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  1. #1
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    Risk of Ruin - Bankroll Management

    As I intend to share some aspects of my data collection in my Improved Mako FAL journey, I wanted to spin up a conversation that it seems that most people cannot comphrend on PCF.. and that is bankroll management.

    One aspect of bankroll management is how you use it in day to day operations. There is a mathematic concept called Risk of Ruin. ROR is not a gambling concept, although typically used in gambling computations. It is a measure of risk in any activity stemming from probability. It is defined as:

    Risk of ruin is a concept in gambling, insurance, and finance relating to the likelihood of losing all one's capital or impacting one's bankroll to the point that it cannot be recovered. For instance, if someone bets all their money on a simple coin toss, the risk of ruin is 50%.
    Source: http://en.wikipedia.org/wiki/Risk_of_ruin

    So why is this important?

    The more seasoned players constantly lecture the new and/or stubborn players on PCF about hunting at their level. This is multi-faceted. Not only should one hunt at their level but should also hunt relative to their bankroll so that the bankroll can recover as the law of large numbers converges to the set mean (the set mean being the TT return of your setup).

    The Math

    Perhaps it is easy for me to understand these concepts having been a card counter for 4 years. It's actually quite funny that I really did go to casinos every week (and paid off credit card debt as a result) with a $3000 bankroll but I can't get myself to hunt bigger than 80 cent mobs now when I was dropping from $5 to $100 (and sometimes a $1000 here and there). That's a mental barrier I have to work on once my sword is maxed. But for now, I will share with you the math so that you can tailor the risk factor to your own behaviors.

    You can search online to find out what the Risk of Ruin formula is for most scenarios. However, being as that a "bet size" is not an all or nothing proposition in Entropia Universe, I have modified the formula.

    The Variables

    Current Bankroll, Lower Bound Risk, Daily Cycle (in PEDs), Lower Bound Result (in PEDs), and Risk of Ruin % are the variables used in the equation.

    My Bankroll: 45,000 PEDs - This is the size of my ped card. Any profit after that mark is invested, withdrawn, or given away in land area prizes.

    Lower Bound Risk: 80% - This is a short term average TT return % size for my setup. While most of my hunts are 90% are better now, I chose to play it safe. There is always the occasional 60%-70% but that is almost always because I am not killing enough for the cost to kill said mob (will refer to this as Hunt Rule #1). 500 kills I find to be a minimum. I am starting to learn that I shouldn't hunt unless I can kill 500 of whatever it is that I am after.

    Daily Cycle: 4,000 PED - This is the average daily cycle (averaged over 7 days because I do 8-10k on the weekend).

    Lower Bound Result: -800 PED - This is the amount that I will lose in my worst days (as long as hunt rule #1 is observed). I call this the worst case scenario. There is of course variations, but this is a pretty conservative value.

    Risk of Ruin: 1.78% - Safe space is almost always < 2%. Acceptable risk is between 2.01% and 5% (although upper end means you believe reward is greater than the risk). Anything higher than that and you are playing above your level, bankroll, and just not being smart. This basically says that you need to have roughly 56.17 straight days of 80% returns to go broke.

    The formula is simply: ABS(Lower Bound Result) / Current Bankroll. The modifier for this formula is the lower bound risk. If I wanted to be even more conservative and set it at 70%, then my ROR is 2.67%.

    All these numbers are based on having very little to no markup to offset. So, let's look at the effect of average markup.

    Same variables but we will add average markup:

    Current Bankroll - 45,000 PED
    Daily Cycle - 4,000 PED
    Lower Bound Risk - 80%
    Lower Bound Result: -800 PED
    Average Markup - 0.025 (102.5%)
    Markup Per Day - 100 PED
    Lower Bound Result with Markup: -700 PED
    Risk of Ruin with Markup - 1.56% (-0.22% difference)

    Hope this gives you a bit of insight, should you find yourself in a perpetual deposit cycle. As it relates to ROR, your hunting behaviors (daily ped cycle) and setup (lower bound risk) are more important than markup. I used these numbers like 80% to play it conservative. If you believe in the 90% theory, you can raise it to 90%. If you are jaded and raging or shooting a very unmaxed weapon, you can drop it to 60%/70%. That factor changes with your own experience.

    One last note, if you do not want to be all nerdy - some advice someone once told me is that your bankroll should consist of 3-4x the amount of TT you lose on average per month at a very minimum.

  2. #2
    Elite Aio's Avatar
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    Was going to ask you to post this. Thanks.

  3. #3
    Prowler duncis's Avatar
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    Inguts Sokolade Spurz
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    Amen!
    At least "Amen" to all the threads that starts with - i lost 500usd in a weekend and got nada to show for it!
    Or in worst case scenario we can now refer to this thread!

    Cheers
    Soko
    Check out my hunting blog www.sokolade.rocks

  4. #4
    Stalker messi91's Avatar
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    Quote Originally Posted by atomicstorm View Post
    This quote is hidden because you are ignoring this member. Show Quote
    As I intend to share some aspects of my data collection in my Improved Mako FAL journey, I wanted to spin up a conversation that it seems that most people cannot comphrend on PCF.. and that is bankroll management.

