As humans, we consider ourselves superior to animals due to our ability to think rationally. Our whole economic system is based on the rational choice theory. The theory assumes that in any situation people strive to maximise their advantage and minimise their losses. Makes perfect sense, right? Well, it does on paper, but is this really how things work in practice? Let’s find out.
Putting the rational choice theory to the test
In economics, preference is the ordering of the alternatives based on their relative utility, i.e. satisfaction derived or reward. If we know that a fruit lover called Mary prefers a mango to strawberries and strawberries to an apple, we can predict that given the choice between a mango and an apple, she will go for mango.
Now let’s imagine Mary joining the birthday party of her 6-year-old neice. Her health-minded sister decides to offer fruit instead of candy and the kids seem to love it; so much so that when Mary approaches the dessert table there are only two bowls of fruit left, one filled with mango slices and another with an apple cut in half. The moment she reaches for her favourite fruit, two kids storm to the table in a race to get the mango.
Psychologists have found a series of cognitive biases at play that consistently leads bettors to lose money.
Mary decides to divide the mango slices into two portions and teach them a lesson about sharing before settling for the apple.
Blindly believing that just because you told yourself that you want to make money by betting means you will also act accordingly is an irrational assumption.
What has happened here? Mary is an adult and can keep the mango for herself if she wishes to. But she does not. Is Mary irrational? According to behaviour scientists, the satisfaction Mary derives from keeping two children happy is greater than the satisfaction her taste buds would receive from eating the mango, and therefore she goes for the “irrational” choice of the apple.
Let’s examine what she would choose in a different context. Mary is an over-spender. It is one week before pay day, she is already in her overdraft and furious about her spending habits. On her way to the library, she bumps into a friend called Gary. Gary is indulging himself in a bowl of freshly cut apple, topped with cinnamon and a dash of honey, which he offers to share.
Her sweet tooth is urging her to buy mango and vanilla ice-cream to accompany it with, but that would cost her money. She accepts the offer in frustration. What if the same scenario played out right after pay day? Mary can now afford to buy the mango and vanilla ice-cream she likes as well as the delicious chocolate syrup she loves to top it with. Would you bet on her settling with a free apple?
All you can do is control your actions by placing bets based on their Expected Value, rather than your feelings and assumptions because you are determined to make money in sports betting.
Fast forward to pay-day. Mary reads a book about how to get in control of her finances and she is now determined to take charge of her bank account. It will not go into negative again. She calculates her maximum daily budget and goes to the supermarket with a list of groceries to abide by. Once she has completed her shop, she realises that according to her calculations she is allowed to spend another $2.
She goes straight to the fruit section and checks the prices. A pot of mango cubes costs $2.50, a pack of sliced apple is $2.00 and a bowl of strawberries $2.00. This time around though, Mary is determined to defy her feelings and act in accordance with her goals. She reaches out for the strawberries, satisfied about her ability to stay disciplined.
Irrationality applied in betting
Are behaviour scientists right in claiming that people do not consistently act in accordance with rational axioms? This is a long discussion but if there is one point worth taking on board it is that just because you said you want something, don’t assume that you will act accordingly.
Real life shows that choices are so dependent on context, available alternatives, financial incentives, timing, goals and ambition that blindly believing that just because you told yourself that you want to make money by betting means you will also act accordingly is an irrational assumption in itself. In fact, rationality is so rare, that it is almost a superpower.
Does it make sense to place a bet on Over 2.5 goals just because a team easily scored four goals in their last match against a strong opponent and they are therefore almost certain to do it again against a weaker team? If you think it does, you are the victim of availability bias.
If you are serious about achieving a consistent income from betting, do not place another bet without checking that it serves your purpose of consistent profitability by calculating its expected value.
Have you ever increased your stake after a series of losses? It is time for your luck to change after all, isn’t it? This is a classic case of gambler’s fallacy; which is not is not the only mental pitfall bettors have to protect themselves from. Psychologists have found a series of cognitive biases at play that consistently leads bettors to lose money.
So, how do you overcome these biases? The simple answer is that you can’t overcome them. All you can do is control your actions by placing bets based on their Expected Value, rather than your feelings and assumptions because you are determined to become part of that elite minority who make money in sports betting.
The amount a player can expect to win or lose if they were to place a bet on the same odds many times over, calculated through a simple equation multiplying your probability of winning with the amount you could win per bet, and subtracting the probability of losing multiplied by the amount lost per bet.
So, why do you bet?
Are you aware of your reasons for betting? Do you enjoy the adrenaline rush? Do you like the random reward of the occasional win? Is it your favourite way of socialising? If you answered yes to any of the above, then betting is a means of entertainment for you. Feel free to keep on betting based on your gut feeling and enjoy the roller-coaster. Just keep one thing in mind: as with any type of entertainment, make sure you only spend money that you can afford to lose.
If, however, you are serious about achieving a consistent income from betting, do not place another bet without checking that it serves your purpose of consistent profitability by calculating its expected value, irrespective of whether you have a gut feeling about it or not. Because money making is a long game and in the long run, probabilities don’t lie.