on the late night bus to a nearby casino with dollar signs in our eyes, adrenaline pumping through our veins and a $20 bankroll in our shallow pockets. Our goal was not incredibly ambitious – make $20 last as long as possible and guzzling our weight in free soda, before catching the last free bus back home.
Despite the sensorial (and financial) lure of the nickel slots, our game of choice was blackjack; more specifically, $2 minimum-bet blackjack. Our typical experience at the casino was relatively uneventful (and unprofitable), but one particular night will be forever seared into my memory…
After our grand entrance and classic strut around the smoke-filled hall to make our presence known (and to gather our courage), we found our table, donned our game faces, and sat down to play.
I carefully placed my crisp ‘Jackson’ on the green felt. The dealer shouted perfunctorily to the pit boss, “changing twenty” and handed me my chips. Just then, a woman sat down next to me with an awkward smile, changed $40, and placed her first bet of $2. With three $2 bets on the table – and a strange mixture of excitement and menthol cigarette smoke in the air – the dealer dealt the hand. I’ll save you the suspense of the moment – we all lost.
As the dealer called for our next bet Nate and I made our pitiful, frugal, but consistent $2 wager. The woman next to me, however, quickly doubled her bet to $4; and out came the cards. Spoiler alert, the dealer won again. Nate and I considered leaving to find a more friendly game, but we had just ordered another round of sodas and didn’t want to risk a longer wait for free caffeine so we stayed. The woman next to me showed no interest in leaving the cold table, and even followed her $4 loss with a bet of $8. That is when her betting strategy emerged – always double-down on loss, ALWAYS.
I have since come to know this strategy as the ‘Martingale’ – a betting system which originated in 18th century France – but more on that later. While the dealer shuffled the next shoe, the woman explained her strategy and defended it passionately as her ‘sure thing’.
“In order to win at blackjack, you have to follow the double-down rule on every loss. If you lose $2, you bet $4 on the next hand. If you lose the $4 hand, you bet $8 and so on. Just like the flip of a coin, the odds are that you will not lose multiple blackjack hands consecutively. Therefore, by doubling your bet each time you lose, you are statistically likely to recoup the money you lost on a series of smaller losses with one winning hand.”
The dealer tossed her the yellow ‘cut’ card, and we were back in the game. Having already lost $6 ($2 + $4), this is how the next three minutes of her life played out:
$8 bet: dealer wins…$16 bet: dealer wins…
Four hands of blackjack, $30 lost. Now, although $30 may not seem like much, it was clear that none of us were comfortable throwing away that kind of money in the matter of a few minutes (not to mention it was 1992!). More problematic, she was forced with a decision she was clearly not anticipating – continue following her system and place a $32 bet, or abandon the strategy and take the loss.
We were no longer dealing with $2 or $4 throwaway bets. Not to mention, her next bet of $32 wouldn’t even net her any money. It was a gamble for the chance to get back to ‘even’. Committed to the system – and left with $10 worth of chips – she nervously sifted through her purse and pulled out two more $20 bills. “Changing 40!”, barked the dealer. $32 went straight to her well-worn wager circle, and the other $8 joined her remaining $10 in the palm of her trembling hand.
$32 bet: dealer wins
In one hand, she managed to more than doubled her losses to $62. Worse, she had a new dilemma. The table had a maximum bet of $50. Even if she wanted to, she could not properly execute her strategy without moving to a higher stakes table. But, since the system relies on the theory that you will eventually win if you keep doubling-down, she felt it a better choice to stay rather than start over somewhere else. There was absolutely no chance – even with a maximum bet of $50 – that she will recover the loss she has suffered in five short hands. Her best chance was a $12 loss with a $50 win, or a $112 loss if the dealer won for a sixth straight time.
I turned away and slammed another Coke as she dug back into her purse to search for $32. Ultimately, she was only able to find two $10 bills, which was all the money she had left to commit to her system. With her hands shaking wildly, she put the bills on the table. “Changing $20”, the dealer uttered in a low, concerned tone. The two ten dollar chips joined the $18 in her hand and she place it all – $38 – on the table.
$38 bet: dealer wins
She broke down in tears. It was clear, this was money she could not afford to lose. I thought I was going to throw up. Five minutes – all gone. In fact, if dealer didn’t have to shuffle the shoe, change money, and wait for her to rifle through her purse, her $100 would’ve been gone in a less than two minutes. The only upside is that she didn’t have more money in her purse to place the $50 maximum bet. She paused for a moment (as though she was contemplating her next move), lifted her purse from her lap, stood and backed away from the table. Still sobbing and shaking she muttered, “What do I do? I can’t go home, my husband is going to kill me.”
Many unskilled competitive negotiators operate as if they are simply playing a ‘numbers game’ or a game of ‘chicken’ when dealing with the other party. When a negotiator ignores crucial components of a successful negotiation strategy such as building trust, the integration of the other party’s interests, and creation & exchange of value, they often rely on transactional, ego-driven, hard-bargaining tactics – dangerously similar to that of a gambler pushing harder with each hand expecting to eventually ‘hit a winner’.
In negotiations, the ‘double-down’ strategy is often employed as an ‘intimidation tactic’ using reckless maneuvers, bluster and a rapid escalation of the stakes to compel the other side to comply. When a negotiator utilizes a high risk/high reward strategy such as the Martingale, they (and the party they represent) must acknowledge and understand that the strategy gives rise to instability and mistrust, and triggers entrenchment, retreat, or – more likely – an abrupt ending, an empty purse, a lack of options and nowhere left to go.
What are the flaws in the ‘Martingale’ system?
- Like many such event in our lives the outcome of one hand of blackjack – as well as any information about the results of past bets – does not influence the following hand or help predict the results of future bets. Therefore, the expectation that the woman would eventually recover her loses by doubling-down on her last loss has no mathematical basis. One might argue that you can predict future cards – or behavior from your negotiating counterpart – as you work through a deck, but that probability all but disappears when you are dealing with a six-deck shoe – or a different counterpart in an unrelated negotiation.
- The system breaks down when you adjust for the fact that gamblers – and the same goes for negotiators – do not possess infinite wealth (or options). If you follow the exponential growth of the next bet, most gamblers will eventually end up broke before being able to recover their losses. Or – in the case of my story – the gambler is forced to abandon the system on their final bet.
- At some point, you reach the ‘maximum bet’. This is the downfall of many who negotiate like a gambler, and this is different from the idea of infinite wealth. The gambler – and negotiator – will start by escalating the stakes by doubling-down as though there is no ceiling to how far they can go. But, just like the table had a $50 maximum forcing the woman to abandon her system, negotiations have the ‘chilling effect’ if one side is pushed too far, or if their ‘anchor’ isn’t credible (think ‘low ball / high ball’). At some point the gambler reaches the maximum bet, whether you are playing a card game or negotiating a deal.
- Like it or not, the game does end. Even if you want to keep going back to the ‘purse’ in order to continue doubling-down, the casino cuts you off, closes its doors or forces you on the last bus home. Similarly, negotiations eventually end when the other side walks away, gets fed up with your increased and unacceptable demands or – more likely – when you are removed from your position of ‘chief negotiator’. In fact, the Martingale negotiator becomes virtually powerless if the other side knows your days are numbered. They are more likely to call your bluff, wait you out, or exercise their power balance until you are receptive or replaced.