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The more you lose, the more casinos win. ( Joe Raedle/Getty Images)

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Gambling is good business, or at least a profitable one. According to the American Gaming Association, in 2012 the 464 commercial casinos in the U.S. served 76.1 million patrons and grossed $37.34 billion.

Each year gaming revenues in the U.S. yield more profits than the theatrical movie industry ($10.9 billion) and the recorded music industry ($7 billion) combined. Even the $22.5 billion combined revenue of the four major U.S. sports leagues is dwarfed by earnings from the commercial casinos industry.

Gambling is such good business that despite reported negative impacts — such as increased poverty and unemployment, higher crime rates, and decreased property value in nearby neighborhoods — the state of Illinois early this year passed a law to allow slot machines in all establishments that sell alcohol.

Gambling is not just common, it's also accepted. Despite the fact that for an estimated 4 percent of the population gambling represents a problematic and even pathological addiction, 85 percent of Americans feel that gambling is either perfectly acceptable for themselves or if not themselves for others in a country where more than 20 states now allow some form of commercial casino.

It's not too hard to see why casino lobbyists believe casinos make a positive contribution to the communities in which they operate.

It's far less easy to understand why so many Americans enjoy gambling even though it tends to result in the loss of money.

You lose, the casino wins

As a general rule, we tend to repeat behavior that produces desirable results and avoid behaviors that result in loss. We repeat jokes that people laughed at, choose jobs that we enjoy and that pay the most money, and avoid behaviors that produce fines. Following this logic, one would expect a gambler to only play as long as they are winning and then cut their losses when they begin to lose.

Yet gambling appears to operate differently; players play faster after losses and bet persistently regardless of the percentage of payback, magnitude of return, or the lack of winning entirely. So what encourages gambling behavior if losing occurs more frequently, and payouts do not exceed buy-ins?

One explanation is that gamblers poorly judge the actual probability of winning, even as their pile of tokens and coins dwindles before them.

Some examples of this phenomenon can easily be seen in the language of gamblers. 'My luck is going to turn,' 'A win is coming,' or 'I am on a hot streak,' are all statements that speak to an over-confidence in one's ability to predict functionally random events.

Gamblers will often say these things after an unusual series of outcomes, for example, ten straight losses on red at roulette. The gambler may then proceed to bet more on red, in the false hope that the next spin is more likely to come up red due to the overall probability of the game (50 percent chance of red).

This flawed logic is called 'The Gambler's Fallacy.' It stems from a misunderstanding of how probabilities are assessed; in fact the outcome of the previous spin of the roulette wheel has no influence on the outcome of the next spin. The probability of red remains stubbornly fixed at 50 percent.

Missed it by that much

Another example of how gamblers misjudge losing outcomes can be seen when individuals respond to losses that are similar in appearance to a win. Receiving two out of three symbols necessary to win on a slot machine is a loss but players often respond to this 'near miss' with excitement, increased betting and more persistent play.

Winning and almost winning are such similar events to many people that they respond in the same way to both. People pause, for example, for longer after a win than a loss. This is known as a 'post-reinforcement pause.' People often pause for longer after a near-miss.

It's no accident near misses are pretty common on slot machines.Mark/Flickr, CC BY-SA

Winning and almost winning are so alike in gamblers' brains that research on the dopamine-transmitting pathways of anticipation and reward show remarkably similar activation patterns for a near-miss and a win.

Near-miss effects are not limited to outcomes that look similar to win. Outcomes that are closer to a win in a more abstract sense also cause a similar response.

For instance, the near-miss effect has been demonstrated in games where 'nearly winning' might relate to scoring a number that is close to a winning number, such as in blackjack.

Near-miss outcomes are not the only form of almost winning that contributes to the behavioral confusion faced by gamblers. Modern slot machines also present a myriad of features that are designed to confuse outcomes.

Slot confusion

One feature present in almost every modern slot machine is the partial win or 'loss disguised as a win.'

Since slot machines have gone from the traditional 3-reel 1-line slot machine to the modern 5-reel video slot, often with 25 or more winning lines, near-miss outcomes have become almost unidentifiable from other losing outcomes.

By encouraging individuals to play on more than one line, casinos have created a scenario where players are awarded a win on almost every spin.

Despite the increased frequency of winning, the proportion of money returned is often far less than the entire bet, such as winning 10 cents on a 50 cent bet. This 80 percent loss is accompanied by the same sounds on the machine as a real win and occupies the same area of the screen that wins are reported in.

Since noticing near-misses on modern slot machines is difficult, game makers have incorporated other game features such as free-spin symbols, mini-games, and progressive awards, which create new near miss situations while often not guaranteeing any increased value of a win themselves.

For example, special symbols might be placed on the reels that provide 10 free spins whenever three appear anywhere within the game screen. These symbols will often make a special sound, such as a loud thud when they land; and if two symbols land, many games will begin to play fast tempo music, display flashing lights around the remaining reels, and accelerate the rate of spin to enhance the saliency of the event.

