How Does Loss Aversion Impact How You Gamble?

There is an interesting psychological phenomenon which is sometimes observed in people who are facing win-or-lose situations.  If the possibility of loss becomes imminent or even seems imminent, people experience what is known as “loss aversion” and change how they behave.

If you play or watch sports, you probably have observed this.  For example:

• The player who has been on a losing streak and suddenly pulls it together, performs better than he has in weeks, and shocks everyone with a surprise win.

• The football team that is winning but not with such a significant margin that they feel safe.  In the final minutes of the match, they suddenly switch to playing with a more defensive strategy—even if an offensive strategy got them there.

• The golfer who refuses to go after a birdie because he is afraid of a bogey.  He settles for par, even if he didn’t have to.

Basically, none of us like to lose.  When we are on a really bad losing streak, we push ourselves harder in our desperation to turn the tables.  If we are winning, we feel desperate to protect our winnings and forestall even the possibility of a loss.

This can affect you in gambling too.  The exact impact depends a lot on your specific personality and play style.  Some people may react to loss aversion by becoming more conservative.  Others may do just the opposite.  They might throw everything on the line and go on tilt.  Still others may suddenly experience a burst of skill and insight and end up doing really well.

It is vital to develop an awareness of your own reactions to loss aversion.  Next time you are on a losing streak, ask yourself the following questions:

• How do I feel when I notice I’m experiencing significant drawdown?
• What do I do regarding sports betting money management?  Do I suddenly put down higher stakes, or do I reduce my risk exposure to curb my losses?
• Do I play more or less aggressively? 
• Which (if any) of my behaviours are helping me?
• Do I make foolish mistakes that cost me even more money?

Loss aversion can easily lead to a loss of control.  But it can also terrify you right out of gambling on sports at all. 

The best approach is usually to back off for a while and see if you can figure out why you are losing so much money.  Assuming you are playing with a useful betting plan, you should be able to troubleshoot the problem, figure out what has changed, and then get back to the tables.  That is one of the great things about gambling—unlike an athlete playing a sport, you are not necessarily on someone else’s schedule.  You can take time out as you need it to regroup and come back strong.

Remember, loss aversion can also affect you when you are winning.  The next time you are winning a tense game, ask yourself some similar questions:

• How do I feel when I am winning?  Calm?  Proud?  Excited?  Anxious?  Scared?  Do I worry I worry Lady Luck is about to turn on me?
• How do I manage my money?  Do I increase my stakes, decrease them, or maintain the same level of risk?
• Do I start playing overly conservatively, to the point where it holds me back from my best performance?
• Do I become exceedingly aggressive, irresponsibly exposing myself to higher risk?
• Are any of my behaviours actually helping me?  If so, which?
• What mistakes am I making which are costing me money?

Loss aversion can cause such a broad range of reactions in different players that no two players may experience it in exactly the same way.  Interestingly, both a winning player and a losing player at a poker table could be experiencing loss aversion.  The loser is desperate to stop losing, and the winner is desperate to maintain his win.  Yet one player might react by going loose while the other becomes more conservative - and there is no saying which will be which. 

Do everything you can to increase your awareness of your own behaviour.  If you find you are making choices which are actually eating into your wins, then it is time to teach yourself new ways to deal with the fear of losing money.  If possible, you should also watch other players to try and discover how they react to loss; it may give you an edge at the poker table.