The bedrock life principle, the house always wins, derives from the mathematical advantage casinos build into their games. But what if that wasn’t the price of admittance?

On an American roulette wheel, a bet on the number 13 pays off at 35:1. If there were 36 slots on the wheel, both the house and the bettor would break even in the long run, but there are 38 slots (zero, double-zero and the numbers 1 to 36). The house doesn’t win every spin — 13 does come up — but in the long run bettors lose $5.26 of every $100 bet.

Now an internet casino Duel.com is offering games with zero house edge — 36 slots on the roulette wheel. Duel is worth paying attention to because free is a powerful concept, one that’s transformed sectors as disparate as stock brokerage and music streaming. Why shouldn’t the rapidly expanding gambling industry be next?

Duel is a small site that is illegal for U.S. residents to use, although an estimated $400 billion is waged by Americans on sites like this every year and their global bet volume may exceed $1 trillion. Duel says it’s registered with and regulated by the Autonomous Island of Anjouan, Union of Comoros. Anjouan is a real place that isn’t on the Financial Action Task Force blacklist or grey list for dicey offshore financial havens, but mainly because its licenses may lack legal validity even within the tiny principality of Comoros, rather than because it’s a trusted regulatory authority.

Robinhood Markets Inc. was also an aggressive startup (although fully registered and licensed by U.S. authorities) when it introduced unlimited zero-commission stock trading in 2015. Four years later, the brokerage industry was forced to follow suit. Similar stories have played out with load mutual funds, S&P500 index fund fees, long-distance telephone calls, navigation, music streaming, magazines and many other things. People used to pay for these until aggressive — often law-breaking — innovators forced a switch to free models.

Duel’s offering would be less interesting if it were on its own, but there are other moves toward zero-house-edge gambling afoot. Polymarket’s prediction site charges only a small liquidity fee on bets — although it has other fees and a bid/ask spread. Other prediction markets have built in edges smaller than most casinos, whether land-based or online.

Free is what physicists call a phase change. Ice is not just cold water, just a bit colder — it has entirely different properties. If a brokerage firm cuts commissions, it has to generate more customer trades to maintain revenue. But when it cuts to zero, suddenly increasing customer trades has no value, and the company needs an entirely new business model with new revenue sources.

Behavioral economists have documented the “free price effect” where individuals react entirely differently to free things versus very low prices. If something costs even a penny, it gets processed through the cost-benefit center of your brain. If it’s free, it sails on past like a diplomat with immunity at customs.

These two factors are what make free so contagious in markets, and why it thoroughly upends everything about the business. Of course, TANSTAAFL — there ain’t no such thing as a free lunch. The house has to cover its cost and make a profit. Options include interest on customer deposits, advertising, tie-in merchandising, premium status sales, offering games that require some skill with zero house edge only for perfect play, and kickbacks from service providers such as the companies handling money transfers or network services.

Even assuming the house makes the same profit without an edge, the changing revenue sources alter the business and the customer experience in fundamental ways. When brokerage firms made their livings getting customers to trade, stockbrokers were pushy salespeople with rapidly changing opinions. When brokerage firms switched to earning from interest on customer deposits and payment for order flow, they fired the old brokers and focused on nurturing their clients’ entire wealth and understanding the information content of their clients’ trades.

The traditional house edge in gambling games charges customers according to how much they bet. This is an unfriendly model if you’re a gambler. The $5.26 house edge per $100 mentioned above for American roulette only applies to customers with unappealing strategies such as placing their entire stake on one spin, or making lots of very small bets that almost always result in a small loss by the end of the session with only mild variability.

If you want to play for a reasonable set period — say two hours — and have every bet matter to the outcome, and have a real chance of doubling or more your initial stake, you will typically end up paying house edges of 20% or 30% or more on your starting bankroll.

I don’t know of any research on the effect of house edge on problem gambling, but it stands to reason that zero-edge would lead to more gambling — just as an all-you-can-eat buffet may cause people to overeat. If you think the “problem” in problem gambling is the activity itself, then zero-edge might make it worse. But if you think the problem is losing, then zero-edge eliminates it, since problem gamblers, like all gamblers, break even in the long run.

More important, zero-edge removes the house incentive to attract and enable problem gamblers, who represent a large fraction of the net revenue of traditional gambling businesses. Casinos have regulatory and ethical obligations to police problem gambling — some businesses take them more seriously than others — but those obligations clash with economic incentives. Zero-edge aligns the house, player and regulator interests.

A casino that charged admission, or used other alternative revenue sources, would concentrate on the best possible customer experience for gamblers rather than trying to get each customer to make more bets. This kind of thinking seems to be the trend in gambling as well as other sectors. It’s a phase change, a regime shift, that could finally contradict, “the house always wins.”

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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Aaron Brown is a former head of financial market research at AQR Capital Management. He is also an active crypto investor, and has venture capital investments and advisory ties with crypto firms.

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