Have you ever spotted a bet that you thought had more than an even chance of winning but when you went to check the bet on Betfair the odds were way over evens?
But instead of taking the bet, for some reason you just don’t and then later, when you watch it win, you’re left upset and frustrated because you can't explain why you wimped out at the last minute? Wouldn’t you like to know why you do that and how to stop it and therefore start making money from these “great spots” that you make?
The reason it happens is because of a cognitive bias known as loss aversion. Loss aversion happens because most human beings weigh losses heavier than gains. This means that when you are in a situation whereby you are trying to make money on Betfair, you are more likely to pass up bets with bigger odds over smaller ones.
The reason for this is that you know in general, the bigger the starting odds for a bet to win the less likely that bet will win. So if you decide to cover a certain bet you may believe it’s going to be the favourite and you’re expecting certain odds. But then you login to Betfair, navigate to the event and discover that the team or individual you want to bet on isn’t the favourite, in fact, far from it.
So now we have at play two powerful human psychological factors at play here; the first is herd behaviour the second is the cognitive bias we’ve already talked about loss aversion.
The lower odds; the favourite, represents the herd and we are hard-wired to follow the herd, it takes conscious effort to buck the feeling. But without that conscious effort are feelings of loss aversion are triggered "what am I going to lose by going against the herd?"
So you walk away, don’t take the bet and end up frustrated.
This is a dangerous situation because you may well be angry as well as frustrated and that can cause you to slide into something poker players call “tilt”. Whereby after what you consider a “bad beat" an unlucky loss, you make one bad decision after another and fritter away your remaining bankroll.
So the big question is; how do you make sure this doesn’t happen to you and not let a cognitive bias effect your earning potential as a sports trader?
I believe the answer is two-fold, first it’s a matter of good practice and that is to make up your mind about an event before you login to Betfair. This might sound obvious to you and if it’s something you do anyway then you are halfway to beating the loss aversion bias.
Even if you are already logged into Betfair and you realise there’s an event you wanted to trade that you forgot about, don’t go straight to that event unless you have already made up a definite plan and you have externally vocalised that plan to yourself.
Step two is simply a case of allowing your mind to take a step back and look at the bigger picture. If you concentrate on that one bet, then it is a lot more likely that you will have doubts over it when you see odds that don’t correspond with your expectations.
However if you think about the fact that you’re in it for the long haul then you won’t feel so pressured to make the right decision all the time. There are times you will lose and there are times you will win, if your research is sound and there’s a genuine reason you believe there will be an upset and you feel you have a knack for spotting such things. Then go for it and think to yourself; “over the course of the season I’ll get a couple of these wrong, but overall I’ll get enough right to be on top and that’s what matters.”
It’s as simple as that, you give yourself permission to lose now and again, whilst reaffirming you know how to research and how to apply that research. By doing this you calm the mind down, it works because the parts of the brain that control speech, hearing and speaking are all different, which is why self hypnosis of this type can be very effective in controling your decision making.
So the next time you see that great spot of a bet, follow these two simple steps and take the plunge. Over the course of time you’ll be up and each time you override the feeling will make it a little easier the next time.
As ever, good luck and happy trading
The Zen Trader