Sport Handicapping Article

Let us start with a quick disclaimer. If you are purely a recreational gambler that bets a few bucks here and a few bucks there for kicks, this article is not at all applicable.

We are fully aware that many - if not most - sports gamblers are simply looking for entertainment. Digging deep into the complexities of long-term success is next to meaningless if gaming is purely a light-hearted hobby. For future reference, the columns we entitle "Foote Notes" are intentionally aimed more towards the recreational gambler. The Foote Notes delve into team breakdowns, trend analysis, stats and other topical subjects that hopefully will lend an edge for an upcoming game or season.

The target of this article in particular, and many of our past articles and a good portion of our future articles, are the "bottom line is the only line" gamblers. Those that are actively seeking knowledge on how to improve their 'capping skills and unlock potentially profitable handicapping methodologies. The more pensive pieces - such as this one - are not meant to diminish the excitement derived from betting. They are simply an attempt to increase your understanding; thus raising your overall chance of long-term success. Sports betting in an educated and logical fashion being the foundation for each.

There are endless books, essays and studies on human behavior as it pertains to just about anything. Certified experts publishing on topics ranging from goal setting, dealing with difficult people, coping with death, losing weight, personal finance and on to infinity. But for whatever reason, there are very few credible sources that take an in depth look at the behavioral aspects of betting sports. Most 'cappers do in fact write articles these days, but they tend to be subjective in nature (pure opinion pieces) or illustrations of betting from an X's and O's standpoint, so to speak.

We have long been seeking ways to place sports betting into a proper psychological framework. To present data that is both scientifically accurate and relevant. Since there are many parallels between the stock market and sports betting, we frequently use concepts that are deemed analogous to both. The ideas and words of influential individuals from the world of high finance can truly be enlightening when taken in context with gambling.

One of our favorite analogies is that of "irrational exuberance" in the marketplace. This phrase was coined by U.S. Federal Reserve Board Chairman Alan Greenspan. It aptly described the mood behind the rising U.S. stock market and cautioned that poorer equity performance may be on the horizon. Generally speaking, "irrational exuberance" refers to the way emotions can drive the equity (and bond) markets more than rational thought.

When the going is good, people become overzealous and put all of their money into the latest craze. When the going gets tough, people panic and pull all their money out thinking the world, as we know it, is coming to an end. This sort of psychology can lead investors to irrational conclusions and poor investment decisions based upon short-term market trends.

In our assessment, "irrational exuberance" is an even stronger dynamic amongst gamblers. This holds true for both winning and losing. As in the stock market, gambling success, or lack thereof, can only be judged over an expanded amount of time. There are too many variables and outside forces that influence this activity to quantify one's skill and results without a vast sample size to draw from. We have written on this topic extensively, but mostly from a mathematical perspective. Just as important to understand, however, is the psychological impact and resulting behavior patterns.

How many times have you seen a sports gambler go on a ridiculous hot streak that seemingly does not end? Whatever this 'capper touches inevitably turns to gold during such a stretch. The power one feels when bearing this magic touch is beyond words. Unfortunately, this same powerful feeling carries inherent dangers. Short-term success can inflate one's sense of ability. A myopic and often distorted view rears its head: a notion this pace of winning will continue on forever, and that the sole reason for this success is skill. This leads to larger bet sizes and thus exposes the temporarily hot 'capper to more hazardous losses.

It is the $100 bettor that wins three in a row, then bets $300 on the fourth game and wins that one as well. Now up $600 and garnering the magic touch, said gambler plops $600 down and wins again. At some point, no matter how many wins are accumulated, this person will lose. When the inevitable occurs, he or she returns to square one financially, yet will often still be a five-dime player emotionally. A $100 bet is no longer enough action, nor can it get him or her back to the previous peak. Scenarios such as these push gamblers into a state of win-based thinking, without respect for the possibility of loss, resulting in bets far larger than their financial means can justify.

Consider this excerpt from a terrific book entitled "Irrational Exuberance" by Robert J. Shiller. Again, this specifically refers to the equity markets, but applies to any sort of speculative investment-based activity (i.e. sports betting). The premise is simply that certain individuals view themselves as impervious to the laws of mathematical odds.

"Magical thinking describes subjective speculation about how markets will act. We can label these patterns of thought as magical thinking. Most investors have occasional feelings or intuitions that certain trading actions will bring them luck even if they know logically the actions can have no effect on their fortunes. Playing a hunch just because it feels right seldom makes traders rich. Yet proof that it is human nature to indulge in magical thinking abounds:

1. It has been shown that people will place larger bets on a coin that has not yet been tossed than on a coin that has already been tossed, but the outcome of the toss has yet to be revealed.

2. If asked how much money they would demand to part with a lottery ticket they already hold, most ticket holders give a figure over four times greater than if they themselves chose the lottery number on the ticket.

Apparently, at some magical level people think that they can influence a coin that has not yet been tossed and influence the likelihood of winning the lottery by choosing the number. Such magical thinking is likely, in a subtle way, to contribute to the overconfidence that may help the propagation of speculative bubbles."

Shiller's comments present an all-too-correct assertion that a scorching-hot 'capper and his own inflated sense of self can be a major detriment when this magical touch fails to show up. The speculative bubble in this case being his bankroll.

The Economist ran a story titled "Freud, Finance and Folly" that expounded on this topic. It pertained to traders (not investors … big difference!) and the various psychological implications of winning.

