Uncertainty dominates the world of wagering; in fact, without it, there would be none. It is vitally important that our approach to the game involve an acceptance of this uncertainty. Here are two more examples:
Too much study can be a negative behavior. It’s surprising — you would think the more the information, the better. But studies have shown that better decisions are made with less information, than more. Once a person has reached a critical amount of data (say 2-3 pieces, although this varies), they become overconfident that the additional data (which supports their position) makes their decision more and more certain. But this is not the case — the quality of the decision suffers from this overconfidence. The moral of the story? Settle on a few trusted sources that complement each other and, perhaps, one that has differing opinions. But stop there — additional information won’t add much to the certainty of the prediction, despite the confidence that it will.
“Hope is a dangerous thing,” according to Red in the Shawshank Redemption. In the case of wagering, he’s right. It’s an emotion that can get you in trouble and blur your eyes to reality. Wagering is not a game for the optimist; it is a game for the realist. You need to have an accurate view of the data and interpret it correctly. Wanting something really bad to happen won’t change the underlying probabilities. As part of this, you need to be careful with your use of imagination. While it’s imperative to see different possibilities, you need to make sure that they are not overflowing with the distortion known as hope.
We live in an uncertain world. And, because of that, we can wager on things; if everything was certain, the result would always be known and there would be no betting. But operating under uncertainty is not something that comes naturally to us. We are far more used to observation and logic than to chance; it’s hard to accept that the future is always uncertain — despite how certain we are in our predictions. Here, I’m going to discuss three concepts related to uncertainty:
Not “Soon to be realized truth”: Mostly a repeat of the introduction, but worth stressing. A bet is never a “sure thing” — not ever, not never. I’ve — and I’m sure you’ve — seen events and endings that seem impossible. You need to keep this in mind with every wager and make sure that you are getting value for the bet. Make sure to weigh how uncertain the bet is and insist on the price. Bettors who treat the future as written don’t last long.
Occam’s Razor: This is a principle that if there are competing explanations for a phenomenon then the simplest one is likely correct. Applied to wagering, we often contort our thinking into knots to find an explanation for something or to predict the future. Occam’s Razor tells us to lean towards the simplest result as a method for dealing with this uncertainty. This can be a check on whether you are working too hard to make a wager work.
Accepting Reality & Risk: Related to “Soon to be realized truth” above, dealing with uncertainty requires that you accept the reality of the situation. As part of this, you need to understand that risk is involved in every prediction. Only by taking things as inherently risky and understanding what the situation actually is can you make accurate value wagers. Trying to ignore the reality of risk is a surefire way to losing.
These two additional biases — hindsight bias and recency bias — are quite intuitive. When added to false feedback and confirmation bias, we are given a fuller picture of the mistakes that we make in interpreting results. Discussed today are:
Hindsight is always 20/20, referring to perfect sight. But this is actually not the case. We are more likely to perceive things as 20/20 after they happen. When the result is known, its likelihood of an event seems far more likely than before the event; this is hindsight bias. This, of course, is not an accurate read of the situation — unless the odds were way off, you have just seen one possible outcome. There is an rationalization that happens to make people perceive events as more predictable when they occur. This can lead to a miscalculation in probability as the next related future event is thought of as inevitable. Reality is always probabilistic, never determined.
Recency bias occurs when you overweigh the most recent events that have happened. We have a tendency to find what happened recently more predictive and more important than older events. Just because something happened more recently does not make it more predictive. This is not to say that recency is unimportant — there could be a reason for the uptick in a particular statistic or metric (and the skilled bettor will sniff out the difference), but for the most part, bettors put undue weight on what has happened in the immediate past, in spite of long-term trends. Instead, we are looking at long-term probabilities and, returning to our coin flip, there is no significance to 3 flips in a row the same–the long-term probabilities (50/50) remain the same.
Bias covers a large amount of area where you are misinterpreting the information needed to make a bet. You are miscalculating the odds due to a skewed frame which causes you to make mistakes. Often, these mistakes lead to losses where wins may have been possible. There are many types of bias — in this article, I will start with two:
False Feedback: Let’s define a “GOOD BET” as a wager that has a proper risk/reward ratio. Simply put, you are potentially getting compensated at rate that reflects the risk in the wager. A “BAD BET” is the opposite – a wager where you are not potentially compensated at a rate which reflects the risk in the wager. This is reflected in the chart below.
Quadrant 1 is an unfortunate place to be, but the best place to be if you are losing. With an edge, it is only a matter of time before you start to win (however, remember the gambler’s fallacy). Quadrant 2 is far more unfortunate. Not only is luck not going your way, but you are making bad bets without an edge. Quadrant 3 is where bettors aspire to — bets here win and were good bets that reflected your edge. Quadrant 4, however, is where most bettors get killed because they develop a bias from bad bets that win (and bad bets do win). The long-term ramifications of bias from the misinterpretation of winning wagers that were bad bets are great. On the surface, it is very hard to identify a winning wager that was a bad bet, but deep down inside, we know that we just got lucky. We need to listen to that voice to avoid false feedback turning us away from our edge.
