On a personal front, if there is one thing that I have found irksome over the years, it’s that most people I know refer to me as a gambler.

Now, mind you, in the literal sense of the word they are correct. However, it’s a designation that doesn’t sit too comfortably with me, and, I would suspect, with many other people, especially those who are both meticulous and disciplined in the way they approach investment into the numerous areas of risk.

The term gambler, as it has through most of history and even now in contemporary society, is close to bordering on derogatory; it raises connotations of loser and irresponsibility and those who dare lurk in its shadowy confines are destined to bear stigmas as such. 

To the people who have assigned me this unwanted moniker, I politely explain that although I punt regularly I seldom gamble. What’s the difference? Plenty.

Although there is a presence of risk in both cases, punting, not gambling, offers by far the greater opportunity of returns. Punting is investment that is driven by knowledge, not chance, as is the case with its poorer relation, gambling. Decisions in punting rely on a series of related events in which the investor, in many cases, can predict the outcome of events with degrees of confidence.

Horse players, for instance, can state “Miss Andretti will have far too much class for the opposition”, or sports bettors can predict “With the return of some key players, Collingwood look far too good for an out of form Richmond”.

Alternatively, no such assertions can be made in games whose outcome is reliant on pure chance. Who can honestly say with any degree of conviction, that the roulette ball should land on 32 red, the toss of a single die will land on 6, or the chocolate wheel will stop on number 19?

I am hopeful such clarification, in the eyes of these people, exonerates me from being a gambler, at least in the collective sense. Although, as stated, I seldom gamble it is an arena that has always held a certain fascination for me. For many years I explored the myths, misconceptions and mechanics of this often misunderstood domain and can categorically state that in terms of my racing pursuits, it has helped immeasurably.

One of the earliest racing maxims I can recall is the one that says “When you go through the turnstiles of a racecourse you trade your head in for a pumpkin”. Now I’m sure many readers can relate to that one.

How many times over the years have punters admonished themselves for seemingly stupid decisions made on a racetrack which contravened earlier and correct lines of thought. This has led me to investigate the punter’s mindset on decision making under conditions of risk.

The earliest forms of gambling date back to pre-historic times; archeologists have unearthed the earliest form of dice, made from bones. Needless to say, scientific and mathematical analysis into the realm of gambling has made quantum headway since the days of the wheel prototype, to the point where the toss of a simple coin can deliver mind boggling complex equations. 

The common thread which is most surprising throughout the evolution of gambling is that the phenomenon of gambling has continued throughout time to be associated with superstition and paranormal.

Even the most educated gamblers seem prone to regular systematic departures from rational behavior when placed in certain risk circumstances.

I have a friend, Phil, with whom I regularly attend race meetings here in Perth. I recollect about 12 months ago chatting with Phil on a particular race morning, during which he briefed me on his best for the day and how he was going to have a real “crack” at it.

Through delays I didn’t arrive at the track until the race in question had just finished. Although his selection had duly saluted, Phil was heading towards me with a somewhat disgruntled look on his face. No, he hadn’t backed another runner, but he informed me he had halved his bet.

I was to find out that the day up until that race hadn’t exactly gone to plan. Phil’s car had blown a head gasket in the morning and his beloved football team had suffered an embarrassing loss in a game they were expected to win easily.

Two totally unrelated events had compelled Phil to react on a negative basis on a third totally unrelated event, simply because his head deduced he was in for a bad day.

Now there are, of course, perfectly valid reasons why punters could and should change their mind on a racecourse. Their selection may have presented poorly in the pre-race parade, sweating up or demonstrating unruly behavior, or the price on offer may fall well below one’s expectation, but when change is instigated by perceived metaphysical forces conspiring to bring one down, well, I’ll leave that one for you to judge.

It would seem that many people believe that risk outcomes are fate rather than the undeniable fact of choice. Gamblers are known to develop some behavioral distortions as a result of some pathological association between betting outcome and some physical move, i.e. watching races from a “lucky” spot and the wearing of lucky attire to the track.

It is something we’ve probably all been guilty of at one stage or another. I must admit I’ve been culpable myself of such nonsense. A number of years back two of my biggest ever wins were on dark stormy days at the track.

I remember at the time being disgusted with the quality of the fields and making a firm decision not to bet on the day, but found myself heading to the track post haste when storm clouds rolled in.

In many respects, punters learn from history that they learn nothing from history; they fail to disenfranchise themselves from such anachronistic traits of appealing to a “higher entity” to favourably intervene on their gambling undertakings.

Paradoxically, they appeal in asymmetric fashion that the gods should lengthen winning streaks and suitably shorten losing ones. The fact of the matter is that gambling’s only true god, mathematics and probability, hears neither appeal.

What is evident is that there will always be a mindset of such that luck and certain external phenomena will have a profound effect for many on how they wager. The link has endured and is inexorable.

As punters, by far the most telling mindset is the thought process adopted in conditions of risk when enduring losing streaks.

We live with various forms of risk in our lives on a daily basis. Risk is one of the prime catalysts that drives western society. For gamblers, the ability to identify risk then quantify and manage it, is critical for survival.

