How many of you bet on Placard, or Bet click, or any other similar gambling website? How many of you have gone to the casino, or want to go and play in the slot machines? All these games generate feelings of excitement, that rush of not knowing what the outcome might be, and if we are going to win or not. But maybe next time you decide to bet on your favourite sport’s team or go to the casino, there are some things you must take into consideration, such as fallacies and biases we sometimes, unconsciously, fall for. With this article, we will explain some of the most common ones, how they work and how they are present in our daily lives.
The Conjunction Fallacy
The difference between plausibility and probability is the source of this fallacy. Normally, we are more inclined to believe in the probability of an occurrence the more detailed it is, when in fact, and according to our statistics and probabilities lessons, it is exactly the contrary: the more exact and detailed an event is, the less likely it is to occur. For example, the probability of a person being a teacher is higher than the probability of a person being a teacher and a woman (even though, when describing a person with these characteristics, it is more plausible if we add more detail and, therefore, can incur in the mistake of thinking that it is more probable).
This is called the conjunction fallacy as it refers that the probability of the conjunction, P(A&B), must be always smaller than the probability of its constituents, P(A) and P(B), as “the extension (or the possibility set) of the conjunction is included in the extension of its constituents.’’
We can relate this fallacy to sports, as there is a lower probability of an event to happen if we add more restrictions. So, for example, let’s assume that:
- Probability of A, P(A), is equal to team A scoring a goal (and the result to be 1-0)
- Probability of B, P(B) to correspond to team B scoring a goal (0-1).
Therefore, the probability of A and B, P(A&B), is equivalent to both team A and team B scoring a goal (and the result to be equal to 1-1). As the probability of the conjunction of A with B, P(A&B), is always lower than the P(A) (or P(B)), then we can assume that the likelihood of a draw is lower than the probability of just one goal.
Applying this to real life, when you bet on Placard, the more you specify the occurrence of an event, the more an outcome, if positive, generates higher rewards, as the probability of occurring is lower. For example, betting on Benfica winning Sporting or Sporting not scoring any goal, if true, generates less money than betting Benfica will win and Sporting will not score any goal.
Hot Hand Fallacy
Another quite common mistake that many people who bet incur in is the Hot Hand Fallacy. As the term suggests, this comes from the bias that people tend to have regarding the likeliness of something that has been successful in the past to continue that way in the future. Because, if for instance, a specific horse keeps winning race after race, it means that next time it will result in the same outcome, right? Well, not necessarily…
In fact, we are only considering a small number of random events, instead of analysing the bigger picture. Although a goalkeeper may be in a “hot streak”, defending every possible goal that comes his way, his average save percentage can be way different. People wrongly assume that a small number of occurrences give the possibility to make safe predictions of what is going to happen. In other words, people infer future outcomes prematurely based on small and recent samples of evidence, disregarding other sources that have been recording performance data for years.
This fallacious reasoning comes from human’s inevitable propensity to formulate patterns and find trends to make sense of the environment that surrounds them. Such usually leads us to have a hard time assessing randomness, viewing events as dependent while they are actually independent of each other.
So, how can we overcome this? Although it is difficult, people should think twice before jumping into conclusions, regardless of how exciting things can be going for them. There’s a need to check and ensure how things usually play out in the long run, to derive better and more rational decisions.
The End-of-Day Effect
Moreover, have you ever noticed that you tend to incur in higher risk when something is about to end, that being either an event or around in the casino, regardless of your previous results being losses or gains?
Once again, let’s use the casino example: you are preparing to leave, and this is going to be your last bet. If your previous results were of gains, then you will tend to incur higher risks, as explained by the hot hand fallacy. On the other hand, if you accumulated losses, then you also tend to incur higher risks, but in this case in an attempt to recover said losses. The end-of-day effect relates to the fact that gamblers are more willing to have higher risks at the end of the session, either to make up for losses or due to the hot hand fallacy. This effect occurs because perceived endings cause participants to be more concerned with gains rather than losses, and this increase in risk-taking in the final round is mediated by a motivational incentive. This motivational stimulus caused by time perception affects the ability to process information in the frontal lobe, interfering with decision making and impulse control.
The Recall Biases
Lastly, the Recall Bias: it can be explained by the tendency to remember and overestimate wins, whilst forgetting about or underestimating losses. Let’s use our old casino example: you have played and lost in the roulette 2 times in a row. However, when you play it a third time, you end up winning. The outcome will be for you to overvalue that win, and forget the other losses, consequently deciding to play one more time, confident that you will win, even though your net effect might still be negative. Another implication of this bias is that losses will not act as an incentive for individuals to stop gambling, since they believe that they will eventually win.
All things considered, any kind of gambling can be addictive and frequently a dangerous behaviour. Examples of individuals getting addicted to gambling, ruining their bank accounts and having negative effects on their own personal lives exist to no end, and the biases and mechanisms presented throughout the article are certainly part of the causes of many of them. Thus, next time you responsibly consider making any bets we recommend you to be mindful and try not to fall into these behavioural traps.
Sources: The Economics of Sports, The Decision Lab, Frontiers in Psychology, ESPN, American Psychology Association, Springer Link, Forbes, Peel Research Partners, VSin.