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By Scott Patterson . 2010. New York: Crown Business (Random House) . Pp. 352 , $27.00, hardcover.
In this book, Scott Patterson, a Wall Street Journal staff reporter, chronicles the development and application of financial trading strategies based on mathematical models and other quantitative techniques. The story begins in the mid-1950s when a mathematician and physicist named Ed Thorp, who Patterson calls the "godfather of the quants," became interested in blackjack after reading an article in the Journal of the American Statistical Association that was based on analysis of the probabilities of thousands of blackjack hands.
Thorp requested and acquired the data behind the article, and through his own analysis developed a card counting system to beat the blackjack dealer, which he presented to the American Statistical Society in 1961. After testing the system in Reno and Vegas, Thorp published his famous book Beat the Dealer in 1962.
An important adjunct to the card counting system was a method to determine how much to bet on each hand as the odds continually changed. The method was due to a physicist at Bell Laboratories, John Kelly, Jr., who published it in 1956. The Kelly method guaranteed that Thorp would never go broke at the blackjack table, that is, avoid the "gambler's ruin" result of betting and losing all or more of his money.
Thorp returned to Las Vegas a number of times, where he continued to win at blackjack. On his last visit in 1964, he was poisoned by a cup of coffee he was given while playing baccarat. He then...