What is rational choice theory?
The rational choice theory is a well-known economic principle, but today, we will be applying this theory for us bettors. The theory states that individuals always make logical decisions. These decisions provide people with the greatest benefit, and are also in their highest self-interest. The theory also stipulates that complex social phenomena are determined by individual human actions. Therefore, for an economist to explain social change, or the actions of social institutions, he needs to assess the rational decisions of the individuals that make up the whole.
Putting this in the more specific frame of betting, the theory assumes that all bettors try to actively maximise their profits in any situation, and hence consistently try to minimise their losses. This is based on the concept that all humans are assumed to take account of available information, probabilities of events, and potential costs and benefits in determining decisions, and to act consistently in choosing the self-determined best choice of action. humans base their decisions on rational calculations, act with rationality, and aim to increase profit.
Wait What do you mean?
Hang on, you just said people always make logical decisions, but isn’t betting an irrational act? Why do bettors bet? Everything to do with betting is most definitely not rational. When assuming this theory, we should not be involved in betting at all. The expected value of the majority of bets are hardly ever in your favour. However, this is not all there is to it. Behaviour analysts claim that people do not consistently act in accordance with rational maxims. In real life, the vast majority of choices are highly dependent on context, available alternatives, financial incentives, timing, and goals.
So, what can we take away from this? At first glance, betting may not be the most rational investment option. This is largely as most betting markets favour the bookmakers. However, if you look at the past few of our blog posts, you will build an idea as to how you can turn betting from an irrational option, into a rational option. It is all about you as a bettor finding opportunities, and taking advantage of any given chances.
Be sure to check out our previous posts and stayed tuned for our future posts so you can learn how to turn betting into a rational and a profitable option for your investments.