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 Any profit after that mark is invested, withdrawn, or given away in land area prizes.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.