When you win these sorts of outcomes you feel as though you have won a jackpot; after all, 10 free spins is 10 times the chances to win big money right? The reality is that those 10 free spins do not change the already small probability of winning on any given spin and are still likely to result in a loss of money. For many games, features such as this have entirely replaced standard jackpots.

These features share one important characteristic: they allow the casinos the ability to provide more outcomes that feel like a win while not increasing the actual payout. The effect of these features is so significant that in 1989 the Nevada Gaming Commission banned algorithms that purposefully increased the prevalence of near-miss outcomes. Of course, this only applied to the intentional increasing of near misses when a loss is already determined, i.e. artificially producing a near miss instead of what the reels would have normally landed on.

Unfortunately, these laws do not preclude the intentional design of reel layouts that, without additional manipulation, produce frequent near misses and losses disguised as wins. These laws also do not apply to the newer game features which either highlight the near miss, such as accelerating reels, or create entirely new topographies of outcomes, as is the case with free-spins or mini-games.

While the question of how to best manage artificial manipulations of near misses may be a topic of future regulatory discussion, the decision to play games with these illusions will ultimately fall upon the end user.

As long as you are willing to expose yourself to the game in the first place, the casino need only sit back and wait. And with increasing availability of casinos across the U.S., they won't need to wait long.

The authors do not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.

More from The Conversation US..

Introduction to How Slot Machines Work

In these series of posts, I continue to answer the most common questions about slot machines asked via Google searches. This post explains the simple question of how slot machines work.

In this post, I will discuss the operational components of a slot machine from the point-of-view of a slots player. Meaning, the various interface areas on the front of a slot machine. These player interface areas include:

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Service Light
Bonus Display (Optional)
Pay Table
Players Club
Results
Play Console
Ticket In, Ticket Out (TITO)

Additional relatively minor interface areas are not listed or shown below. These areas are the locations audio speakers, audio volume control (optional), display lights, lever arm, and a hearing aid jack to accommodate those with a hearing disability.

Keep Reading … or Listen Instead!

Service Light

A slot machine’s service light is generally located at the very top of a slot machine to be easily visible to casino employees. Because of this uppermost location, it’s also known as the candle within slots terminology.

Slots players can switch on the service light by activating the service button on the player console. Or, it will enable by itself if the player wins a hand pay jackpot or the slot machine develops a service fault. Faults might include lack of paper, a full cash-in condition, mechanical or electronic tampering, or an internal electronic failure such as CPU overheating, etc.

Modern casinos have a slot attendant call/dispatcher communication system using a headset and microphone. This setup is helpful for spotting problems on the casino floor. An activated service light automatically notifies the casino operating system. The casino dispatcher then informs the slot attendant responsible for that section of the casino.

Once the notification is sent out, a lit candle is of little practical use. At best, it guides the responding slot attendant the last few feet to the customer needing attention and, also, provides some reassurance to the waiting customer.

Slots players may activate the candle for a multitude of reasons. In general, they do so to deliberately call a slot attendant to their location, for any of a host of reasons only limited by imagination.

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Pro-Tip #1: Service Light

Sometimes slots players need to leave a slot machine briefly but don’t want to give it up to someone else. If this break is relatively brief, say 10-15 minutes, use the service button to call over a slot attendant. The slot attendant can temporarily lock up the slot machine at the request of the player.

The slot machine can be unlocked later by the player via insertion of only their service card … or after 10-15 minutes when the temporary lockout automatically expires. For the specific length of lockout times, ask any slot attendant at your casino.

Bonus Display Area

If a specific slot machine has a bonus round available, then it will often have a second display area. Video slots may use the same primary display screen but abruptly display the bonus round game theme instead. However, video slots most often have a secondary display screen available for bonus rounds.

The Bonus Display area is optional and dependent upon the specific slot machine model. The location of this bonus display varies. More often than not, it is high up on the slot machine to be viewable by other players from a distance.

Casinos offset their losses by offering slot machines with bonus round display visible from a distance. Frankly, wins on these highly visible and usually loud bonus displays are seen by many. This obvious win encourages other casino patrons to play slot machines.

Pro-Tip #2: Bonus Round

Bonus rounds generally cannot be activated unless that slot machine’s maximum credits are bet. By not betting maximum credits, the player automatically lowers their odds of winning.

If betting maximum credits on a specific denomination slot machine is not affordable, pick another affordable slot machine. I discuss this approach in detail at Choosing Slot Machines.

Pay Table Area

The Pay Table area lists information on the jackpot amounts for specific reel combinations. It can also display some or all of the game theme rules. This area may be permanently displayed on the slot machine, or possibly only available through an interactive series of images available by touchscreen.

In either case, all possible wins may or may not be displayed. Sometimes the list is highly abbreviated, and displays only the highest jackpots, due to space limitations. Other times, mainly with touchscreen displays, a series of images can be switched between to view every possible winning combination.

