Rory Gold

I’ve just finished reading the Ori and Rom Brafman book Sway: the Irresistible Pull of Irrational Behavior, actually I’ve only finished the first chapter but for gambling purposes, I’ve never read a more rational explanation as to why gamblers chase their losses.

The owner of Bio-medical start up sold his company for stock in a much larger company. At $42 a share, the amount was enough for the man to retire on Martha’s Vineyard with a huge yacht and everything he would have needed. His investment advisor suggests that he cash out 10% at regular intervals and diversify his income so that his retirement dream will be assured. The man cashes out the first 10% at $42 and then the price of the stock dropped to $37. At $37 he would have had to forget about the yacht but everything else would have been fine. Refusing the adviser’s advice the man decides that if the stock goes back to $42 he will sell it all. The stock dropped from $37 to $32 and eventually to 12 cents. All the while the investor refused to sell because he could have sold at $42 and the amount of money he lost by not selling at $42 was far greater than the gain he would have made selling on the way down.

While the Brothers Brafman story involved a Stock Holder in bio-medical firm, it translates perfectly to online bettors and casino players in general.

Simply put “Chasing Your Losses” is when you gamble more and more money trying to get back to where you started. I’ve seen gamblers start with $5000 and win over $100,000 playing online blackjack but instead of cashing out and buying a couple new cars or half of a new house; they continue playing more blackjack, often with tragic results.

The situation begins like this, the gambler says, “I will play a couple more hands of blackjack to see how long I can ride this streak”

And or course the player loses a few hands and they are holding $93,000, still lots of money for those news cars and a nice vacation but the gambler says “I will just play a few more hands and get my balance back up to $100,000 then I will cash out.

After several more hands of blackjack, the gambler has lost another $20,000, it’s a big loss but $73,000 is a year’s salary for the majority of families. The gambler says I will get back to $80,000 and stop.” Of course after some more hands, some wins, some losses they gambler loses another $35,000. At that moment, a sinking feeling begins in the gamblers stomach, and he begins to realize he’s just lost $55,000. That perceived loss eats away at him, he feels the twisting of his gut, lightheaded and nausea overwhelms him.

The perceived loss of $55,000 is what dominates our gamblers mind, not the fact that he is still ahead $40,000 from his original $5,000.

A few hours go by and our gambler loses the rest of his winnings and his initial $5,000. With so many chances to cash out with a big win, we have to ask ourselves why he continued to play.

It’s in our nature that a perceived loss will appear far greater than an actual win. What can we learn from this story about our gambler?

I’ll tell one more story, I was watching an interview with a tennis great, it might have been Roger Federer but it was definitely someone who was a champion and what he said struck me and stuck with me, “When I lose I feel nothing but when I win it’s the greatest feeling in the world, nothing can top it.”

Now ask yourself, which feels better to you? Winning or Losing?

Thanks for reading and if you get the chance pick up a copy of Sway, if even only for the first chapter.

Stay Gold,

Rory Gold

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