The last thing we want when trading on the Betfair exchange, is for our own brains to subconsciously sabotage our attempts to win money; but unfortunately this happens to a lot of people, a lot of the time, because of something called cognitive bias.
Put simply, a cognitive bias is a shortcut which causes us to behave in a certain way, unfortunately because biological evolution moves at a snail's pace compared to societal evolution, cognitive biases can really screw with us, especially if we are sports traders on Betfair.
I want to talk of two in particular that I feel you must be aware of when you're trading, the first one is the tendency to link our self-worth to an activity that we either want to be, or are already good at, There is no single official name for this, so I will call it auto-attribution bias.
The second bias comes from the tendency we have to avoid embarrassment and therefore anxiety at almost all costs, which for simplicity's sake I'll call anxiety avoidance bias. (Note to the psychology students and professionals out there, I am hugely oversimplifying the subject of cognitive and social biases for the purposes of this article.)
Let's look at the first one, auto-attribution bias, take a sport like football, golf, pool, whatever it is, with some people there is a tendency to link their self-worth to that sport. So if they score a great goal or hole a 50ft putt or clear all 7 balls and pot the black, the tendency is to link their great performance with how great you are.
In other words “I am a great footballer, therefore I am a great person”, most of this is subconscious but we can see similar projected behaviour when we idolise sports stars for no other reason than they are great at their sport. We are often shocked if we find out that their private lives don't match up to our expectations of them.
So if we can do it with complete strangers, then we can definitely do it with the person we know best; ourselves. But why do we do it? Why do we automatically link a person to; whether it is someone else or ourselves, being good at something meaning that they too are good?
It is obvious if you think about it rationally that people are good or bad quite independently of their individual skills. One footballer who is amazing might sleep with his brother's wife, another who is terrible at the sport might give 80% of his wages to UNICEF.
You may have even done it yourself when performing badly at a task and say to yourself;
“What's wrong with me today?”
Implying that doing the task badly, means there is something wrong with you.
The answer to why we attribute carrying out a task well or badly to being a good or bad person, is most likely found in the fact that our parents, teachers, sports coaches and our general peers are doing it to us from pretty much day one of our lives.
Listen, I'm not saying that everybody has this bias to the same degree, but, how many babies are told they're special over and over again, for doing something fairly ordinary, like farting or sitting up without falling over?
How many small children are told how good they are for tidying their bedrooms, or getting an A in maths?
From an early age your performance in any activity that merits reward (and a lot that don't) is linked to your self-worth, depending on how much praise you do or do not receive.
By the way, I'm not saying you shouldn't praise your children for doing something that you see as good, but perhaps instead of calling them a good boy or girl for tidying up their bedroom, perhaps it's better to focus on the act rather than the person, as in “that was a good thing you did”.
So back to the point, is it any surprise that after a childhood spent being told you're great (or terrible) for doing a particular activity in a certain way, that by adulthood we are conditioned to believe doing certain activities well or badly is a direct reflection on what sort of person we are?
Clearly each individual will react differently to different stimuli, but auto-attribution bias may explain a lot of overly competitive behaviour, bordering on mania, in some people.
Mike Tyson in his book Undisputed Truth talked of the time when he finally lost his invincible air and lost for the first time to James “Buster” Douglas, he spoke of how he had heard how George Foreman sunk into a depression after losing to Ali in the Rumble In The Jungle in 1974 and Tyson said that he never felt like that after losing because Cus D'amato his mentor had always taught him that he wasn't the thing he was good at, that it was just that, something he was good at, not what defined him as a person.
When it comes to sports trading, we want to make sure that we are not attributing success on the exchange to how we perceive ourselves as people. If we do that, then we are setting ourselves up for disappointment and despair.
The second potentially destructive cognitive bias that can harm our chances of making money on Betfair is anxiety avoidance bias.
When you are experiencing anxiety avoidance bias, you will do anything to avoid things like embarrassment, because that leads to anxiety, and your nervous system places a higher priority on avoiding embarrassment than getting a positive result...
let me say that again;
your nervous system places a higher priority on avoiding embarrassment than getting a positive result....just let that sink in for a second before reading on.
The reason I wrote that last statement twice and I wanted you to let it sink in, is because it's massively important and most people are unaware of it. Like the guy who goes out on a Saturday night, really wanting to meet a nice girl, maybe get her number, maybe more. Then later in the bar he sees his chance, a girl smiles at him, there is a moment of hesitation and instead he makes an excuse in his head and doesn't go over.
Even though at the start of the night his desire to win the heart of a beautiful woman was strong, he felt he would do anything to meet that special someone, but at the moment of reckoning, his nervous system placed a higher priority on avoiding a potentially embarrassing situation than getting her number.
Whether it's a member of the opposite sex, an exam, a job interview, a shot on a golf course or a long odds trade on Betfair, placing too high a priority on avoiding embarrassment is rarely, if ever, a good idea. That is because it leads to a situation whereby you would rather not try than try and fail, because that is mentally easier.
This is sometimes called “getting in your own way”.
An extreme example of a person getting in their own way is a boxer called Robin Deakin a decent enough amateur boxer winning 40 of his 75 lightweight bouts.
A sub 60% win record is not something to write home about, but it signified that he would probably have a decent enough professional career.
However Robin Deakin lost 51 straight professional fights and on the 51st one said
‘Struggle has become my identity, I prepared for the fight. The occasion got to me...”
‘I suffer with nerves real bad...’
So if we analyse Deakin's statement we see the clues there, when he says;
“Struggle has become my identity...” What he's saying is
“My existence inside the ring defines me as a person.”
When he says “I suffer with nerves real bad.” He means “I am always thinking about how bad I look when I lose a fight and I just want to get out of that ring as fast as possible.”
The reason Robin Deakin could not win a single fight in 51 professional bouts wasn't just down to his mental state, I'm sure he met people in that run that were simply better boxers than him. However his mental state meant that he never had a chance against the boxers he should have had a chance against.
There would have been many times in those fights whereby if he had just taken the risk and used the knowledge he'd built up as an amateur he could have won, but the feeling of poor self-worth, mixed in with anxiety, linked to embarrassment meant that his brain gave him the fastest easiest way out of that ring, freeze, lose, then get out there.
So what have these biases that I've described above got to do with trading sports on Betfair?
Well they can effect you at all times, but mostly when you are going against the crowd, going with the crowd is another strong human instinct. However when you're trading there are times when you enter a market going against the crowd, you have backed the underdog or laid the favourite and so that is the time when you are most vulnerable to fearing embarrassment.
These feelings will be magnified if you have attached your feelings of self-worth to sports trading, you will be much more likely to trade out too early or even worse pull out of a potentially lucrative trade, because the fear of looking silly, or fear of something going wrong and therefore reflecting on you as a person, is much bigger than the desire to win.
I myself get these feelings from time to time and they're magnified if I post an underdog tip on Twitter, the potential for ridicule is big, but I remind myself that it's no big deal, if it doesn't work out and even if people ridicule me for my choices (which they never do) it is no reflection on me as a person.
The last paragraph was a clue to how you can make sure that these biases don't effect your ability to make money on Betfair.
Expose Yourself To Potential Ridicule
Often a cognitive bias is an error in thinking and with errors in thinking, the projected outcome is often wildly different from the actual outcome.
If you find yourself feeling overly high when you win money on Betfair and in the depths of despair questioning what's wrong with you, you are most likely experiencing auto-attribution bias.
Or maybe you are the sort of person who is consistently exiting trades too early or you're the sort of person to spot a good underdog bet, only later to change your mind or reduce the amount of risk that you had planned, then you are probably experiencing anxiety avoidance bias.
Firstly you need to join a forum or a twitter group, or even start a twitter group yourself, then you need to start talking to other traders, these are your peers and they are going to be at different skill and experience levels.
Tell them about all your trading, before and after the events, post your losses as well as your wins, what you will find is, that you will lose those potential feelings of embarrassment by posting a loss or tipping an underdog when you realise that it happens to everyone and traders aren't like trolling video-gamers, we're all in it together so why ridicule a fellow trader?
To help with auto-attribution bias, you need to use the same trick Cus d'amato used on Mike Tyson and that is to tell yourself everyday, that you are not what you do, you can be good or bad at a thing, you can win or lose, but you will always be you.
As ever, good luck and happy trading.
The Zen Trader