However, pay tables typically provide the highest value jackpot. Slot machine game themes with multipliers or “wild” reel symbols have their most top value jackpots being the result of these reel symbols. Alternatively, it may not show all multipliers or “wild” symbols in the tabulated list of win-reel combinations. Instead, they may be in writing along the edge of the paytable interface area.

But, with large touchscreens has come the capability to provide full paytable information along with game theme rules. Some slot machines now have this feature and, perhaps, more will have it in the future.

Many paytables show the number of credits that would be won for a specific combination of reel symbols. Or, they may show a monetary amount. In either case, these tables have separate columns for winning combinations dependent upon how many credits are bet. The far–right column typically shows the winning jackpots available when betting maximum credits.

Some examples of credit and denomination combinations are:

1-credit slot machines having a $100 denomination
3-credit slot machines having a $5 denomination
5-credit “quarter slots” having a $0.25 denomination
300-credit “penny slots” have a $0.01 denomination

Pro-Tip #3: Pay Tables

Frankly, learning the paytable of any slot machines played is a relatively easy way to improve the odds of winning at slots. Many typical slots players believe there is no skill involved in winning at slot machines. Casinos gently foster this misunderstanding, as it is to their benefit. Don’t fall for it.

Traditionally, slots players find it acceptable to play slot machines with visual succinct paytables. Frankly, casinos would instead have their customers spend their time playing a game they don’t understand.

The casino isn’t making money if a player spends time studying or reading until they do understand rather than playing the machine.

One easy-to-learn skill to improve the odds of winning at slots is choosing which slots to play based on their paytables. I discuss this in detail at Choosing Slot Machines.

Players Club Area

The Players Club area contains a card reader, numbered keypad, and a small display. A security feature of players club cards is for players to choose a PIN to enter when they wish to access their player account.

Newer-style slot machines have a touchscreen display, which removes the need for a physical keypad. Meaning, it’s part of the touchscreen display.

Bets can be made on a slot machine without a players’ club card. At most casinos, it typically is not required. Neither is the PIN needed to play the device or view basic information. For example, a running total of reward points earned during the current play session is generally on display.

The PIN is required, however, to:

access certain portions of player’s casino account
transfer banked funds
activate “free play” provided by the casino as a complimentary gift

Results Area

The Results interface area is where the reel combinations are seen after making a bet. Whether a video slot machine or a slot machine with physical reel, this is where the results of a bet are provided.

Interpreting whether a reel combination is a winner requires an understanding of the paytable. This result is fundamental to how slot machines work.

Of course, the slot machine will immediately display the results. A small display beneath the reels shows:

the total amount of money or credits available in the machine
how many credits most recently bet
the jackpot amount won if any

Jackpots are usually in credits, where each credit equals the denomination of the machine rather than the amount bet, as well as a monetary amount.

Player Console

The Play Console typically has physical buttons, a cash/ticket reader, and a ticket printer. The buttons include:

Cash Out for requesting the removal of any player funds in the machine
Service to request a casino attendant
A Series of Buttons for selecting the number of credits to bet, or placing the maximum possible bet
Cash Out for removing any remaining bankroll
Repeat to making another bet for the same credit(s)
Denomination to select a specific bet denomination (optional)

The player console may have several possible button configurations, dependent upon the model of the slot machine. Given how often game themes are switched to maintain the interest of players over time, it is common for player consoles to be standardized over many machines within a casino.

Also, it is becoming common for consoles to have embedded displays visible through their semi-transparent button covers. This array of small screens are linked together to show visually stunning composite images displayed across the entire array of buttons.

Ticket In, Ticket Out (TITO)

By the beginning of the 21st Century, the use of coins was removed from casinos. This removal was for the sake of convenience of both the casino and customers. Both had issues with handling so many coins. Customers because of the difficulties inherent with carrying so much weight, but also gambling delays due to full (or empty) slot machine coin hoppers.

Casino Slot Machines For Sale

Casinos had issues with coins as well, including customer complaints due to delays caused by a full (or empty) slot machine coin hopper. This inconvenience was a coin logistics issue, which also included higher costs of maintaining a larger vault space and coin processing equipment and services. As casinos became more popular, coins became more difficult for everyone.

As a result, Ticket-In, Ticket-Out technology was pulled into casinos. They are now integral to how slot machines work. This automation is the same technology that was beginning to be seen in Automated Teller Machines (ATMs). Once proven out, this slot machine technology was here to stay like so many others.

Summary of How Slot Machines Work

I’ve discussed the operational components of a slot machine from the point-of-view of a slots player. This explanation of how slot machines work included the various player interface areas on the front of a typical slot machine.

There are additional relatively minor interface areas. These areas include audio speakers, audio volume control (optional), display lights, lever arm, and a hearing aid jack to accommodate those with a hearing disability.

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