Here's the "duck's
guts" of an interesting article I came across on the New Yorker
It simply says:
If you present people with an even chance of winning a hundred and
fifty dollars or losing a hundred dollars, most refuse the gamble,
even though it is to their advantage to accept it.
if you multiply
the odds of winning—fifty per cent—times a hundred and
fifty dollars, minus the odds of losing—also fifty per cent—times
a hundred dollars, you end up with a gain of twenty-five dollars.
If you accepted
this bet ten times in a row (assuming the chance remains the same),
you could expect to gain two hundred and fifty dollars.
But, when people are presented with it once, a
prospective return of a hundred and fifty dollars isn’t enough
to compensate them for a possible loss of a hundred dollars. In
fact, most people won’t accept the gamble unless the winning
stake is raised to two hundred dollars - in other words their mental
calculator tells them that even though the odds are even money,
they want 2/1 as some sort of compensation for playing.
The article also noted that this loss
aversion is due to the fact that under ambiguous situations (or
situations that involve probabilistic estimates in face of incomplete
information to make the probabilistic judgments), our 'emotional'
brain takes precedence over the 'rational' brain and prevents us
from making 'rational' decisions.
Some folk though simply don't see the
opportunities even though it is right there in front of their eyes.
In a lot of cases it is simply because they don't take the time
to look at the information presented.
Two of the most important factors to
me are class and distance. Is the horse running in its correct class?
Has it performed well in this class before. Does it consistently
get flogged in this class even though it can win in a weaker class?
Is the horse stepping up too much in prize money race for today's
race - by that I mean, has it been running in $15000 races and today's
If you look at the form guide - one
assumes you at least do that - do you look to see how the horse
has performed at today's distance? Is it's winning from, say 1400
to 1600 metres, and today's race is 1100 and do you note that it
has started 5 times in races less than 1200 metres and been unplaced
on all occasions?
These are the exact same "signs"
that people don't see when they are presented with a positive gambling
opportunity in which you have a fair and balanced chance of success.
In another of these endless studies
- but this one is worth thinking about - a group of volunteers placed
bets on whether the next card drawn from a deck would be red or
In an initial set of trials,
the players were told how many red cards and black cards were in
the deck, so that they could calculate the probability of the
next card’s being a certain color. (And undoubtedly adjusted
their "bets" accordingly. It's why they go out of their
way to foil card counters in casinos)
Then a second set of trials was held,
in which the participants were told only the total number of cards
in the deck.
Now the first trials correspond to
the theoretical ideal: investors facing a set of known risks so
they participated more freely.
The second setup was more like the
real world: the players knew something about what might happen,
but not very much. As the researchers expected, the players’
brains reacted to the two scenarios differently. With less information
to go on, the players experienced more "fear controls"
in trial number 2 and played less. Hardly a shock to the system!
The results of the experiment suggested
that when people are confronted with increased ambiguity, their
emotions overpower their reasoning, leading them to reject risky
propositions. (Sometimes not a bad move by the way)
HOWEVER, it raises the intriguing
possibility that people who are less fearful than others
might make better investors. So - today's question: what would you
do if you weren't afraid?
And does having a non-optional staking
plan decrease the fear factor and keep those negative emotions in
check? Just asking.
racing systems and research