Chasing the Dragon
“Chasing the dragon” is a metaphor for the pursuit of the ultimate high in the usage of some particular drug. If gambling is an addiction, for a lot of people this expression could very well stand for lottery and gambling. Across the globe millions of people spend money on lottery tickets, scratch cards and (online) gambling. A gambler may be the second oldest profession in the world. Gambling is one of mankind’s oldest activities, as proven by writings and equipment found in tombs and other places.
Every self respecting city has a casino. Online gambling has grown from a minor industry on the Internet to a substantial global phenomenon taking full advantage of the Digital transformation and the possibilities to gamify the industry. Lotteries are found in nearly half of the world’s countries, with annual worldwide lottery ticket sales topping $115 billion. National lotteries have been around for so long that they seem to be an integral part of the financial landscape. The Dutch State Lottery (Staatsloterij) has been around for almost three hundred years.
The Brain’s Reward System
Gambling means that you’re willing to risk something you value in the hope of getting something back of even greater value. It stimulates the brain’s reward system much like drugs or alcohol can and do often lead to addiction. Lotteries are open contests by virtue of the game of chance rather than skill or knowledge. As any lottery is skewed towards the negligible aspect of winning unimaginable prizes, more tickets are bought by those that should know better. But knowing is not the same as behaving as such. Promoting their financial future at the expense of the present transforms people into “jackpot chasers or dragonchasers”
Failure Matters Less
No one in their right mind enters a lottery, scratches a card, visits a casino or goes to one online with a chance of striking it rich. But failure matters less than chasing the dragon.
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The dazzling prospect of all that money in your bank account blinds the average player, triggers their biases and disturbs their already weak sense of rationality. Does it make financial sense to play in lotteries or gamble? Have you ever met someone who knew someone who knew someone who won the jackpot? This has not put people off spending on lottery tickets or casino tokens for a carefree future. This is about as likely to happen as a black swan arriving at your door with a very large check in its beak.
Daydreams of Desire
Lotteries are designed as “daydreams of desire” but also as an unattainable status position.
Lotteries and gambling rely on a potent behavioural mixture of biases and gamification. Gamification is all about customer retention. It is the application of game-playing elements to the industry. Common gamification elements include leaderboards, points, timers and badges. Prizes big enough to override any scepticism, small rewards nice enough to keep you hooked to the dream, and the hot breath of the dragon. When the top prize is very large, ticket buyers appear indifferent to the fact that their chance of winning is minuscule, states Daniel Kahneman in Thinking, Fast and Slow.
Plucking the Goose
If raising tax money is all about plucking the most feathers off of the goose with the least amount of squawking, the lottery is the best way to do that. It’s a disguised way to collect private money but governments like it because it’s one of the only ways you get people to volunteer to pay. There are of course the comfort zone biases that a part of your wasted money goes to cultural and good causes, relieving the Government of that task.
The root cause of gambling addiction starts at an emotional level, wherein addicts use gambling as a means for coping with daily life stressors and pressures. Gambling in any kind of form is riddled with biases of which we only discuss a few. Cognitive bias plays a big role in gambling and is an error in thinking that affects the decisions and judgments that people make. Meaning that a series of losses will not necessarily act as an incentive to stop gambling, as the pathological gambler will believe they will eventually win.
Monte Carlo Fallacy
The gambler’s fallacy, also known as the Monte Carlo fallacy, is a deep-seated cognitive bias that can be very hard to overcome. It’s the incorrect belief that, if a particular event occurs more frequently than normal during the past, it is less likely to happen in the future (or vice versa). The fallacy is associated with gambling, where it may be believed, for example, that the next dice roll is more than usually likely to be six because there have recently been fewer than the usual number of sixes.
Quitting While Ahead
Gambler’s conceit is the fallacy described by behavioral economist David J. Ewing, where a gambler believes they will be able to stop a risky behavior while still engaging in it. This belief operates during games of chance, such as casino games. The gambler believes they will be a net winner at the game, and thus able to avoid going broke by exerting the self-control necessary to stop playing while still ahead in winnings. This is known as “I’ll quit when I’m ahead.” Quitting while ahead is unlikely since a gambler who is winning has little incentive to quit, and is instead encouraged to continue to gamble by their winning.
Confirmation and Hindsight
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 gamblers astray. Hindsight bias is probably the most fun bias of all of these, and it is exactly what the name suggests. It’s looking back after the fact and identifying all the things that should have been so clear to you now that you know the outcome. The last bias is preference reversal that causes individuals to deviate from their seemingly rational choice and take more risky decisions. In certain circumstances gamblers and investors will choose a second option which differs from their original rational first choice.
Dangers, Pitfalls and Crypto
With the strong rise of online gambling we need to be more aware of the dangers and pitfalls of gambling. And especially take a look at protecting young gamblers from building up huge debts. Through research it became clear that biases also play a big role in investing. Something that is now clear when we look at the cryptomarket where especially young investors are active. Keep an eye out for our next blog which looks at the question: Do investors share biases with gamblers in their risk-taking behavior?’.