As someone who had worked for a bookmaker for a couple of years, I have seen countless examples of individuals following their reasoning into financially damaging betting strategies. It always comes across as absurd when an average sports fan truly believes they can pick a good bet from a bad one, knowing well that the industry takes enough money to form markets so efficient that only select few individuals can consistently beat them. And this absurdity has fuelled the growth of online gambling into a billion-dollar industry over the past decade.1
Why people mistakenly think they’re skilled gamblers
The question I have always wondered as a bookmaker is simple: What makes people so sure they’re right? Most customers are aware that these companies are wildly profitable, so why do they view themselves as an exception? Recent work2 argues for a simple conclusion — gamblers intuitively form biased interpretations of how gambling works and can use their experiences and motivations in a self-serving manner to align with their decision-making. In other words, we’re good at convincing ourselves that we’re more skilled than we really are.
The product is the so-called ‘mother of all psychological biases’: overconfidence. Bettors believe themselves to be more skilled and informed than they truly are, and they underestimate the extent to which the odds are stacked against them with any commercial sportsbook. And bookmakers use this to their advantage.
Behavioral Science, Democratized
We make 35,000 decisions each day, often in environments that aren’t conducive to making sound choices.
At TDL, we work with organizations in the public and private sectors—from new startups, to governments, to established players like the Gates Foundation—to debias decision-making and create better outcomes for everyone.
Some firms want to teach customers to gamble better
While most online firms would much rather exacerbate this bias instead of helping individuals acknowledge their limitations, the ‘sharp’ bookie Pinnacle has become an anomaly by producing genuinely useful guides on how to apply insights from mathematics, economics, and psychology to gambling behavior. In recent times, Pinnacle has published articles on the effects of confirmation bias, heuristics, the halo effect, the hot hand phenomenon as well as the illusion of control, all noted facets in behavioral science. This has occurred alongside a successful business model of both running less juice (i.e. margin) than competitors and offering customers the highest betting limits one can find.
This doesn’t entirely add up, does it? Pinnacle has no problem in allowing sharp customers to stay around — and they even try to teach you skills that will make you more effective in playing against them — yet their business has reportedly only become even more successful over the past couple of decades.
There is one clear insight here. Pinnacle can afford to inform gamblers of their limitations because simply informing them isn’t enough to deter them from loss-making strategies. The age of cognitive psychology research that led to the birth of behavioral economics was heavily built on the notion that humans are not good statisticians, and that when offered an opportunity to display effective probabilistic reasoning, they often fall short. The profitability of sportsbooks is a grand illustration of this.
The future of gambling
Following a 2018 Supreme Court ruling overturning a long-held prohibition on sports betting, online gambling is nearing an explosion in the US market. Meanwhile in Europe, several mergers and acquisitions have left the industry creeping towards a powerful oligopoly. As neither of these evolving situations face any sort of intense regulation, it is a pressing question to policymakers as to whether this is a problem or not.
Most bettors gamble in the company of friends, with the purpose of making the sporting experience more enjoyable. For most of them, that is a price they are willing to pay. The issue is that in deciding to dismiss the application of more rationality-based economic models to gambling behavior, we don’t have enough research to put forward anything better.
Two years ago, Nature ran an editorial titled ‘Science Has a Gambling Problem’, in which it is argued that neither governments nor academia pay enough attention to the problem of gambling, and that research is sparse and underfunded. It’s concerning that two years later — while online gambling has skyrocketed even further — this position has barely changed.
A paper from Livingstone & Adams3 set out some key principles for the practice of effective gambling research, but this is an ideal that still feels a long way from fruition. In fact, the only major published report on the potential for behavioral science in gambling4 falls rather short. While this report notes that small interventions prove effective in reducing excessively risky play, it’s a very small first step.
Working with SkyBet and Bet365, the interventions aimed at reducing friction in accessing responsible gambling information showed a fairly small level of practical significance. They were also relevant to only the small percentage of customers that the bookmakers in question had decided had already crossed into ‘at-risk’ territory.
Opportunities to nudge gamblers
So, what about the numerous opportunities for nudge style interventions in the actual act of placing bets? Why should we wait until someone is dealing with the serious mental costs of gambling before trying to help them consider their actions?
