“Advantage players” use card counting and other techniques to boost their winnings in casinos. Card counting is the practice of memorizing which cards have been dealt so as to predict better which cards may be dealt next. Other techniques include statistical analysis or simulation of the game beforehand, exploitation of weaknesses in shuffling procedures, and so forth. A recent New York Times Magazine article tells the story in detail.
Advantage playing is usually legal, even though casinos frequently eject advantage players when they can be identified. But is it ethical? Is it cheating? Is it fair?
Essentially the same question arises in a more serious context. Professional financiers are “advantage players” in the investment markets, relative to ordinary investors. Their ability to analyze data and construct optimal portfolios gives them an edge. Is this ethical? Is it cheating? Is it fair?
Contributed by a finance professor.
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Ethical Decisions 
Taking part in a game commits me to an implied agreement. In exchange for a chance to win, I will abide by the rules of the game. Violation of this agreement merely for profit is ungeneralizable and therefore unethical. So if casino rules prohibit advantage playing, it is unethical.
Is advantage playing against the rules? I know next to nothing about casinos, but my understanding from the NYT article is that the rules don’t explicitly forbid it. This is not surprising, because such rules would be impossible to enforce in any consistent manner. The fact that casinos kick out suspicious players doesn’t show the players are breaking the rules. Casinos can kick out anyone they want, as long as they don’t violate discrimination laws. So advantage playing is not cheating, and we have yet to find a reason it is unethical.
We can ask if advantage playing is ungeneralizable on some grounds other than violation of the rules. This depends on the reasons that advantage players do what they do. Presumably, the reasons are that they are gamblers, they are capable of mastering the techniques, they are willing to invest the time, and the techniques win them more money. Would they still win more money if all capable gamblers willing to invest the time became advantage players? If not, advantage playing is ungeneralizable and unethical.
I think we have to say that the advantage of advantage playing would decrease if it were generalized in this way. Casinos are already taking measures to defeat the growing numbers of advantage players, making it harder for them to profit. If all capable gamblers learned the tricks, it would become even harder to profit, although perhaps still possible.
This means that an advantage player can pass the generalization test only if he/she would be willing to learn and use the techniques if the payoff were as small as it would be if all other capable gamblers did the same.
How about investing? It is perhaps a form of gambling, but it is not a game, except in a metaphorical sense. Investors are obligated to obey the rules of the exchange in which they participate, but these are not rules of a game. So there is no possibility of “cheating” in this sense. There is an implied agreement to abide by the rules of the exchange, and certainly to observe securities regulations, but I take it that many advanced tools are consistent with exchange rules and legal regulations.
We can apply a generalization test similar to that we used for casinos. Again, the key to the test is why professional investors/traders use advanced tools. Maybe they do it because they are investors who are smart enough to master the tools, and because it earns them more money. If so, the professional investor’s behavior is generalizable if he/she would be willing to learn and apply advanced tools if the reward for doing so were as small as it would be if all smart investors did the same.
I’m not a finance person and can’t predict the effect on financial markets of more widespread use of advanced tools. Maybe it would further alienate ordinary investors, causing financial markets and capital formation to shrink (a similar argument is used against insider trading). If this would remove the incentive for advanced financial training, using advanced tools in the markets is not generalizable. This seems something of a stretch. In any case, the reason for using advanced tools may be narrower. Maybe investors do it only because it is part of their job. This is easier to generalize without removing the rationale for advanced training.
One might complain that even if using advanced tools is generalizable, it is “unfair” and inconsistent with a “level playing field.” I don’t know how to judge what is “fair” or even why trading should be “fair” in some sense.
The “level playing field” metaphor applies to the design of the system rather than the behavior of players in it. The metaphor is not very helpful. Maybe a football game should be played on a level field, but investing is not a game.
Still, there may well be ethical problems with the financial system. The advantage it gives professional investors may reduce utility because it alienates ordinary investors. It may be deceptive, because many investors may be unaware of how the system is rigged. It may do social harm by contributing to financial instability or to income and wealth inequality.
Yet if finance professionals can ethically participate in the system at all, given whatever defects it has, I find it hard to make a case that there is anything wrong with using advanced tools that bring a higher reward.
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