Recognising cognitive betting biases
In the first part of this series we discussed the gambler’s fallacy and biases such as recency, optimism, confirmation, outcome and hindsight.
Here are some other common biases that have applications to our betting habits.
Risk aversion is the tendency to avoid higher risk situations when given a choice, even though the greater risk may provide a better long-term return.
In punting, we sometimes sacrifice value for a more certain result, when we should do the opposite. It’s a balance.
We need to manage our risk as punters and a higher strike rate reduces the chance of bad runs, protects our banks and allows more turnover to be invested. However, we should always focus on value because that creates the profits we depend on, despite the increased short-term risk that can involve.
Hyperbolic discounting is the preference for rewards that arrive sooner rather than later, even when later rewards can be more beneficial. As punters, we tend to seek short-term rewards such thrills, winners and cash in our accounts. We might make betting decisions based on how we feel at the time, rather than the best long-term plays.
The short-term is meaningless in punting. Successful punting is a long-term game.
Illusion of Control
Illusion of control is the tendency to over-estimate our ability to control events that we have little influence over. We can’t control results – individual results and good and bad runs are random luck. What we can control is how we manage our banks and the decisions we make.
It’s important to focus on the things we can control because worrying about the things we can’t (results) can frustrate us into poor decisions. We need to be patient and make the right bets and that will translate into profits in the future. As Anomaly Nick says, “the winners will come when they’re good and ready”.
Commitment bias (also called escalation of commitment) is continuing the same behaviour despite knowing the negative outcomes of that behaviour. In economics, this is called the “sunk cost fallacy”. People will justify their continued investment (time and money) in an approach based on their level of previous investment, despite new information that the approach will result in an expected loss. In other words, people act as though they’ve passed the “point of no return”. This happens because we don’t like to waste the resources we’ve invested.
As punters, we might take a certain approach to punting that we later realise is a poor approach, but we may continue to use it due to the money we’ve lost on it (or pride invested in it). The best time to stop investing in a poor approach is the very next bet.
Normalcy bias is the tendency to believe that the ways things usually are is the way they will always be. It means we’re not well prepared for disaster when it happens and respond poorly to it. The obvious example is when a bad run hits. We may be used to reasonably steady profits with a reasonable amount of variation – that’s the norm. But when a really bad run hits, it knocks us for six. We don’t respond rationally and may even realise we’ve been over-betting because we never expected or experienced that kind of downswing before.
It’s important to bet the correct amount relative to your bank. You may need to reduce your bet size after a bad run to bet a sensible percentage of your current bank. Be prepared and expect that a terrible run will happen to you at some point and could happen any time, even though it’s not the norm. Most of the time we bet a tiny fraction of our banks and for good reason. When the infrequent, but inevitable, downswing comes along you’ll be prepared for it.
Avoiding the Traps
Now that you know the main biases in gambling, what’s the secret to avoiding them? You can break the process down into 3 steps:
- Knowing the bias exists
- Recognising when you’re falling for a bias – you’re thinking or feeling a certain way that you know can lead to making a poor decision
- Don’t follow through with the action
It never feels good to act against your emotions but it’s just what you need to do sometimes to be a successful punter, especially when there’s a bias involved.
Punting can be a frustrating game at times, but a couple of things that help me when it comes to biases are:
- understanding my psychology
- focusing on the individual bet and making the best decision I can on that bet (all bets are independent after all)
- accepting that I will be frustrated at times and want to bet based on my emotions, but still need to make the right decision, even though it won’t feel good
- ignoring results – if I’ve made the right bet, I’ve achieved my aim and individual results do not matter.
- feeling good about making the right decision
Successful punting is about making good decisions and not individual results. We punt for the thrill of a win (and that’s fine) but we make money with knowledge and good decisions.
So next time the betting gods are picking on you, remember these biases and make the best decision you can. By not falling into the traps of cognitive biases you save yourself money, which is just another way of making money from your punting.
Rod is the man in charge of our unparalleled High Low package. It has made money in 20 out of 22 months since launching in November 2015.
Rod’s advised close to 7000 bets which have made better than 12% Profit on Turnover.