Public perception of sports betting is often that it provides no redeemable value for society, with those participating in the trade called degenerates and those who talk about the profession deemed "touts." But beyond all the sordid overtones, the sports betting world provides a fascinating backdrop to study how emotion and human biases lead us to bad decision-making.
It's something I found fascinating enough to write a book about and something I will attempt to summarize below.
Here are the five most common cognitive biases of sports gamblers that lead to mistakes:
1. The availability heuristic
Also known as recency bias, the availability heuristic is a bias that causes humans to place too much weight on an event they can readily imagine. Whether it's a blowout on "Monday Night Football" or a no-hitter in a pitcher's last outing, it's hard for us not to be swayed by the memory of recent dominance.
One recent example of this bias involved the Pittsburgh Steelers. The Steelers had a tremendous run with three huge home wins against Houston, Indianapolis and Baltimore. Quarterback Ben Roethlisberger was nearly perfect, throwing 14 touchdown passes and zero interceptions in that span. Anyone who watched those games could see visions of Big Ben and his historic run, and as Pittsburgh prepared for a road game against the hapless 1-8 New York Jets, it was hard to imagine the Steelers losing.
The line reflected that sentiment, as the Steelers were bet up to 4.5-point favorites and the majority of the action was on Pittsburgh.
We all know what happened. The Jets dominated the Steelers, winning easily 20-13, and Roethlisberger had one of his worst starts at a professional.
While this one result proves nothing, it does illustrate the bias we all have when we can readily imagine one and only one outcome.
2. The gambler's fallacy
This is an appropriately named bias describing the tendency to look for patterns in past events that don't have any predictive value. The simplest example of this bias is in the game of roulette. We've all seen the magical sign above the roulette wheel that shows the results of the last 20 spins. If the last 10 have all landed on a red number, the natural inclination is to believe that black is "due."
But in this case the history means nothing, because each spin of that roulette wheel is random and independent. There is nothing learned from the past spins, though many gamblers have stared at that past pattern of spins and believed that black was an advantage play on that 11th spin.
Similarly, gamblers will look at past outcomes in sports and look for patterns that they hope will predict the future. Say a good baseball team, like the Oakland Athletics, has lost five games in a row; the thinking is that it certainly won't lose six in a row. Yet for the most part, each game the A's play is an independent trial; the fact that they have lost five in a row isn't an indication that they are due to win a game.
Sports bettors will also face this issue, believing after winning a few bets in a row that they are a hot streak. They may end up betting more games than usual because they want to take advantage of that hot streak. But their hot streak is likely a product of variance, not any sort of higher power controlling their luck or elevating their skill. Their win percentage for their next bet will be in line with what their historical win percentage is, not some recent streak of good fortune.
One of my favorite examples of this flawed thinking comes when pundits look back on the season-to-date betting trends. They will look at how underdogs have fared versus the spread and make statements like "this is the year of the underdog" or "this is the year of the over" with the idea that these past trends have predictive power for the future. The reality is that these trends have little-to-no predictive power. There is no relation between these past events and future events. In fact, since betting markets are dynamic, future lines will reflect and adjust for any biases in the data.
3. Confirmation bias
We all have a tendency to remember or seek data that supports a hypothesis we have already and forget or disregard details that contradict our hypothesis. This is called confirmation bias, and it has led many a gambler astray. A great example of this from my past comes from the blackjack tables.
To this day, many people ask me: "What did you do about the other people at your table?" I usually answer, "What do you mean?"
They respond by asking about other players at the table who don't know how to properly play blackjack and often do the "wrong" thing. "How do you keep them from ruining the cards?" they ask.
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We all have a tendency to remember or seek data that supports a hypothesis we have already and forget or disregard details that contradict our hypothesis. This is called confirmation bias, and it has led many a gambler astray.
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They are referring to a relatively common belief that others at your table can negatively affect the cards you get at the blackjack table. The common explanation is, "I see it all the time. I have 15, and the dealer has a five up. The guy next to me has 15 also. I stand (not taking another card), but he decides to take a card and gets a 10 to bust. Then the dealer flips a 10 and gets a six to make 21 and beats me. If that guy didn't take a card, we all would have won. He ruined the table for all of us."
But the problem with this explanation is that the player could have easily hit (taken a card) and received a six. And then the dealer could have hit and received a 10. In this case, the same player would have saved everyone at the table. But because we want to believe that this person at our table isn't as good at blackjack as we are, we remember only the times the other player did something that hurt us. This is confirmation bias.
In sports gambling, we see this when gamblers have an opinion on a game and start quoting only facts that support that opinion. Touts are often guilty of this when they use meaningless trends to support a pick they are making. Often they are ignoring just as many trends that would point to the other side of their bet.
If you Google "Super Bowl 2014 betting trends," you will see equal numbers of trends pointing to Denver as you will pointing toward Seattle. Yet different articles will indicate trends pointing clearly to one winner. OddsShark of SB Nation wrote a column titled "Super Bowl 2014: Betting trends favor NFC, underdog in Broncos vs Seahawks," while NBC Sports ran an article quoting the same source titled "Trends, computers favor Broncos on Super Sunday."
Data should help you come to a conclusion, not the opposite.
4. Outcome bias
This is a powerful bias for gamblers to overcome because sports are an outcome-dominated industry. For the most part, you either win or lose -- and that's all that matters. But what contributes to that outcome can be largely luck or variance.
For example, in blackjack there is a set of rules called basic strategy that governs each action you take at the table. Based on what cards you have and what the dealer is showing, there is a right action a player should take.
If the dealer has an eight showing and you have 16, basic strategy would tell you to hit. If I was standing behind you at a blackjack table and you had that exact situation, I would tell you to hit. If you got a five to make 21 and won, I'm a genius. If you get a six to make 22 and lost, I'm a moron they should have never made a movie about.
But in both cases the decision and process were correct, which is why it's important not to focus on outcomes but instead what goes into that outcome.
Take the Week 6 MNF game between the St. Louis Rams and the San Francisco 49ers. The Niners won that game 31-17, and if you looked at only the score you would have thought they completely dominated. But it was really two plays that caused the game to be a blowout. The first was an inexplicable gaffe by the Rams defense that allowed the Niners to score an 80-yard TD right before halftime, and the second was a meaningless interception return for a touchdown with one minute left in the game.
While both of these plays certainly were indicative of St. Louis' weaknesses, they overshadowed the outcome of the game and skewed the final result. Perhaps that's why the Rams were a 10-point underdog to the 49ers three weeks later -- a game the Rams won outright 13-10.
5. Hindsight bias
Hindsight bias is probably the most fun bias of all of these, and it is exactly what the name suggests. It's the consummate Monday morning quarterback, looking back after the fact and identifying all the things that should have been so clear to you now that you know the outcome. However, the only reason those things are so clear is that you know the outcome.
You hear it all the time on sports gambling shows when the hosts will talk about the previous week and will play revisionist historian. Take the New England Patriots' Week 9 43-21 blowout over the Denver Broncos. Before the game, the narrative was that Denver was the best team in the league by far. After the game, the narrative was any time you can get points with the Patriots at home you should take it.
So how do you overcome these biases? The simple answer is that you can't truly ever overcome them. As humans, we're always going to be subject to biases. The best way to combat them is to try to remove subjectivity from the decision-making process and understand how these biases can color your decisions. Don't ignore data if it doesn't align with your existing opinion. Avoid overreacting to small sample sizes, look at analytics and stats before making your decision, not vice versa, and create models or frameworks that are devoid of subjectivity.