The question is deceptively difficult: What keeps a sports bettor betting?
Why is it a difficult question? Because if sports betting operators knew the answer, they’d already have people coming back for more. And if sports bettors knew the answer, they’d know to lock in profits before the house advantage took their winnings away.
“I’m really interested in investor behavior, but the really big problem in this area is data limitations,” said Jan Hanousek Jr., a Ph.D. in finance at the University of Memphis. “There is limited access to data where you can see how investors behave with any sort of risky choices. It’s almost impossible to get.”
But Hanousek was able to get his hands on a different data set: over 45 million sports bets placed by more than 90,000 bettors throughout a seven-year period.
“This data actually was obtained through my father, who is co-author on the paper, because his Ph.D student got a job at a gambling company that provided us with the data,” Hanousek said.
This treasure trove of gambling data comes from a Czech Republic sportsbook, and it helps to answer the question posed at the beginning of this story: What keeps a gambler gambling?
The answers are, in equal measure, both obvious and surprising.
The near-miss effect 115m3d
“Normally, there are two competing theories as to why people invest more or gamble more,” Hanousek said. “The first belief is that you win some money, figure you’re good at this, and the rational response is, ‘I should continue gambling.’ The other theory is the house money hypothesis, in that you win some money, don’t see it as your own, and are willing to keep it going. In practice, it’s very difficult to disentangle these effects, because both of them lead to more gambling.”
In other words, either you win and think you’re good, so you continue betting; or you win and figure you’ve got house money to play with, so you keep gambling. So Hanousek looked at parlays, which do something somewhere in between.
“If you have five things on a parlay, and are correct in four of them, and if you look at it like a rational individual, you would update your beliefs about your abilities, but you don’t get house money,” he said.
Basically, get four out five parlay items right, the rational response is, “I’m pretty good at this. I should bet more often.” But in fact, these “near misses,” as Hanousek puts it, have surprisingly little value to the bettor.
“What we find is that when it comes to near misses, your propensity to gamble more is lower than if you actually win,” he said. “When you win, that’s the vast majority of the effect as to whether you’re going to continue to gamble or not, about 70 to 88 percent.”
So while Hanousek wasn’t able to completely disentangle bettors who keep betting because they win and update their beliefs about their ability, or bettors who keep betting because they have house money, he was able to show bettors who come close to winning parlays — getting most of it right, but not all — aren’t as keen to continue betting.
Hence, house money is a better predictor of future gambling than a bettor who updates their beliefs about their gambling prowess in a positive manner. And this flies in the face of other research into what a near miss does to one’s noggin.
“There is rich psychological research that shows a ‘near miss’ provides a unique response in your brain,” Hanousek said. “In a game of skill, it has an effect. But this data shows real-life examples. The theory says a near miss should cause someone to gamble more, but it simply doesn’t. When you win, you’re motivated to gamble more than just thinking you’re doing great.”
One obvious takeaway here for sports betting companies, especially those utilizing the “soft” model, is that limiting customers who have demonstrated an ability to win is not a successful long-term strategy.
“The house always wins in the long run, and house money is the greatest driver of continued betting,” Hanousek said. “Clearly, the gambling companies should encourage them to gamble the money away so they end up a net positive.” Something made even easier with the accessibility of sports betting apps.
What’s that again? 6u4k57
Did you all that? It’s okay if you didn’t, because that was Hanousek’s second main takeaway from his study: Sports bettors have shockingly short memories.
“We looked at first instances of people gambling,” he said. “You could have won a lot of money on the first day, but by the third day you don’t it. And what happened the week before means nothing. Even if you win a large amount of money, a few days go by and you don’t think about it, it doesn’t have an effect on your gambling. Today, yesterday, and the day before sort of matter. Anything beyond that is forgotten.”
The data showed that bettors who won on the second day they bet — no matter how they did on the first day — were five times more likely to continue to bet going forward than people who lost on the second day of betting.
“If you win, there is an extremely high likelihood you’re going to continue gambling,” Hanousek said.
That’s what Hanousek was after, and this study demonstrates that house money is a more impactful driver of future risk-taking than belief in one’s own ability to pick winners. But even so, it’s a “what have you done lately” game being played in a gambler’s brain.
Going forward, who knows what other pearls lie in this 45 million-bet data set?
“We are very limited in academia in what we can study due to data limitations,” Hanousek said. “But this data set, I think, is the biggest that’s ever been used in this field. It can tell us a lot.”
