Is “present bias” costing you money?

How this normal, natural impulse could stop you winning big.
 
I’ve long been interested in those things which fall outside the visible, practical, you might say, physical side of betting.

The “known knowns” as Donald Rumsfeld would put it are things like form study, results, profit and loss accounts, ROI figures.

These all are important to the process and we readily understand what they are and what importance they have to how we bet and what decisions we make in terms of our day-to-day trading.

However, besides these tangible components to betting. The things we can see, and more readily understand. There are many less obvious, harder to quantify, more “airy-fairy” components to the pursuit of betting success.

The mental and psychological aspects. How we’re wired as human beings. The things which, mostly subconsciously, control our behaviour in general… and our betting, in particular.

Because we all act, to lesser or greater degrees, according to these internal drivers.

These in-built, human responses and reactions.

And often’s the case that our success, in whatever we choose to do, is to some degree affected by how we control and apply these mental processes, or brain mechanics.

Cognitive bias – as the clever people will tell you.

And an example of this is something called “present bias”.

It affects us all and, as you’ll see, can have a huge impact on our success/failure in all that we do – and, in this case, in terms of our betting.

Now for much of the wording below I’m indebted to the article “Present Bias – Everything You Need to Know” on the insidebe.com website (read it in full here)

I’ve paraphrased their words, just to shorten their in-depth feature.

Here goes…

So what is present bias?

Present bias is the tendency to focus more on the present situation than the future when making decisions.

This can lead us to prioritise short-term rewards over future pay-offs, even if that decision costs us in the long-term.

Likewise, present bias can make us react adversely to (or avoid altogether) immediate discomfort… even if it leads to larger negative outcomes in the long run.

Present bias makes us favour immediate rewards, even if larger rewards are potentially available in the future.

How does present bias work?

Present-biased people shift their priorities to fit their present situation.

They justify decisions that make the present moment easier, more pleasurable, or less painful – even if that justification can be seen as objectively irrational.

How present bias manifests in everyday life…

Let’s say you want to get a new TV. You’ve done the research and found the ideal make/model.

The only issue is the price… it’s much more than you want to spend, and you’ve not got the money to hand right now.

The alternative option is that “Black Friday” is coming up in a couple of months time – when retailers traditionally offer reduced prices on all sorts of white goods.

You could wait, saving money, and put up with your current TV until then. But with every passing day you’d much rather be watching the football on some brand-spanking new 50” plasma screen with surround sound… than your current smaller, slightly battle-scarred, 5-year-old gogglebox.

So, you decide to take the plunge – BUY IT NOW. Just put the new telly on Klarna (or some similar shop-based credit scheme).

Yes, you’ll be charged a higher overall price by the time you’ve paid it off… but you’ll get to watch the upcoming Champions League final, or Masters golf, or whatever it is, in glorious technicolour with cinema-style quadrophonic sound…

… and you can worry about the money side of things another day.

This is present bias in action.

Rationally speaking, most people would agree that the extra cost (right now) isn’t worth it just to have a better TV a few weeks early. Despite this, you’ve prioritised the immediate desire for a getting it now over a worse financial position down the line.

What impact does present bias have?

Here are three common impacts of present bias…

But do you? The grass isn’t always greener, and all services will ebb-and-flow in terms of results. Where you’re at might well be the better option.

The link to loss aversion

Another behavioural economics concept that’s closely tied to present bias is loss aversion – the tendency to dislike losing things over gaining equally valuable things.

Loss aversion and present bias can manifest together in what behavioural economists call “myopic loss aversion” – with ‘myopic’ meaning nearsighted.

Nervous investors who continually checked the value of their stocks and sought frequent updates on their investments were inclined to take fewer risks and earned less money overall.

Myopic loss-averse individuals are overly sensitive to losses and are focused on the current state of their investments. Academic studies have found this approach can cause unwarranted meddling (and decision-making) that leads to lower long-term returns.

Studies have found that investors who continually checked the value of their stocks and sought frequent updates on their investments were inclined to take fewer risks and earned less money overall.

What this means for backers…

As you can appreciate, if your way of operating is driven by purely short-term goals, or even if the majority of your actions (in terms of betting) prioritise the here and now over future events, then this will have an impact on the outcome.

We all want success this very minute. On demand. And would much rather be counting our winnings before the day is out.

And many will fly off the handle when this isn’t the case.

But to allow this immediate disappointment govern some/all of our future decisions – not having a bet, cancelling a service, giving up on a particular sport – can end up costing us down the line.

And the point of present bias is that very often, we don’t even stop to think about this. Act now, deal with the consequences later. That’s frequently the human response… but it’s not always the right one.

Because if the consequence is to be less successful, to back fewer winners, to make not as much profit… is this such a good thing?

 

OPINION: Betting is a highly emotional pursuit. And frequently it’s one where reactions, made in a split second, can have huge consequences. Missing a number of winners, failing to collect on a big gamble, losing out on a special offer. All can be the result of “present bias” at work. Where you act predominantly on the position you’re in right now, as opposed to waiting for a better one tomorrow, or next week/month. It’s a human instinct, yes, but it’s one that the winning punter needs to recognise, understand, and control to keep being successful.