VizExplorer Operational Intelligence Blog

“Freakonomics” for Casinos

Written by Team VizExplorer | July 16, 2015 at 7:45 PM

Recently to celebrate the 10th anniversary of their New York Times bestseller, Freakonomics, authors Stephen J. Dubner and Steven D. Levitt published a series of blog posts, podcast transcripts and answered letters from one of the most readable sites/blogs on the internet today http://freakonomics.com/blog/. If you haven’t heard of this book or their follow up bestseller, SuperFreakonomics, Dubner and Levitt have sold over 7 million books worldwide combined and currently have over 150 million downloads of their Freakonomics Radio podcast and have created a category called “Pop –Economics”, which is a look at popular topics and psychology with an economist’s point of view.

The book is called, When to Rob a Bank ….and 131 More Warped Suggestions and Well-Intended Rants. The collection of blogs is a casual attempt to become more personal in understanding economics. I have been a fan of these two from my first reading of Freakonomics and even have made it required summertime reading for my two daughters during their school break.

What Freakonomics means for me

Now just as a physicist knows about reality, lawyers know that you shouldn’t ever talk to the police and movers can fit big things in the elevator on the first try, economists know about incentives. I am not an economist, nor do I play one on TV. However, as an experienced real world data scientist, my intent is to offer additional value over data through insights and analysis and find the answers. Reading Dubner and Levitt has inspired me to seek answers through incentives such as test and control. Freakonomics has taught me to think like an economist.

Freakonomics in Casino Land

Freakonomics has changed the way we look at many complex topics today, or at least how we think about them. In the casino industry, there are a series of complex topics to look at each and every day following are three examples:

  • How much free play do we extend to a segment of customers ranging from $50-$99? How is cannibalization measured for slot optimization?
  • What does the value of a host relationship really have on customer loyalty?
  • Non-gaming spend in addition to gaming spend?

Applying freakonomics we get beneath the surface and using data. The trap is to get caught up on the mechanics of each question. The freakonomics approach is to strive to measure cause and effect. Before launching into your analytics you need to understand what is working and what is not, then look at ideas for how to change behavior.

Dubner and Levitt teach us to ask questions

So how do we go about doing this? Here is what I have learned and taken away from Dubner and Levitt. It is pretty simple. Think like a child. Ask questions. As we grow up and work our way up the corporate ladder, we get conditioned and rewarded for sounding smart and having complex thoughts. In the end, are they really that productive? Ask questions…ridiculous questions. Ask questions regarding some of the simplest data. Think about questions that your children ask you today? Why is the sky blue? We have been programmed to answer simple responses or even, “it’s the way it has been done for years”. However, if we took a step back and provided the answers with some data or insight, it’s easy then to understand. Once an understanding takes place, additional questions surface. Additional data is then required and insights take place. What was now a very simple question has yielded a serious of responses to insights with known and unknown data points. What was once a complex issue is now looked at completely different and understood.

What I have found is that most questions are overlooked. I challenge you to take a friend that knows nothing about the casino business and bring him into your operation and begin to ask some basic questions. Don’t auto respond. Think about some of the data that is collected and how you can use it to answer those questions. Some of the most profitable changes and offers are some of the easiest ones to execute and the customer understands. This creates arbitrage and most of all, creates opportunity

Spoiler Alert: What to know the answer to question of the book title, When to Rob a Bank? Answer…never, the ROI is terrible.

Jeffrey Hoss is the Vice President of Business Development for VizExplorer, an Operational Intelligence company that builds intuitive applications providing solutions to a range of operational and marketing challenges for various industries. He also moonlights as a data scientist, a marketer, a professor, a CrossFit instructor and is still trying to figure out a way to put an algorithm together to beat his college buddies in fantasy football.

 

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Jeffrey Hoss

Vice President of Business Development

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