💵 The Gambler's Curse

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Been thinking a lot about gambling lately. How everything's a gamble and everyone's a gambler (whether they realise it or not)...

We wrote about the parallels between sports betting and financial markets for CapX here 👇

As with so many things that often get lumped into negative news coverage, gambling is massively misunderstood. The focus is always on the gambling 'problem'...

Articles tend to feature Disappointed from Milton Keynes who turned up expecting easy money and leaves disappointed, or the problem gamblers (addicts) that just can't stop. We've all seen those pieces.

Rarely is there an honest attempt to understand or even explore the gambling urge. Ironically, journalists don't want to take that risk (just in case they're misinterpreted as promoting or supporting gambling?)

It's a far safer bet to sneer at the plebs...

Gambling is seen as a vice, something to be frowned upon. A way for the reckless and feckless to lose money. But those who sneer at the silly gamblers and their adventurous urges may be shocked to learn that gambling isn’t inherently bad. Or that, at the core of modern society, ‘gamblers’ are hiding in plain sight.

Trading and investing is simply a more sophisticated version of gambling. Which is where the gambler's curse comes into play. Also known as...

The Inevitability of Regret...

“Right after making a choice and right before finding out about the outcome, the brain is replaying and revisiting nearly every feature of what happened during the previous decision,”

Such as...

That's taken from this  Berkeley neuroscience research, who tracked the different parts of the brain involved in the decision-making process.

“After the subject has made a decision, the brain, far from idly waiting to find out the outcome, was busy revisiting what occurred during the previous decision – everything from whether they gambled and how much was won or lost, to how much regret they felt from their earlier decision,”

Intriguingly, they think 'regret' is actually a healthy response.

“If you don’t feel any regret, you are getting close to the world of addictive or antisocial behaviour,”

But repeated exposure builds tolerance. Is it that unhealthy to understand that regret is a false feeling? That we can't know the future?

That sometimes things work out for all the wrong reasons, and other times, even though we do everything 'right', lady luck still deserts us?

Traders will definitely be familiar with this concept 👇

The Punishment Cycle

 Waking up to enjoy another day of the punishment cycle.

TikTok (with @jimtalbot): https://t.co/A3J2ulUGID pic.twitter.com/8XoJ4GPTMF— Cold Blooded Shiller (@ColdBloodShill) November 16, 2022 

It doesn't sound like much fun, but there are countless lessons to be taken from gambling, trading & investing that cross over into everyday life.

At the heart of this is the gambling urge. We are all gamblers. Most prefer not to call it gambling (probably because of the negative stigma), but we all make implicit bets, across multiple domains, throughout our entire adult lives.

It’s uncomfortable to admit, but no matter how smart you think your endeavour is, there’s always risk and uncertainty involved. That’s the nature of existence.

Smart gamblers simply know the conditions that are more likely to generate a positive outcome. Dumb gamblers tend to repeat the same bad bets, remain ignorant of risks, and, unless they’re very lucky, achieve the same negative outcomes.