Dynamic Programming and the Evaluation of Gaming Designs

Since their invention before the beginning of the last century, slot machines have evolved to become by far the biggest profit-makers of land-based casinos. Now the stage is set for parallel developments in the on-line gaming world - where the number of virtual ‘slots’ is potentially infinite. In the article we focus on the economic evaluation of gaming designs – particularly that of a favourite routine of many contemporary gaming designs, HI-LO. Previously this was undertaken using decision tree analysis. In contrast the evaluation that follows is based on a stochastic dynamic programming (backward recursion) approach which - as results for a real-life test application demonstrate – provides an inherently superior methodology.