Overconfidence on Betting Decisions

One way of making ‘cheap’ money is by simply placing a bet for a team or teams that you are confident are going to win. You can invest as little as a dollar and gain thousands, hundreds of thousands or even millions in the case of a mega jackpot. In a day, you could move from simply becoming a poor person to a millionaire! That sounds outrageous especially in developing nations like Kenya where jobs are scarce and making money has proven to be a daunting task for most people, but indeed a very attractive prospect. Betting decisions depend on a lot of things; how risk averse or risk-loving a particular individual is, the probabilities associated with the said bet and the team history of the different league teams among others. However, some simply bet recklessly because they are overconfident hence ending up over-estimating their ability or underestimating certain risks. Betting companies have since taken advantage but the question remains; why do people bet the way they do and continue doing so despite having multiple losses and minimal gains? We’re going to look at betting due to incorrect beliefs focusing primarily on overconfidence.

A survey conducted by GeoPoll found that Kenya has the highest number of betting youths in Sub-Saharan Africa with at least 76% of them having participated in gambling. The same study also records that the Kenyan youth spent an average of Ksh. 5000 (USD46) a month on gambling, the highest on the continent. Another survey study conducted by Infotrak concluded that 70% of Kenyans who bet are youth aged between 18-35 years with 76% of these being men and 24% being women. 40% of the Kenyans who bet do so on a daily basis. There is however little to no evidence of unemployment having an effect on betting but enough evidence to indicate that an increase in income could actually increase one’s chances of placing a bet. The Column interviewed a few people on their main motivation for betting and here are some of their responses:

“I was betting for profits, I stopped because I was avoiding addiction and it wasn’t profitable.”

Mary Wambui, 22, Female, Kenyan

“I bet for recreational purposes. Betting adds flavour on any sports event. My bets are usually small amounts that I can afford to lose. I find gambling too addictive and mentally draining if done with a purpose of financial gains.”

Patrick Cheboi, 23, Male, Kenyan

“I bet just for fun. Monetary incentive is not real for people like us. 99% we lose. High odds low risk is the criteria otherwise no chance. I also target finals and Man City games with higher odds.”

Ranjan Sapkota, 22, Male, Nepali currently in India

“I started betting due to influence from a friend of mine. I believed that you can earn money at the comfort of your home. But I realized it’s so addictive and you can’t gain from betting. You win once in a very long time but later on saw it wasn’t productive.”

Carol Asinali, 24, Female, Kenyan

“I bet because I love football and want to use my knowledge of the game to make money.”

Cheswayo Kabaye, 25, Male, Zambian

The male respondents clearly exhibit lots of confidence on their ability to use their game knowledge to make money and already categorize the bets as high risk or low risk by simply looking at the odds. There is also a greater bet acceptance with some saying that they bet with amounts they can afford to lose. Interestingly, the female respondents realized they were not gaining enough and later on stopped. Whereas we cannot draw conclusions from such a small sample, there is no denying that monetary incentives are involved although for some respondents, it is not their main motivation. Whether this is a coping mechanism for them to handle their losses or an honest opinion is something that Behavioural Economics can yet dig deep into.

Before looking at overconfidence, we shall look at betting behaviour associated with gambling. Bong, Shirley (2013) concluded that although overconfidence on ticket punters was high, there was no evidence that it factors on lottery gambling behaviour. Bruce, Alistair C., and Johnnie EV Johnson (1994) explored the nature of male and female betting by using an analysis of betting decisions made by betting offices in the UK. They specifically looked at gender differences in levels of performances, propensity for risk taking and level of confidence in betting decisions. The results provide some evidence for greater risk propensity amongst male bettors, lower levels of female bettor confidence in their choices and some degree of performance advantage for women bettors. . Lopez-Gonzalez, Hibai, Frederic Guerrero-Solé, and Mark D. Griffiths (2018) found evidence of a male-dominant betting representation with no interaction between women. This was especially in places like clubs and sport houses where individuals go to drink and have ‘fun’ and relax. They also recorded that bettors were typically depicted staking small amounts of money with large potential returns, implying high risk bets. This implies that betting is prevalent in male persons and less prevalent in female persons although female bettors tend to gain more from betting than male bettors. This is an interesting gender dynamic but for the purpose of this paper, we shall not delve deeper into that.