Confirmation Bias: With this bias, you interpret new information in line with your pre-existing beliefs. Under this bias, this new information can lead to the strengthening or weakening of feelings about teams, horses, or whatever you are betting on. But instead of accurately discounting or adding to the your belief, your original belief–i.e. this team will cover the spread — shapes how you deal with the information; this is confirmation bias. In contrast, a bettor needs to look at each piece of new information carefully and objectively ask whether it makes the desired outcome more or less likely. It can be almost impossible to change one’s mind about a bet, especially with the “woulda, coulda, shoulda,” fears. Yet, if the new information suggests this, the unbiased bettor would make the move. You can’t be afraid to change your mind in light of new information that contradicts your original beliefs.
This is the final part in the 3-part series on Self-Awareness and Wagering. Part I and Part II can be found at these links. While this is the final part of this series, much more can and will be said about self-awareness and wagering throughout the blog and accompanying books. Here I will cover:
Tilt: We’ve all experienced “tilt,” that combined feeling of lack of control, need for higher amounts of betting, and need to get even that occurs in gambling. It usually sets in after a horrible beat, such as a last minute (or second) change in the score or result that takes you from win-to-lose. An improbable poker loss, a poor result in a photo finish, or a last second turnover can all push us into tilt. Under the influence of tilt, we take more chances and risk more capital than we normally do. If we are not careful — and we rarely are during tilt — it can wipe out months of capital accumulation. It may be the hardest emotion to fight in wagering. But it is extremely important to recognize the change in yours bets — bet size and bet frequency — and shut down betting for a while. I’ve seen pro players put down cards or bet slips and literally walk away for a while. You should do the same if you recognize it — time is typically the only salve.
Balance: You need to be aware that you are considering all the factors that make a good gambler and that you hold them in balance with each other. It is somewhat the opposite of tilt, but not entirely. It is a feeling that you are considering both short-term and long-term and are betting within your budget. You are maximizing your edge. You are experiencing flow, a sense in which you are one with the wagering and that you’ve found the right amount of risk. And you are balanced with other activities in your life, which makes your gambling less susceptible to burnout.
Dealing with Losing: Losing streaks happen. They are part of betting on uncertain events. Flips of a coin rarely, if ever, comes up at the long-term probability; you rarely see heads-tails-heads-tails-head-tails, even though this is the long-term expectation. You need to be aware that you can be doing everything right in your wagering and still lose. Besides from the need for sufficient capitalization, emotionally you must accept the losing. Importantly, you must separate it from your process and not let unjustified negativity seep in.
In Part I, I discussed the need for self-awareness in your wagering. You need to be constantly checking to make sure that you are not influenced neither by variance or by emotional betting, such as being motivated by fear or greed. You need to remain humble at all times — long-term trends tend to dominate and positive emotion can skew you off to the side.
I’d like to add a few more specific items which you need to be aware of in order to be a winning player at wagering. Here’s the list:
Strength of own position: You need to have an accurate and realistic sense of where you stand at all time in whatever game you are playing. Overconfidence will lead you to make poor decisions, which while turning out okay in the short term, will bankrupt you in the long term. It is perfectly okay (and encouraged) to take longshot positions, but you need to be realistic on the edge that you actually possess.
Playing Scared: The saying goes, “Scared money never wins,” and it’s true. A corollary to this statement is that playing to break even is playing to lose. When you are afraid of losing money, that is exactly what happens — you lose money. The fear begins a risk-averse thought process that leads to poor long-term (and usually short-term) decisions. You need to be aware if you are cutting corners to save money and playing less than needed for the situation. Or whether you are making a bet that you can’t see lose. Much money at the end of budgets is lost from playing scared.
Gambler’s Fallacy: There is an overwhelming belief among gamblers that after a series of loses — especially close ones — that they are due for a win. This is a fallacy because you are never due — each bet (for the most part) is an independent event and its resolution has no effect on others. Those earlier losses have no effect on the next bet and there is no added probability to it because of them.
The first area to focus on when perfecting your psychological edge is self-awareness. You need to able to assessyour own strengths and weaknesses accurately. This is easier said than done. It is assumed that you already have developed an edge in the data/info side of the game. This list is focused on what needs to be developed to deal with the challenges of emotional control. In order to win, you need to score high (or low) in these areas:
Patience: Variance is high, especially for a player who focuses on longshot type wins (future bets, horse racing) and value is not distributed evenly. Payouts on value do not always happen, even in the best of situations. You need to be able to wait to have success.
Fearlessness: You cannot let fear enter into any decisions. Usually, this is a fear of regret, that a certain play would have resulted in a win. Listening to this fear results in wasted capital that could be used better elsewhere.
Greed: We all go on hot streaks. It’s the nature of the game. But we have to constantly ask ourselves if we are seeing value when it’s not there. Greed distorts our view at all times, especially when we are winning.
Humility: The opposite of greed and the answer to the variance of the game. We have a lack of control over what happens — that’s the nature of wagering on uncertain events. You need to have an appreciation of your limited role in the process. Be water — move towards stillness.