There are many instruments of risk management, such as stop loss and exit strategies, specifically designed to stop protracted losing streaks from spiralling out of control. But many investors who have these tools at their fingertips fail to implement them because of irrational thinking patterns experienced during a loss sequence.

This is where the darker side of the equation asserts itself. “One more roll and I’ll recoup my money,” becomes a formula for huge losses.

No one is exempt. It is a common phenomenon that bettors when losing have a tendency to bet more and more on longer odds in a desperate attempt to redeem previous losses. Remember Nick Leeson, the lone trader whose unauthorised trading brought about the collapse of Britain’s oldest investment firm Baring’s Bank, to the tune of a staggering 850 million pounds in one of the most spectacular debacles in modern history?

Leeson’s mindset had unquestion-ably changed throughout the ordeal, to the point where the urgency to right a very bad wrong had overridden any rationality, thus leading him into an extended sequence of unsuitable trades.

Doing the form on the morning of any raceday we probably all think rationally, but if things don’t pan out as expected there seems to be a considerable change for many in the thought process.

If the first race on the card is a maiden distance event at around 7/1 the field, most punters wouldn’t touch it with a barge pole. However, if the same race is set down as the last race on the card and those same punters are all $500 down, then they will wager on it to get out.

The fact that there would be a host of more suitable races to wager on over the next few days doesn’t seem to be a factor for consideration. When we are put in situations that cause us distress and discomfort, the mind works in such a manner, as to want to rectify the situation as soon as possible.

It is part of the body’s defensive mechanism. In many cases, however, the quick fix corrective measures the mind wants to implement can override rational thinking. And so punters yield to the anxiety of the moment to recoup losses rather than have to wait for more suitable events.

The current environment in which punters are involved also has a distinct bearing on thought patterns. Many on winning streaks start to believe they are bullet proof, while conversely even skilled analysts will prematurely close up shop if experiencing a protracted losing run.

The probability of success does not change with every incremental step, only the accumulated wealth. There will always be a regression to the mean. Streaks of either persuasion will have limitations on how long they last.

Risk is both a quantifiable and predictable commodity. Modern theories in cognitive psychology and neuroscience indicate there are two fundamental ways in which human beings comprehend risk.

These are the “analytical system” and the “experimental system”. The former uses such tools as calculus, algorithms formal logic and risk assessment, whilst the experimental side is largely intuitive, mostly automatic, fast and not very accessible to the conscious awareness.

The experimental side remains today the most natural and common way to respond to risk. It relies on images and associations, linked by experience to emotion and feelings that tell us whether something is good or bad. Proponents of formal risk analysis tend to view this affective response or feeling to risk as irrational.

Current wisdom disputes this view. Rational decision making requires proper integration of both modes of thought. Both sides of how we deal with risk in our minds have their advantages, biases and limitations. It is only now that science is beginning to understand the complex interplay between emotions and reason that is essential to rational behavior, the challenge being to be able to think creatively about what this means to managing risk.

On one hand, how do we apply reason to temper strong emotions created by certain risk events? On the other hand, how do we bring feelings into circumstances where lack of experience can leave us “too rational?”

A belief is also prevalent that the gambler’s attitude affects results of a chance event – a pessimistic frame of mind will have a negative bias against the player.

On the basis of research as such, if punters have strong gut feelings about a horse’s chances, even when facts and statistics suggest otherwise, then these feelings should be integrated with rational thinking into the overall decision making process.

Gambling plays on at least two human universals: the urge to get something for nothing and the difficulty of giving up that dream, no matter how high the stakes or the odds against it.

As bad as many gamblers are with money, they’re even worse with statistics. Again, another particular mindset comes into play when rational thinking should dictate otherwise.

High risk is linked to high yield in our minds, but more often than not in the gambling arena the return simply doesn’t justify the risk. Gambling upends the natural correlation between high risk and high yield. Losses add up quickly, but the gains don’t increase accordingly, though we’re likely to think they do.

That’s because most are notoriously bad odds makers. From a pure mathematical and rational perspective we should never play lotto; probability decrees we would be better off putting our lotto outlay in a drawer for a few months then having a nice night out on the town.

The gambling masses, however, are drawn to games with a high or jackpot type payout yet with an appallingly poor probability of return. Offer them a chance of an extremely high probability of regular small returns, but requiring a larger investment outlay, you will find that this holds little appeal.

The mentality is that they find losing one dollar on a hundred single occasions less distasteful than losing half that amount in one hit. People seem to be drawn to the more astonishing event, regardless of probability.

For most, it would seem we are at our rational peak in the “pre game session”. But for many, things go horribly awry when placed at the coalface, particularly in times of adversity. Lucid thinking is suppressed by presumptions of gods, luck and the paranormal.

It is peculiar that in our modern society, for most, the notion of witches, water diviners, astrologists, tarot readers, clairvoyants et al have been met with disdain, yet preserves a medieval approach to the laws of chance. With the gambler and punter resides the last vestige of codified superstition.

By Ken Blake