What Are The Odds?
As someone who bets and trades for a living I like to keep my leisure time separate from my work… but this isn’t always possible! Often I think to myself.. ‘What are the odds of this or that happening in life..’
These days most of the ‘what ifs’ seem to centre around winning the lottery – so perhaps that’s a good place to start.
The human brain is a complex thing. It can be extremely rational but also irrational. Think how the brain can guide you through complex tasks in engineering for example… or make you do the craziest things where hatred, love or anger are concerned.
This is rational / irrational concept is known as cognitive bias. If you know about cognitive biases you can make better judgements. In betting this might actually help you to make more money, or at least help stop you losing a lot.
There is also something called optimism bias which is the idea that you are less likely to experience a negative event compared to somebody else. This is effectively the ‘but it couldn’t happen to me’ attitude. For example if a plane crashes, which is already huge odds against, most people, quite understandably would think that it would never happen to them.
Optimism bias, however, works for positive events too. The brain ‘likes’ to exaggerate the likelihood of unlikely events happening. This is why with the lottery for example, players continue to purchase tickets on a weekly basis.
Very common examples of optimism bias are e.g. traders (help!) who think that they are less likely to lose in the market be it financial or sports. Also smokers or drinkers who think that they are less likely to contract lung cancer or alcohol related diseases, than other smokers or drinkers.
Studies have also shown that the brain cannot really ‘deal with’ or appreciate very long odds. We know that the chances of becoming an astronaut are highly unlikely, but is it a greater or lesser chance than dying from slipping in a shower?
In fact the odds are vastly different but both are hugely unlikely, which is effectively the problem.
The odds of becoming an astronaut are reckoned to be approximately 13m/1.
The odds of fatally slipping in the shower are reckoned to be approximately 800,000/1.
There is a massive difference in odds but both events are so unlikely to occur that it is barely worth registering and the human brain doesn’t, at least not very well. Perhaps because it is almost ‘irrelevant’.
So when we buy our lottery tickets, we know in the back of our minds that the likelihood of hitting the jackpot is tiny.. but we don’t really care or register what those odds might be or that it is a ‘bad bet’.
Yet would you really be put off purchasing your ticket if you knew that the odds of hitting a jackpot by picking six numbers on a forty-nine number lottery card, was about the same as becoming an astronaut, at 14m/1?
Perhaps not. You could basically buy a thousand one pound tickets every weekend for just under two hundred and seventy years and only expect to win one jackpot. Pity!
So while the brain is pretty hopeless at dealing with small probabilities, instead it relies on whether or not it can visualise the outcome. This is known as Availability bias.
Lottery jackpot wins are often marketed strongly and so a lottery jackpots can be more easily ‘visualised’. Your brain might tell you:
‘If they can win it, then so can I’.
The marketing strategies of lottery organisations makes it appear that lottery jackpots are common and in a way they are because they happen every week, although virtually never to the same person! So the truth is that lottery jackpot wins remain very remote indeed.
Take terrorism as another example. Terror attacks are often ‘front and centre’ across the media today. They are shocking, visceral events that are easy to ‘picture’. The odds of being killed in a terror attack, however, are much much greater than dying of a dog bite for example, but people ‘fear’ terror attacks and aren’t particularly interested in the effects of a dog bite. Therefore a terror attack is perceived as having the more likely chance of occurrence of the two.
So why is it that people continue to buy lottery tickets even when many people know that they are a ‘bad bet’ with no value? Of course marketing and the media play a role in ‘keeping the dream alive’ but it is often ‘near miss’ scenarios that fuel further sales. These ‘near misses’, for example getting four out of six numbers on a lottery ticket, are seen as signs that increase the chances of winning, when in reality they have no bearing of future success.
Also when success is ‘seen’ it is often perceived that success will continue. The odds of throwing a six with a single die is 5/1. If you take a single die and throw fours sixes in row, the odds of throwing another six are still 5/1, but often people will perceive the chances of throwing that six as greater (shorter odds) because of what has transpired before.
It is easy to succumb to biases. It is a complex area. It is made worse by the fact that because we are only human, the same person can fall to a different bias in the same situation / event at a different time.
Here are some other fun ‘Life’ odds:
Getting married to a childhood sweetheart – 49/1
Winning an Olympic Gold medal – 662 000/1
Being struck and killed by lightening – 2.3m/1
Being attacked by a shark – 11.5m/1
Being squashed by a meteorite 700 000/1
Be careful out there!