    One aspect of bankroll management is how you use it in day to day operations. There is a mathematic concept called Risk of Ruin. ROR is not a gambling concept, although typically used in gambling computations. It is a measure of risk in any activity stemming from probability. It is defined as:


    Source: http://en.wikipedia.org/wiki/Risk_of_ruin

    So why is this important?

    The more seasoned players constantly lecture the new and/or stubborn players on PCF about hunting at their level. This is multi-faceted. Not only should one hunt at their level but should also hunt relative to their bankroll so that the bankroll can recover as the law of large numbers converges to the set mean (the set mean being the TT return of your setup).

    The Math

    Perhaps it is easy for me to understand these concepts having been a card counter for 4 years. It's actually quite funny that I really did go to casinos every week (and paid off credit card debt as a result) with a $3000 bankroll but I can't get myself to hunt bigger than 80 cent mobs now when I was dropping from $5 to $100 (and sometimes a $1000 here and there). That's a mental barrier I have to work on once my sword is maxed. But for now, I will share with you the math so that you can tailor the risk factor to your own behaviors.

    You can search online to find out what the Risk of Ruin formula is for most scenarios. However, being as that a "bet size" is not an all or nothing proposition in Entropia Universe, I have modified the formula.

    The Variables

    Current Bankroll, Lower Bound Risk, Daily Cycle (in PEDs), Lower Bound Result (in PEDs), and Risk of Ruin % are the variables used in the equation.

    My Bankroll: 45,000 PEDs - This is the size of my ped card. Any profit after that mark is invested, withdrawn, or given away in land area prizes.

    Lower Bound Risk: 80% - This is a short term average TT return % size for my setup. While most of my hunts are 90% are better now, I chose to play it safe. There is always the occasional 60%-70% but that is almost always because I am not killing enough for the cost to kill said mob (will refer to this as Hunt Rule #1). 500 kills I find to be a minimum. I am starting to learn that I shouldn't hunt unless I can kill 500 of whatever it is that I am after.

    Daily Cycle: 4,000 PED - This is the average daily cycle (averaged over 7 days because I do 8-10k on the weekend).

    Lower Bound Result: -800 PED - This is the amount that I will lose in my worst days (as long as hunt rule #1 is observed). I call this the worst case scenario. There is of course variations, but this is a pretty conservative value.

    Risk of Ruin: 1.78% - Safe space is almost always < 2%. Acceptable risk is between 2.01% and 5% (although upper end means you believe reward is greater than the risk). Anything higher than that and you are playing above your level, bankroll, and just not being smart. This basically says that you need to have roughly 56.17 straight days of 80% returns to go broke.

    The formula is simply: ABS(Lower Bound Result) / Current Bankroll. The modifier for this formula is the lower bound risk. If I wanted to be even more conservative and set it at 70%, then my ROR is 2.67%.

    All these numbers are based on having very little to no markup to offset. So, let's look at the effect of average markup.

    Same variables but we will add average markup:

    Current Bankroll - 45,000 PED
    Daily Cycle - 4,000 PED
    Lower Bound Risk - 80%
    Lower Bound Result: -800 PED
    Average Markup - 0.025 (102.5%)
    Markup Per Day - 100 PED
    Lower Bound Result with Markup: -700 PED
    Risk of Ruin with Markup - 1.56% (-0.22% difference)

    Hope this gives you a bit of insight, should you find yourself in a perpetual deposit cycle. As it relates to ROR, your hunting behaviors (daily ped cycle) and setup (lower bound risk) are more important than markup. I used these numbers like 80% to play it conservative. If you believe in the 90% theory, you can raise it to 90%. If you are jaded and raging or shooting a very unmaxed weapon, you can drop it to 60%/70%. That factor changes with your own experience.

    One last note, if you do not want to be all nerdy - some advice someone once told me is that your bankroll should consist of 3-4x the amount of TT you lose on average per month at a very minimum.

    How about perception? Lootious?

  5. #5
    Prowler Rocket192's Avatar
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    Sadly.. Some people will ignore this and even try to tell $5 he's wrong.

    + Rep for being a boss.

  6. #6
    Elite matthew's Avatar
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    Thanks for the post, this is very interesting and insightful .

  7. #7
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    Quote Originally Posted by messi91 View Post
    This quote is hidden because you are ignoring this member. Show Quote
    How about perception? Lootious?
    Perceptions are still curious.

    Lootius is lazy.

    Request for sticky?
    Last edited by atomicstorm; 08-15-2016 at 20:36.

  8. #8
    Prowler Rocket192's Avatar
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    Quote Originally Posted by atomicstorm View Post
    This quote is hidden because you are ignoring this member. Show Quote
    Perceptions are still curious.

    Lootius is lazy.

    Request for sticky?
    this does need stickied.. and perception is a lie.

  9. #9
    Prowler Starkiller's Avatar
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    Must spread some love before handing some more reputation to 5$

    Sad panda! Very good contribution to all

  10. #10
    Prowler Billy Jean Ruby's Avatar
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    long time to read such interesting thread
    thanks for this atomic

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