Being on tilt: Gambler’s ruin and Gambler’s fallacy
Even if you are not familiar with the term ‘tilt’, most bettors would have experienced it at some time or another. The phrase ‘being on tilt’ is most often used in poker, but can also be applied to many other situations. In betting, it means to be in a state of mental confusion or frustration, where a bettor makes sub-optimal and rushed decisions, usually resulting in the player becoming over-aggressive, and ultimately losing the bet.
Gambler’s ruin is a statistical concept that can go hand-in-hand with being on tilt. The concept states that persistent bettors who raise their bet to a fixed fraction of bankroll when they win but does not reduce it when they lose, will eventually and inevitably go broke, even if he has a positive expected value on each bet. For example, a bettor may start with a bankroll of $5,000 and use a betting unit of $10. After a bad run of losses, the bettor may now have a bankroll of only $4,000, but still, use a betting unit of $10. This may look fine, but in fact, it is highly damaging to your betting strategy and bankroll management. So let’s take a look at a more extreme scenario to make the issue more obvious. Again, let’s say there is a bettor with an initial bankroll of $5,000 with a betting unit of $10. After many bad decisions and mistakes, let’s say the bankroll has now shrunk to a measly $20, but the betting unit has remained at $10. Can you see the problem now? The betting unit is now at 50% of the bankroll instead of the 0.2% it was when the bankroll was at $5,000.
By sticking with the same betting unit with a shrinking bankroll, you are guaranteed to lose all your money eventually, so it is crucial to evaluate your bankroll on a regular basis and make alterations in your betting unit. Not only will this reduce the likelihood of going bust during a bad run, it will help maximize profits as well on a winning streak.
Another interesting concept is the gambler’s fallacy. It is a deeply set cognitive bias and therefore quite hard to fully eliminate. This fallacy arises from the ‘law of small numbers’, where small samples must be representative of the larger population, and ‘streaks’ must eventually balance out to be representative. For instance, if you flip a fair coin one hundred times, you would expect ‘heads’ and ‘tails’ to be flipped around fifty times each. What if ‘heads’ was flipped one hundred times though? Does it mean that the next flip is less likely to be ‘heads’ again, and more likely to be ‘tails’? One who is subject to the gambler’s fallacy may believe so, but this is not the case. Why? This is simply because of the two events (i.e. ‘heads’ or ‘tails’), are statistically independent events, and the probability of future events cannot change based on the outcome of past events.
Let’s put the gambler’s fallacy into a betting perspective. Say a friend offers you a bet of $1 for each time a coin is flipped and it lands ‘heads’. The first flip lands ‘tails’. Now you think that since the first flip went against your favor, it must mean that ‘heads’ is due. So, you bet $2 this time to make up that lost $1. The next flip lands on ‘tails’ once again. Surely it cannot happen three times in a row. Now you go ahead and bet $4 to make up for the losses. This goes on and on, and you double your bet with each loss, hoping that the overdue win will set you even. You can see the problem in this. We earlier briefly discussed statistical independence where the occurrence of one event does not affect the likelihood of another event. So in theory, you could bet over and over again until your bankroll is at zero.
We can use this information to help with your betting. Knowing this, we highly recommend that you regularly check your bankroll, and alter your betting unit appropriately. Also, do not bet with larger and larger amounts simply because you’re having a bad run and mistakenly believe that you are ‘owed’ a win. This is never the case, and largely why many bettors go broke. As highlighted numerous times throughout these blogs, the key is to stay level-headed during the whole betting process. Critically analyze all available sources of information, stick to your betting limit, and be patient.
Hopefully, this can help you become a better bettor. Be sure to check out our previous blogs, and follow our future blogs to learn more.