Our brains have a number of ways of playing tricks on us, with some of the most common being what psychologists call cognitive biases. No one is immune to these, even the researchers who study them. They can come up in all areas of life, but gambling has a way of bringing cognitive biases to the forefront.
That’s because many of those biases relate to powerful incentives and uncertain outcomes. Gambling allows us the chance to win money—definitely a powerful incentive for most of us—and, of course, it wouldn’t be “gambling” if the outcome was certain.
So what is a cognitive bias, exactly? It’s any time that people’s mental image of the world doesn’t line up with reality in a systematic and predictable way. That is, it’s not just being wrong about something. It’s when most people would be wrong about the same thing, in similar ways, for the same reasons.
The connection between gambling and cognitive biases is so strong that psychologists studying these biases often use gambling or games of chance as part of their experiments. Some studies even offer participants the chance to earn cash rewards to prove that the biases cause people to make decisions that aren’t in their best interest.
The Gambler’s Fallacy & Hot-Hand Fallacy
One particular form of bias is so closely tied to gambling that it’s named for it. It’s one we’ve covered in another Casino School lesson: the Gambler’s Fallacy.
This is the false expectation that there’s a force “pulling” random events back towards the average in the short term. For instance, if a coin flips Tails three times in a row, we start to feel that it’s “due” for a Heads even though the probabilities haven’t changed.
We think this because we know that in the long term, the number of Heads and Tails should be pretty close. If you read our lessons on probability, you’ll see why that can be true without changing the chance of getting any particular result on the next try.
One remarkable thing about biases is that we can actually hold two contradictory beliefs at once. The opposite of the Gambler’s Fallacy is the Hot-Hand Fallacy, which is the belief that success tends to come in streaks.
The name refers to scoring streaks in basketball, and there’s some debate about whether the effect might really exist in that context. But basketball is a game of skill, whereas most casino games are not. Winning one game doesn’t make you any more or less likely to win the next.
Taken together, these fallacies mean that a gambler can convince themselves that a win is coming in any situation. That’s dangerous because it makes it harder to stop.
If they’ve just lost a few in a row, the gambler will feel as if the result they want is “due.” But if they’ve just won, they’ll feel they can’t quit while the game is “hot.”
Biases Affect Our Perception of Random Events
Some types of bias relate to bad assumptions about causality, or why things happen. This can happen in a forward-looking way, or when we’re thinking back on what we just experienced.
Illusions of Control & Correlation
The Illusion of Control is the universal tendency to believe that we’re more responsible for outside events than we actually are. Something happens to us, or near us, and we immediately start to wonder what we did that caused it. Even if the real answer is that we had nothing to do with it, we’ll look for something. This is how we convince ourselves, for instance, that wishing for something can make it come true.
The Illusion of Correlation is similar, except that we’re looking for outside factors. Perhaps we saw a rainbow on the way to the casino just before we won a jackpot. We might decide that the two were related and that the next time we see a rainbow, it also means a win is coming.
Taken together, these two illusions form the basis of all superstitions. It would be nice to be able to predict our good and bad luck—or to change our luck by clapping our hands—so we look for ways those things could be true.
Naturally, these are risky when you’re gambling, because either can make you think your chances of winning are much higher than they actually are.
Confirmation, Hindsight & Commitment Biases
There are several other biases that can make it hard to let go of our Illusions of Control and Correlation.
Confirmation Bias means only noticing the results that confirm our opinions. For instance, if you receive what you consider to be a good omen, you’ll be on the lookout for an example of good luck you can attribute to it. If something lucky happens, that “proves” your superstition. If no example manifests itself, you’ll quickly forget about the omen and move on, rather than treating is as evidence that you’re wrong.
Hindsight Bias is similar, except that the opinion only arises after the event that supposedly confirms it. We see an unexpected result and want to believe it was predictable. So we go looking for reasons that we “should have known” what would happen. We may even convince ourselves that we did know, on some level, but ignored our hunches.
Just like the Hot-Hand Fallacy and Gambler’s Fallacy contradict each other yet often coexist, Confirmation Bias comes with a flip side called Commitment Bias. Being wrong feels bad, especially if someone points it out to us or we’re suffering the consequences of it. That can cause us to double down instead of admitting our error.
For example, if you make a big bet on a hunch and lose, you’ll feel bad about the money you lost but also about being wrong. The rational response would be to reevaluate your beliefs about being able to predict the outcome of the game. But many people will want to bet again, not just to try to win back the money, but to prove to themselves or others that their instincts were right.
Biases Affect Our Ability to Plan Ahead
So far, we’ve talked about the biases that lead people to believe that they can predict the outcome of a game once they’re in the casino. But there are other biases that shape our decision to gamble in the first place and how we prepare for it.