To better answer our question, we shall now look at studies that directly tie to betting and overconfidence. There is enough evidence to suggest that pathological gamblers tend to over-estimate their betting abilities and chase their losses by betting more only to end up losing even more. A study conducted by Abdula, Bowling and Grant (2017) found that overconfidence is inflated in participants who report frequent gambling and who chase their losses with further betting. Adam S. Goodie (2005) did a two-study part to understand whether perceived control has different effects on confidence assessment and betting decisions among pathological and problem gamblers than among non-problem gamblers. The results of the first part study showed that probable pathological and problem gamblers earned significantly fewer points than non-problem gamblers. This was due to greater overconfidence among pathological and problem gamblers, which led to systematically less favourable bets. The 2nd part of this study found that problem and pathological gamblers showed both greater overconfidence and greater bet acceptance.

Neural science has also attempted to answer this question lifting some burden off lab experiments. Camchong, Jazmin, et al. (2007) looked at how the neural correlates with decision making in gambling tasks. The study explored confidence and overconfidence using magneto encephalography (MEG) to measure brain activity during a judgment task. Confidence was directly related to activity in the right prefrontal cortex. Matching and mismatching targets were associated with activity in the medial occipital cortex and left supramarginal gyrus, respectively. There was an interaction of pathology and match/mismatch observed in the right inferior occipital-temporal junction region, showing more activity following a mismatch in non-problem gamblers, but not in problem gamblers. The neural science field is quite under-explored and more interesting findings could arise with further research.

Much has been said about being a frequent or a pathological gambler and having greater overconfidence. Frequent and sporadic bettors showed similar levels of overconfidence bias as per the study conducted by by Erceg, Nikola, and Zvonimir Galic' (2014). Betting however can be highly addictive and now with ease of accessibility because of the internet and a steady increase in smart phones, more people can now be hooked in betting behaviour. The purpose of this paper is not to decide whether betting is right or wrong but rather to highlight that overconfidence in betting can negatively influence one’s chances of winning. It is quite clear that although many people get minimal gains and multiple losses, one of the reasons they continue doing so is the addiction with a false hope of winning the next time. Overconfidence of course plays a huge role in making such a decision especially with pathological gamblers.

Overconfidence affects betting behaviours as evidenced above, and these betting behaviours have various implications on people’s daily lives. How much is lost through betting and the question of what if that money was invested elsewhere. Some studies have even researched on overconfidence and public health. Policy makers can therefore use this research to help prevent suicide thoughts common among youths because of huge losses associated with betting. They can determine whether these betting companies have a greater good or greater harm. In 2019, Sportpesa, a betting company in Kenya shut down its operations due to the Kenyan government raising its tax rates. The government had an aim to control gambling with increased betting in the country. Was there a trend in people making disastrous financial decisions, was there more harm than good?

References

1. Abdula D, Bowling A and Grant L (2017). “Overconfidence in gambling: How well do you think you went?” Front. Psychol. Conference Abstract: Southern Cross University 14th Annual Honours Psychology Research Conference.

2. Goodie, Adam S. "The role of perceived control and overconfidence in pathological gambling." Journal of Gambling Studies 21.4 (2005): 481-502.

3. Camchong, Jazmin, et al. "A cognitive neuroscience approach to studying the role of overconfidence in problem gambling." Journal of Gambling Studies 23.2 (2007): 185-199.

4. Bong, Shirley. Understanding Gambling Behaviour Through Theories of Behavioural Finance: Evidence from Lottery Ticket Punters in Sarawak. Diss. Universiti Malaysia Sarawak, 2013.

5. Bruce, Alistair C., and Johnnie EV Johnson. "Male and female betting behaviour: New perspectives." Journal of Gambling studies 10.2 (1994): 183-198.

6. Lopez-Gonzalez, Hibai, Frederic Guerrero-Solé, and Mark D. Griffiths. "A content analysis of how ‘normal’sports betting behaviour is represented in gambling advertising." Addiction Research & Theory 26.3 (2018): 238-247.

7. Erceg, Nikola, and Zvonimir Galić. "Overconfidence bias and conjunction fallacy in predicting outcomes of football matches." Journal of Economic Psychology 42 (2014): 52-62.

8. Winters, Ken C., Sheila Specker, and R. Stinchfield. "Measuring pathological gambling with the Diagnostic Interview for Gambling Severity (DIGS)." The downside: Problem and pathological gambling (2002): 143-148.

9. Sandroni, Alvaro, and Francesco Squintani. "A survey on overconfidence, insurance and self- assessment training programs." Unpublished report (2004): 1994-2004.

10. The Daily Nation. “The dangers posed by gambling far outweigh the benefits.” 2018.

11. The Standard. “Betting Survey: Rift Valley tops the list followed by Nairobi and Central- Nyanza with fewer gamblers.” 2019.