Why I left Gambling

I had intended to start off the blog in earnest with a self-aggrandising lap of my achievements in the gambling industry – just to prove I have some residual, if slightly out of date, level of expertise. But then after such an extended absence, I’d also expected to be talking to absolutely no-one.

Thankfully, there has been a small but enthusiastic response to my re-emergence, so I’ll leap straight in with the truly important stuff. Today I’ll discuss the fact that drove the first wedge in my agonisingly slow departure from the gambling industry. I hope this causes the same squirming in you as it caused in me. Here goes…

On average, the emotional impact of losing money is twice as powerful as the impact of winning money. Or as it is invariably stated in psychology literature: “losses loom larger than gains”

That isn’t a finding from a little-known niche publication. It’s from prolific Nobel-prize winning economist Daniel Kahneman and his sadly deceased collaborator Amos Tversky. They were the academics that also convinced economists that humans aren’t perfectly rational robots. I’ll talk lots more about them in time, but for now, back on point…

Let’s take a simple £10 coin-flip example. Player A calls correctly and feels 3/10 happy about his win. It’s a better feeling than a nice run of green lights on the morning commute, but not as good as finding a new hidden gem to watch on Netflix. Player B has to pay out the £10, but he feels 6/10 unhappy. That’s located emotionally between treading on a Lego brick and scuffing your alloys from a bit of rushed parallel parking.

Laboured examples aside, you can see it is a financial zero-sum game, but it is clearly not a mental zero-sum game. This transaction has made the world a slightly sadder place.

This claim might be hard to swallow, so I’ll hold it up to more scrutiny. If you were betting your last £20 on a hand of late-night casino Blackjack, you’d be quite happy to win £40. If you lose, though, you could no longer afford your kebab dinner and you would have to walk home. Devastating.

This is a perfectly plausible example from my degenerate time on the Isle of Man, and it clearly illustrates the difference. Losing is much more affective (emotionally impactful) than winning. The cause of this disparity is that we place more value on what we possess than what we might obtain. That’s important, but it will have to be the subject for a future piece, because now I want to focus on why this was such a meaningful insight to me using real industry numbers from PokerStars.

It may have changed somewhat since I left but the golden rule from the analysts was that, for every dollar deposited, the company expected to keep half of it in revenue. The financial zero-sum proposition from above, is now brutally no longer the case. For every $1M going on the tables, only $500K is coming back off.

It gets tougher still, because the ratio of winners to losers in online poker is not 1:1. If you generously include those that were able to scratch out a profit from the loyalty program, then the ratio is absolutely no better than 1:5. Since the promotional and VIP budgets were ransacked for profit in the PLC era, I imagine it has become much worse still.

To put it in real terms, for every five people losing $100, there is just one winner cashing out the $250 that is left after rake. Now let’s turn it into utility, which is psychology’s fancy way of quantifying enjoyment.

The winner gets one fun point for every dollar won, so has 250 fun points. The losers are down two fun points for every dollar lost, so they’re down a combined 1000 fun points. That means we have five times more frowns than smiles, and four times more misery than joy. And that’s a BEST case scenario (I’ll talk about why in my next piece).

When I first performed this utility calculation in 2013, it genuinely stung. I considered myself a decent person that generally gave more than I got, but that was demonstrably not true. As it turns out, I’d been liberally sprinkling unhappiness around the globe across literally tens of millions of people. I wish I’d known sooner, and I wish I’d been strong enough to walk away earlier.

I say all this, not to cause a guilt trip, but to try to raise awareness of what’s actually happening in society when we promote gambling. There are ways to offer this product, which I believe absolutely should exist as a form of entertainment, which minimise the pain and maximise the fun. I hope you’ll continue reading to find out more.

-Bobby

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