Behavioral Economics and Gambling: How Irrationality Shapes Betting Patterns

For ages, psychologists have studied the behaviors of bettors to try to come up with a rationale for perhaps helping in times of crisis; the biggest one related to this practice is problem gambling. These studies have provided a great framework to explore why gamblers do what they do and what prompts them to certain gambling actions. 

In the captivating realm of gambling, more often than not, reasoning has been known to take a backseat. As the neon lights of Vegas flicker and attract gamblers to brick-and-mortar establishments or as the allure of great online establishments like Vulkan Casino beckons, irrational symphony plays a big role in this industry. 

The Sunk Cost Effect

The Sunk Cost effect is a well-known psychological construct that has fascinated professionals for quite some time now. This loss aversion in economics describes when individuals continue to devote their time, effort, or resources to activities that are no longer untenable. In the world of staking, this cognitive bias manifests itself in the following ways:

• Loss Chasing: Perhaps the most famous realization of the sunk cost effect, this phenomenon is one of the most prevalent in modern-day wagering. Imagine a gambler who’s lost all his money wagering at a poker table. The logical move would be to walk away. As a matter of fact, a gambler who’s got his priorities set straight wouldn’t be found in a situation where they’ve lost all their money while gambling. Yet, even with this loss, this gambler continues wagering in the hopes that they’ll recoup what they have already lost, which is significant.
• A False sense of control- Many bettors you’ll meet will have the illusion that they are in control, even when the odds are stacked against them. While it’s great to have confidence in yourself, you’ll often find that these gamblers do not influence the outcomes of their gambling forays.
• Emotional attachment to the trade- In as much as gambling is a trade that involves financial transactions, when you’ve ultimately invested time, effort, or money into a trade, you are bound to be emotionally attached to it. The Sunk Cost effect accentuates that feeling, leading you to make irrational decisions.

Mental Accounting

Nobel-Prize-winning economist Richard H. Thaller popularized the notion of mental accounting. In essence, this theory looks at how human beings try to place value on money based on subjective principles, a way of life that often leads many into the rabbit hole of making unwise financial decisions. As you can imagine, in wagering, a trade that heavily uses money, a lot of bettors do mental accounting. 

Casino platforms know exactly how to leverage your mental accounting capabilities to lead you into making irrational decisions. For instance, wagering’s most popular facet is the issuance of bonuses, which have become the bedrock of many online betting platforms today. Many gamblers perceive bonuses as extra money, leading them to wager more money. The idea of wins and losses is also taken from the perspective of mental accounting. Wins will likely influence you to want to bet more, while losses may hurt, but mental accounting keeps them compartmentalized, urging you to wager more.

The Gambler’s Fallacy

The Gambler’s Fallacy is a famous psychological idea that postulates that people incorrectly assume that if an event has happened more frequently than expected, then the likelihood of that event happening again is low. From a gambling perspective, if you’ve lost to the house five times in a game of online poker, then the Gambler’s fallacy will pique your head with the idea that the sixth time might do the trick.

Once you lose the sixth round, then the Gambler’s Fallacy is also likely to take a stab, urging you to go for the seven, as it might be the lucky break you need. Once players grasp the concept of the gambler’s fallacy, they’ll undoubtedly start making wiser and more informed betting decisions.

The Hot Hand Effect

Those of you who are ardent sports fans will undoubtedly have experienced the hot hand effect either consciously or subconsciously in one way or another. This phenomenon is where individuals expect streaks to continue. In the wagering realm, people will expect you to win your next wager if your previous one was successful.

The idea is that you have luck on your side, so you are more likely to use this streak to continue winning. While researchers initially dismissed this phenomenon, more recently, studies have shown that this construct is not as unfathomable as was once thought out. That said, it shouldn’t be the basis on which bettors make irrational decisions.

Unpacking Irrationality

Regardless of the theories involved, it is improbable to try and pinpoint the specific choices that influence individual players throughout their gambling trade. While some of these irrational theories have led to significant losses, others have led to unexplained wins. No matter what these theories are rooted in, it is fair to say that we may never fully understand them. However, an attempt at explaining them may influence players to make more informed and rational choices as they gamble.