Research forays such as this are mirrored by comprehensive evidence that bookmakers themselves have been taking advantage of behavioral factors in their marketing campaigns for quite a while now. In a survey of bookmakers’ advertisements from the 2014 World Cup,5 evidence suggested that ads which incited the representativeness heuristic, such as the odds that a team’s star player scores the first goal, helped move customers toward bets with the highest expected loss. Additionally, papers from Lopez-Gonzalez and colleagues6,7 highlight the power of gambling advertisements in playing into the illusion of control, as well as the perception of ‘normal’ gambling behavior.
The AI Governance Challenge
All of this and more is highlighted in Newell’s paper on ‘Dark Nudges in Gambling,8 which further emphasizes one key point: Gamblers are being influenced into playing a highly unfair game, and regulators are not doing much about it. Bookmakers publicly claim to value responsible gambling, but the pitiful offering of such resources on their online platforms suggests otherwise. In any case, attempts at nudging gamblers towards these resources are outweighed by the attempts to nudge them towards the bets that got them in trouble in the first place.
What can be done
As the world emerges from quarantine in the coming months and professional leagues resume, many people will be influenced into losing more by betting online, and behavioral science has the tools to try and help them. While the path from here to better research (and eventually to better policy) will be complex and time-consuming, I thought I would end with some low-hanging fruit that forms a foundation to be built on:
- Remove the ability for bookmakers to place pending periods on cash withdrawals from accounts. On most sites, customers can deposit money to bet instantly but must sit through a waiting period to take out their winnings, allowing them to cancel their withdrawal when they’ve been enticed into another bet or have changed their emotional state. In behavioral science, this is called ‘sludge’.9
- Increase salience of overrounds/juice. Most customers will not be aware of the margin placed on the ‘true odds’ of bet outcomes. Increasing its visibility makes it clear how much of an edge the customer needs to be profitable. This would also discourage bookmakers from pushing their margins too high and promoting bets that maximize the customer’s expected loss.
- Decrease friction in seeing one’s lifetime P/L ratio. Most betting customers will not know how to see their total net profit/loss with a firm. This should be accessible within one click from the bookmaker’s homepage. Seeing one’s past losses may help them question their current prospects.
Gamblers are being influenced to play an unfair game crafted by firms that use the irrationalities of gamblers against them. Through easy changes such as these, the 2020s can be the decade in which gambling becomes fairer.
- Markham, F., & Young, M. (2015). “Big gambling”: the rise of the global industry-state gambling complex.
- Armstrong, T., Rockloff, M., & Browne, M. (2020). Gamble with Your Head and Not Your Heart: A Conceptual Model for How Thinking-Style Promotes Irrational Gambling Beliefs. Journal of Gambling Studies, 1-24.
- Livingstone, C., & Adams, P. J. (2016). Clear principles are needed for integrity in gambling research. Addiction, 111(1), 5-10.
- The Behavioural Insights Team (2019) Can behavioural insights be used to reduce risky play in online environments. Birmingham, UK: Gambling Commission. Available from https://www.reducinggamblingharms.org/asset-library/BIT-Report-Phase-1.pdf
- Newall, P. W. (2015). How bookies make your money. Judgement and Decision Making, 10(3), 225-231.
- Lopez-Gonzalez, H., Estévez, A., & Griffiths, M. D. (2018). Controlling the illusion of control: A grounded theory of sports betting advertising in the UK. International Gambling Studies, 18(1), 39-55.
- Lopez-Gonzalez, H., Guerrero-Solé, F., & Griffiths, M. D. (2018). A content analysis of how ‘normal’sports betting behaviour is represented in gambling advertising. Addiction Research & Theory, 26(3), 238-247.
- Newall, P.W.. Dark nudges in gambling. Addict Res Theory. 2018: 1–3.
- Thaler, R. H. (2018). Nudge, not sludge. Science, 361, 431-431
About the Author
Stefan Kelly is an MSc Behavioural Science candidate at The London School of Economics and Political Science. He is interested decision-making under uncertainty, political psychology and behavioural insights in policy-making. He is currently undertaking research involving polarisation processes and experience of meaning in life.