You can probably guess what Optimism Bias means, more or less. It’s a kind of confusion in our minds between how much we want something to happen and how likely it actually is. If you buy a lottery ticket, you’re likely to spend some time thinking about what you’d do with the jackpot if you won. That can cause you to forget how exceedingly unlikely that is.
Of course, there’s also Pessimism Bias, which relates to the perceived likelihood of very bad outcomes. They’re two sides of the same coin in that hope and fear are both strong emotions. More neutral results don’t provoke an emotional response, so we don’t think about them as much.
Individuals can be more optimistic or more pessimistic. There are advantages and disadvantages to each, but in the case of gambling, optimists are much more likely to develop a gambling problem because, by definition, they’re more prone to Optimism Bias.
Restraint Bias is a heightened belief in your own self-control. It’s easy to think of yourself as rational and disciplined when you’re feeling calm. But in the heat of the moment, no one’s as controlled as they expected themselves to be.
That means, for instance, that it’s a lot easier to set a gambling budget for yourself than it is to stick to it.
Between Optimism Bias and Restraint Bias, the story many gamblers will tell themselves sounds a bit like this:
There’s a good chance that I’m going to come away with a win. But even if not, I know my limits. If it’s not going my way, I’ll walk away before I lose too much.
If that sounds familiar, you’ll want to make sure you have realistic expectations and a clear plan you can commit to before starting a gambling session.
Biases Can Make It Hard to Quit
Biases don’t only influence what we expect to happen and why. They can also affect how we evaluate outcomes. That’s important in gambling because it means that how good or bad we feel about a session—or remember feeling about it—doesn’t strictly depend on how much we won or lost.
These sorts of biases are among the riskiest for gamblers because they distort the way we see the money involved. That can make it hard to stop when we should
Anchoring Bias happens when we get fixated on a particular number and compare everything else to that. For shoppers, that might be the first price they see for an item.
Gamblers can get anchored in a couple of different ways.
For one thing, we tend to remember our biggest wins, which causes us to seek out even bigger ones. Someone who has never won much before might be very happy with a $100 prize. But a gambler who hits a $2,500 jackpot in their first session may subsequently find it hard to get excited about anything smaller.
Since big prizes are rare, someone suffering from this kind of Anchoring Bias might start increasing their wagers in the search for bigger wins. That’s a risk factor for problem gambling.
Within a session, gamblers also tend to anchor on either the amount of money they started with, or on their high point for the session. That’s dangerous because it can lead to chasing losses, trying to get back to the anchor point.
Loss Aversion means that the bad feelings from losing something are stronger than the good feelings from gaining it. Most people experience this to some degree, but some are more loss averse than others.
Being loss averse might stop you from gambling the first place. But like Anchoring Bias, it can lead to chasing losses when you do. Winning back money you lost becomes a more powerful motivator than winning was when you first started.
Loss Aversion relates to Anchoring Bias because those feelings of gain and loss are relative to whatever your anchor is. If you’re anchored on the amount of money you started with, you’ll tend to want to finish your session at least break even. But if you’re anchored on the highest point of your session, you might find yourself trying to get back to that amount before quitting.
The Peak-End Rule
Then there’s the Peak-End Rule. When we think back on an occasion, we don’t remember the whole thing with equal clarity. We fixate on the “peak”—that is, the most emotionally intense moment—and on the end. So, for gambling, that probably means either our highest or lowest point in the session, and whether we finished up or down.
This relates to Anchoring Bias and Loss Aversion in the same way that Hindsight Bias relates to our Illusions of Correlation and Control. The Peak-End rule reinforces those other instincts because it shapes how we remember the session, and thus how we approach the next one.
Coping With Biases
We all know what it’s like to have a feeling that we can’t shake, no matter how much we tell ourselves not to believe it. Hopefully reading this article has made you more aware of your biases, but it won’t have “cured” you of them.
Biases creep in at the level of instinct, which means that no one’s immune. You can know everything there is to know about psychology and still suffer from Confirmation Bias or the Illusion of Control as much as anyone else.
But your instincts don’t have to control everything that you do. They will if you let them, but it is possible to slow down and think carefully about things. Knowing about your biases allows you to correct for them in your decision-making.
You’ll still want to chase your losses if you find yourself in the hole. It’s human nature.
But you can tell yourself that’s Anchoring Bias and Loss Aversion talking, and remind yourself that you set a budget. If that proves more difficult than you expected, then you can remind yourself about Restraint Bias the next time you’re planning a casino trip, and limit the money you bring with you, and so on.
At the end of the day, biases are like a friend who consistently gives you bad advice. You may not be able to stop them from offering the advice, but you don’t have to take it.
Casino School: The Psychology of Gambling
This has been Psychology of Gambling Lesson 4 of our four-part Casino School series. Check out the rest of the Psychology of Gambling lessons: