Cutting your losses<\/a> is the sensible thing to do for any investor, yet it is something that too many fail to do. It is something that investors should take from practitioners of judo, who learn how to take a fall before they learn how to throw a punch.<\/p>\nThe Disposition Effect & Betting<\/h2>\n
There are numerous different ways in which the disposition effect can be seen playing out in the world of betting. Losing bets will often cause us more angst than winning bets will cause us joy, as evidenced by the annoyance we feel when a bet on a favourite to win ends up losing out to a long-shot, compared to the joy we feel when a long-shot wager pays off. The disposition effect most commonly affects sport betting strategies.<\/p>\n
Because we want to be on the winning end of a wager, we will often cut short a winning strategy in order to \u2018take the win\u2019. Equally, we\u2019ll have less desire to end a losing strategy because we\u2019re convinced that it will come good, if only we give it time to do so. The major issue there is that mastering betting strategies is an extremely hard thing to do, so not riding out a winning one can be a major mistakes.<\/p>\n
Cash out is a good way to show the disposition effect in action.\u00a0 People will often cash out a winning bet close when near completion for fear that it could lose and they can get an immediate gain now.\u00a0 In reality the value in keeping the bet going is greater and over time cashing out early can reduce your overall success. Conversely people often do not cash out a losing bet, hoping it will turn good when it most likely will not.\u00a0 Even though they may not get their stake back it can often make sense to cash out and reduce loses in this scenario.<\/p>\n
Influencing Research<\/h2>\n
It can also have an affect on the way that we analyse and research things. More importantly, it can influence how we use our analysis and research, tricking ourselves into thinking that we got lucky and should get out whilst we are ahead. Think of researching a new Premier League season, being in a position where we think that Liverpool are being undervalued by the bookmakers so we have a bet on them winning the league.<\/p>\n
We\u2019re 15 games into the season and Liverpool are six points clear at the top. Rather than trusting our research that showed that they were being undervalued, we decide to Cash Out our bet that gives us a small profit. We would stand to win a significant sum of money if we stuck with it, but we begin doubting ourselves and our research, instead preferring to walk away with a definite something rather than a perceived nothing.<\/p>\n
Alternatively, imagine a world in which we think Everton are going to finish in the Champions League places. They\u2019ve got a new manager and made some new signings, so we feel positive that they\u2019re going to be competitive. Now after 15 games of the Premier League season we\u2019re in a position where they\u2019re in the relegation zone, but rather than take the loss and Cash Out our bet we believe that their fortunes will change.<\/p>\n
It is not the case that our research into Everton pre-season was wrong, but they have suffered a couple of serious injuries and the manager hasn\u2019t been able to get the players playing as well as he\u2019d like. As a result, they have suffered some losses that we didn\u2019t see coming and that went against the grain of expectation. Really we should cut our losses over them, but we\u2019re loathed to allow ourselves to do as much.<\/p>\n
Avoiding The Disposition Effect<\/h2>\n
There are ways to help ourselves avoid falling for the disposition effect. As with so many of the things that we\u2019ve explored around the psychology of betting, the most important thing that we can do is to be honest with ourselves. This involves being self-critical and acknowledging when we\u2019ve got stuff wrong as much as when we\u2019ve got stuff right. Positive betting is great, but knowing we\u2019ve made mistakes is also really important.<\/p>\n
When you\u2019re looking at a bet that you\u2019ve made, ask yourself a question: is it likely to get better? You need to combine this question with research into that very matter, ensuring that you are answering it genuinely. In the case of Everton being in the relegation zone, for example, how far off the Champions League places are they? Is it a tight season and they\u2019re actually only four points away, or are the cut adrift and 15 points shy?<\/p>\n
Just as important is to look at what might change for them. Are their key players returning from injury? Or have they been removed from their squad for the rest of the campaign? In both cases, the former might suggest that your bet isn\u2019t just a pipe dream, so it may actually be worth holding on to it for a bit long. The latter, on the other hand, is evidence that the bet is going to be a losing one and you need to cut your losses.<\/p>\n