"Over-optimism. - Ask most people about the future, andthey will see too much blue sky ahead, even if past experiencesuggests otherwise. Surveys have shown that people's forecastsof future stock market movements are far more optimistic thanpast long-term returns would justify. The same goes for theirhopes of ever-rising prices for their homes or doing well in gamesof chance. In a recent study of Dutch game-show contestants, people'sestimates of their odds on winning were around 25% too high. Americansare perhaps the most optimistic: according to one poll, around40% of them think they will end up among the top 1% of earners.Such optimism can be useful for managers or football players,and sometimes turns into a self-fulfilling prophecy. But mostof the time it results in wasted effort and dashed hopes."

When we - William Foote and Superior Sports - are on a proverbial hot streak; emails and phone calls come flooding in. "You guys are the best I've ever seen" or "I cannot believe how awesome your service is", etc., etc. While always appreciative of kind remarks, we are also very forthright in our return comments. We try and point out the "irrational exuberance" phenomena, warning them that what they have seen over the past several weeks is not an accurate measure of future results. Likewise, the reverse corollary holds true when on a cold streak. This is another topic we have explored endlessly from a mathematical perspective, but let us continue on with the mental aspect.

The Economist story "Freud, Finance and Folly" goes on to discuss various psychological implications of losing.

"If you don't have a handle on the mental side of the equation (something all great Trend Followers do), you are in deep trouble. We know of "traders" whose public image "looks pristine", but their personal lives, mental health and balance are in such dire straits, they are not capable of any type of real success or achievement. They might get "the numbers", but their problematic mental health keeps them back. Bottom line, they never get to where they want to go. Life becomes one big rationalization (or excuse) for them."

This is the gambler that understands the fundamentals and methods by which to win, but has lost all confidence during a prolonged bout of losing. The implications manifest into a downward spiraling "Self-fulfilling Prophecy" that renders him or her mostly incapable of a turnaround.

Self-fulfilling prophecy is a phenomenon by which people's expectations about the future lead them to behave in particular ways that can cause the expected event to occur. In this particular case, the beaten-down gambler acts, speaks and thinks with negative expectations. You know the ones; "I never get any breaks." "The refs are always screwing me." So on and so forth. Losing begets more losing. Simple as that.

The Economist story "Freud, Finance and Folly" continues on with this line of thought.

"Counterproductive regret. Crying over spilled milk isnot just a waste of time; it also often colors people's perceptionsof the future. Some stock market investors trade far too frequentlybecause they are chasing the returns on shares they wish theyhad bought earlier."

This excerpt can apply to any number of gambling behaviors, all pertaining to being mindlessly aggressive following previously poor choices. Sometimes this is subtle and sometimes it is not. An illustration of the latter is the $50 per game player that is down $500 headed into the Monday Night Game. "I better load up tonight. Gotta get back to even before settle up time with my local man tomorrow. Put me down for $550 to win $500 on the 49ers."

The last profile we will touch on here is the gambler who is focused merely on day-to-day results. There is an infatuation with winning vs. losing in the short term that is almost beyond comprehension. Even if its impact is negligible, most people will do anything possible to lessen their chances of losing in the short term. Even at the peril of winning over the long haul.

Do you know anyone that refuses to bet an even amount of games per day or night? They will either bet 3 games or 5 games, but never 2 games or 4 games. This is simply because it is easier to win in the short term with an odd number of plays, as going 3-0 or 2-1 in the three-game set produces a profit and 5-0, 4-1, or 3-2 in the five-game set produces a profit. To win on a 2- or 4-game night, one must go 2-0 in the two-game set or 3-1 or 4-0 in the four-game set.

Yes, the short-term prospects of profit are lessened with an even set of games, but that dynamic has absolutely no bearing on long-term profitability. It is only the win rate that counts. We see intelligent folks rationalize this odd number of games per day scenario all the time. Let us illustrate.

Gambler A only bets odd amounts of games per day so he can more easily show a profit.

On Day 1, he goes 3-2.
On Day 2, he goes 3-2.
On Day 3, he goes 3-2
On Day 4 he goes 3-2.

Gambler A did indeed win on all four days and ended this 20 game period at 12-8. This calculated to a very nice 60% win rate.

Gambler B does not worry about how many games per night he bets, but rather which games look like the highest probability winners.

On Day 1, he goes 2-2
On Day 2, he goes 4-2
On Day 3, he goes 3-3
On Day 4, he goes 4-0.

Gambler B only won money two out of the four nights he placed bets, whereas Gambler A won on all four nights. But some simple math indicates Gambler B wound up with a 13-7 record for 65% during his 20-game span, subsequently outperforming the more nearsighted Gambler A.

The Economist story "Freud, Finance and Folly" continues on with a case study and the potential psychological line of thinking behind this behavior.

"Fear of failure is a strong human characteristic, which may be why people are much more concerned about losses than about gains. Consider the following bet: with the flip of a coin, you could win $1,500 if the coin turns up heads, or lose $1,000 on the tails. Now describe it in another way: with heads, you keep all the money you had before the bet, plus $1,500; with tails, you also keep everything, except $1,000. The two bets are identical, and each one, on average, will make you richer by $250 (although that average will be little consolation to the punter who has just lost $1,000). Even so, people will usually prefer the second bet. Behavioral economists say that is because the prospect of losses seems far more daunting in isolation, rather than in the context of looking at your entire wealth, even if the average outcome is the same. This sort of myopia in the face of losses explains much of the irrationality people display in the stock market."

Whether you are playing our picks, your own picks or those from another service, it is imperative you guard against the various shortcomings described above. Emotions in and of themselves can kill a bankroll. The reverse holds true as well. The proper maintenance of emotions can help create a perpetually growing bankroll if applied properly. Our next column will delve into exactly that subject. The findings may surprise you.

For more information from William, visit his home site SuperiorDaily.com!