Ed Thorp used the IBM 704 as a research tool in order to investigate the probabilities of winning while developing his blackjack game theory, which was based on the Kelly criterion which he learned about from the 1956 paper by Kelly. He learned Fortran in order to program the equations needed for his theoretical research model on the probabilities of winning at blackjack. Thorp analyzed the game of blackjack to a great extent this way, while devising card-counting schemes with the aid of IBM 704 in order to improve his odds, especially near the end of a card deck that is not being reshuffled after every deal.

Applied research in Reno, Lake Tahoe and Las Vegas

Thorp subsequently decided to test his theory in practice in Reno, Lake Tahoe and Las Vegas.Thorp started his applied research using $10,000, with Manny Kimmel, a wealthy professional gambler and one-time illegal bookie with mob connections, providing the venture capital. First they visited Reno and Lake Tahoe establishments where they tested Thorp's theory at the local blackjack tables. The experimental results proved successful and his theory was verified since he won $11,000 in a single weekend. He could have won more during his initial foray in Las Vegas had his uncanny ability at winning not drawn the unwelcome attention of the casino security, which led to repeated expulsions from the various premises that he visited that night. Casinos now shuffle well before the end of the deck as a countermeasure to his methods. During his Las Vegas casino visits Thorp frequently used disguises such as wraparound glasses and false beards. In addition to the blackjack activities Thorp had assembled a baccarat team which was also winning.

News quickly spread throughout the gambling community, which was eager for new methods of winning, while Thorp became an instant celebrity among blackjack aficionados. Due to the great demand generated about disseminating his research results to a wider gambling audience, he wrote the book Beat the Dealer in 1962, widely considered the original card counting manual,which sold over 700,000 copies, a huge number for a specialty title which earned it a place in the New York Times bestseller list, much to the chagrin of Kimmel whose identity was thinly disguised in the book as Mr. X.

Thorp's blackjack research is one of the very few examples where results from such reached the public directly, completely bypassing the usual academic peer review process cycle. Moreover, Thorp became one of the very few applied mathematicians who risked physical harm in verifying a computer simulation. He has also stated that he considered the whole experiment an academic exercise. This also marked the first time in the history of computing that a computer was used as a gambling aid.

In addition, Thorp, while a professor of mathematics at MIT, met Claude Shannon, and brought him and his wife Betty Shannon as partners on weekend forays to Las Vegas to play roulette and blackjack, at which Thorp was very successful.His team's roulette play was the first instance of using a wearable computer in a casino ... something which is now illegal. The wearable computer was co-developed with Claude Shannon between 1960-61. Thefinal operating version of the device was tested in Shannon’s home lab at his basement in June 1961. His achievements have led him to become an inaugural member of the Blackjack Hall of Fame.

Since the late 1960s Thorp has used his knowledge of probability and statistics in the stock market by discovering and exploiting a number of pricing anomalies in the securities markets, and he has made a significant fortune. Thorp's first hedge fund was Princeton/Newport Partners. He is currently the President of Edward O. Thorp & Associates, based in Newport Beach, CA. In May 1998 Thorp reported that his personal investments yielded an annualized 20 percent rate of return averaged over 28.5 years.