The very best bettors in the business know what it takes to cut their losses and ride their wins. They will generally steer clear of the Cash Out option on a bet when it is going well and will keep playing with a system that is working for them. Conversely, they will move to make sure that they can get out of a bet that is obviously heading in the wrong direction, seeing no shame in calling it a loser when it is clearly going to be.<\/p>\n
Gambling Has No Room For Ego<\/h2>\n
<\/p>\n
No bettor in the history of the world has never had a loss. They might downplay the losses that they have had, or those losses might prove to be insignificant in the grand scheme of things, but everyone has had a loser or two in their time. That is the nature of betting and it is important to learn to take the rough with the smooth. As a consequence, there is no room for ego when it comes to placing bets and keeping track of your profit and loss.<\/p>\n
Arrogant people will be desperate to ignore their losses, so they will often allow them to keep playing out even when they know that they\u2019re not going to win. They will instead take their profits as soon as they appear, believing that this further \u2018proves\u2019 that they are winners. The fact that they would have made more money if they\u2019d ridden their winners for longer is something that they happily manage to ignore.<\/p>\n
One of the best things that you can do is to ask yourself whether or not you\u2019re allowing your ego to get in the way of your betting. Are you refusing to acknowledge that you\u2019ve placed a losing wager, instead burying your head in the sand and hoping that it will turn out ok if you just wait long enough? Equally, are you playing up the achievements of your \u2018wins\u2019 and taking them earlier than you should?<\/p>\n
It is crucial to successful betting that we do not undervalue our wins or overvalue our losses. We need to be brutally honest with ourselves when looking through our profits and losses, making sure that we don\u2019t lie to ourselves about how we\u2019ve done. That is the only way that we can avoid falling into all of the various betting pitfalls, but especially one that actively requires us to lie to ourselves in order to take hold and fester.<\/p>\n
Problem Bettors Are Especially Vulnerable<\/h2>\n
Those that develop gambling problems have to be especially careful that they\u2019re not falling foul of the disposition effect. The reality is that none of us want to admit that we\u2019ve got a problem, so we will often overplay our wins and downplay our losses. We\u2019re especially like to do this if we\u2019ve got a betting problem, ignoring losses in the hope that they will change and become wins or taking small wins to \u2018prove\u2019 we\u2019re on the right path.<\/p>\n
It is especially evident that people can fall foul of the disposition effect when they are required to talk to others about their gambling. Instead of being honest about getting it wrong, those with an unhealthy relationship with gambling will exaggerate their wins and pretend that their losses aren\u2019t significant. If you find yourself doing such a thing then it is more important than ever that you adopt a policy of being honest with yourself and others.<\/p>\n","protected":false},"excerpt":{"rendered":"
In short, the disposition effect is when someone prematurely sells an asset that is making a gain, whilst holding onto<\/p>\n","protected":false},"author":6,"featured_media":0,"parent":6137,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_acf_changed":false,"footnotes":""},"page_type":[],"acf":[],"aioseo_notices":[],"publishpress_future_action":{"enabled":false,"date":"2024-05-15 09:40:52","action":"change-status","newStatus":"draft","terms":[],"taxonomy":"page_type"},"_links":{"self":[{"href":"https:\/\/www.bettingwebsites.org.uk\/wp-json\/wp\/v2\/pages\/6617"}],"collection":[{"href":"https:\/\/www.bettingwebsites.org.uk\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.bettingwebsites.org.uk\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.bettingwebsites.org.uk\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bettingwebsites.org.uk\/wp-json\/wp\/v2\/comments?post=6617"}],"version-history":[{"count":3,"href":"https:\/\/www.bettingwebsites.org.uk\/wp-json\/wp\/v2\/pages\/6617\/revisions"}],"predecessor-version":[{"id":7096,"href":"https:\/\/www.bettingwebsites.org.uk\/wp-json\/wp\/v2\/pages\/6617\/revisions\/7096"}],"up":[{"embeddable":true,"href":"https:\/\/www.bettingwebsites.org.uk\/wp-json\/wp\/v2\/pages\/6137"}],"wp:attachment":[{"href":"https:\/\/www.bettingwebsites.org.uk\/wp-json\/wp\/v2\/media?parent=6617"}],"wp:term":[{"taxonomy":"page_type","embeddable":true,"href":"https:\/\/www.bettingwebsites.org.uk\/wp-json\/wp\/v2\/page_type?post=6617"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}