Twisting the Knife

I’m sorry to flog a dead horse, but I promised a follow-up explaining why dishing out four times more sadness than joy is a best-case scenario for gambling operators. So just hang tight while I thrust the Dagger of Uncomfortable Truth in a little deeper. Then give it a little twist. And poor some salty lemon juice in the wound.

I previously quoted the Daniel Kahneman finding that losses are twice as emotionally potent as wins. In the related studies that I have found, that general result has been corroborated, but the effect is usually more than double. For example, the first time I learned about this disparity it was quoted as 4-5x, and a widescale UK study from 2019 found 2.4x.

I ran with the 2x figure because it keeps things simple, and because that original piece of research has been cited more than 6,000 times in other scientific journals. So the Thrust is this – I went with a credible baseline number for an easy calculation. In reality, for most people, the sting of loss is probably worse.

To use an analogy from another of my harmful hobbies, winning is like a good night of drinking, and losing is apparently the equivalent of a three-day hangover. That’s probably just as well, because the painful repercussions are what prevent more problem gambling. If losing didn’t hurt so disproportionately then a lot more than 1% of the population would have issues.

The second misery multiplier pertains to the huge range of gambling formats available. In my previous piece, I lent on my work experience and used online poker as the example. In terms of misery generation, it was a generous choice.

In poker, as well as betting exchanges and fantasy sports, there is a small but appreciable number of winners. They are peer-to-peer skill games in which the best players get to walk away with a profit. When it comes to participation rates, though, they are small fry. According to the UK Gambling Commission, the most pervasive products are lottery, casino, slots, bingo, and traditional sports-betting.

Only the last of those games is mathematically beatable, but even then, only for the most savvy and knowledgeable players. I count several of those people as my friends, and they are barred from most UK bookmakers for being too clever. The upshot is that you’re playing against the house, and across any reasonable sample size, the house cannot lose.

That’s the Twist – most forms of gambling are unskilled (or pseudo-skilled) and only a random lucky few will show a long-term profit. As a result, the ratio of losers to winners is astronomically higher than the 5:1 I first stated.

Honestly, I don’t know how many winners there actually are because I’ve never been allowed anywhere near casino or sportsbook data. I just know there are comparatively few because every jackpot winner requires thousands of losers.

And that brings us to the Salty Juice. My example inferred nice, evenly distributed payouts, but that is far from the case. Most gambling games are predicated on a big headline prize; life changing money is the bait on the end of the marketing hook. Such massive prizes mean that a big chunk of withdrawals (by volume) is being made by a tiny percentage of winners.

When it comes to calculations of enjoyment, that is a further problem for the gambling industry. The psychological research shows that for every additional pound won, the amount of enjoyment gained reduces slightly, i.e. prizes are subject to diminishing happiness returns. It eventually gets to the point where additional prize money yields almost no additional joy.

The truth of that statement is most obvious when measuring the difference between a prize of £1,000 and £1,001. How much would you care about another one hundred pence? But it’s still clearly true of the difference between £10K and £11K. The extra thousand generates very little extra benefit.

So, in terms of utility, a player cashing out £250K is not actually much happier than if they had won £100K. That almost negligible increase in joy on one side is offset by players nursing the combined pain of the £150K they lost to fund that extra prize money.

At this point, there’s no point trying to calculate a meaningful happiness deficit – there are too many variables involved to get close to a reasonable answer. Hopefully though, the conclusion is clear; gambling generates vastly more negative than positive emotions, and society is inevitably worse because of it.

Operators, if the health of humanity is important to you, then you should think very carefully about how you’re doing business. There are ways to be better. Gamblers, be aware of the pitfalls, but know that if you put enjoyment ahead of profit, then you’ll never lose again.

Bobby’s Bets:

I’m going to start sharing my gambling exploits each week, just to demonstrate I’m not just a naysaying spoilsport. At the moment though, I’m on the road in Central America and it’s proving difficult to watch the stuff that I like to bet on. Gambling without watching the wager unfold is significantly less fun.  

I’m trying to follow the cricket between England and India, and I’ve been close to backing England before each limited overs game. They look decent value (better than evens) considering how close the two teams have been, but I haven’t pulled the trigger.

Next week I meet back up with a gambling travel buddy, and I expect to be hammered in a range of friendly prop bets. At 100 Mexican pesos a go (about £4) I can afford my current losing streak.

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