• Atakan Erdogdu

The Connection Between Gambling and Evolution

Updated: Mar 2, 2020

Kurt Lewin, the founder of social psychology, has long formulated the equation of behaviour, in which behaviour is a function of two primary elements: person and environment. The former represents inborn predispositions, life experiences, and the emotional state associated with the individual, whereas the latter emphasizes the environment that creates the context of the behaviour. One important insight of Lewin’s equation is that the natural selection process leads to the creation of inborn predispositions that further create deep-wired tendencies in individuals' behaviour. These tendencies have a significant similarity with the heuristic concept of behavioural economics, since both are the deeply-embedded evolutionary shortcuts that are applied when individuals are confronted with similar complex problems. Another subtle, yet more significant, insight is that the usage of these deeply-embedded, inborn predispositions are only effective in certain environments; hence, application of the same shortcuts in a different environment can and does translate into irrational behaviour. Accordingly, in this blog post, we will illustrate how the application of these evolutionary dispositions into gambling induces irrationality and causes many of the gambler fallacies. Think about the following gambling game and its representation as a hunter-prey scenario.

Imagine a heads or tails game, in which heads means that our hunter successfully catches her prey, while tails means that she fails to do so. This representation is advantageous for a number of reasons. First, it lets us examine the situation from a probabilistic point of view. Robespierre used this same analogy in order to model co-operations (only in his “Stag hunt game” players had to decide whether they want to hunt for rabbits or stags, where stags held higher returns, but were obviously harder to hunt for). Second, we can examine all the behavioral effects and fallacies, on whether they resonate with the evolutionary ‘logical’ behavior.

Gambling Fallacies Explained Using Dispositional Tendencies

The first fallacy is overestimation of low odds. A well-known explanation in the literature comes from the availability heuristic, in which individual’s attention is drawn to the spreading good news of impressive jackpot wins, ultimately leading him/her to overestimate the chances of winning. This, combined with entrapment effect that explains the gamblers’ increasing commitment to the previously chosen course of action (even with poor outcomes), can explain how hunters awaited their prey in the past. For instance, a hunter would not leave because he had already waited in the nest of the prey for some given time, and as the time passes further, the hunter will continue to overestimate the chances of the prey coming to its nest. This simple reference to the hunter-prey representation provides some insight into why such behaviour may occur in gambling – a predisposition that almost forces the gambler to ‘wait long enough’.

The second common gambler fallacy is the near miss effect. Common explanations in literature state that a near miss makes the gamblers feel that luck is with them and that success is on the way. In a natural environment, to which we are adapted by evolution, a near miss may indeed be close to a win. In the hunter-prey framework, a near miss may mean that the arrow finds the target but fails to kill it. In such a scenario, a near miss significantly improves your chances of catching a prey and thus succeeding; yet, it is trivial to see how a near miss in a roulette does not, given the probabilistic independence of any two consecutive rounds.

The third fallacy whose occurrence can be reconciled with the evolutionary tendencies is the hot hand fallacy. In literature, it is described as when individuals overestimate the likelihood of a winning (or losing) streak to continue, as opposed to what is dictated by the probabilities. This again is connected to our framework as it can be traced back to the activity of foraging scarce resources. This time, our hunter is a gatherer and finds a rare fruit on the ground. The hot hand fallacy induces him into thinking that the discovery of a single fruit in the area likely indicates that more of such fruits are to be found nearby.

A Special Case: Superstition

As such, we need to address the Monte Carlo fallacy. We wrote a blogpost on it, but here is a quick reminder. Named after the casinos and the popular roulette games in Monte Carlo, it depicts a fallacy that after 49 “red” plays, in the 50th round we tend to bet on “black”. Why? There’s a 50% chance that it will be either red or black, but we interpret this as “there is no way, that there will be 50 reds in a row, black is more likely to occur.” As such, the Monte Carlo-fallacy is a great example of how people misinterpret probabilities. And if our hunter is lucky – 49 times he gets false verification in a highly volatile and uncertain environment – this may lead to superstition.

Superstition is a very interesting topic to cover, as it is often described as “unintelligent thinking”. In literature, it is depicted as a completely irrational behavior, but is it? Superstition happens when our dear hunter engages in some kind of activity that directly or indirectly results in the catching of the prey. Suppose the hunter goes under water, and by mere accident makes a curious observation – when he/she continuously hits two rocks together – the fish appears nearby. Accordingly, the hunter may realise that there is some connection between the two events and may engage in this activity in the future, in order to increase the chance of catching a prey. Deducing such cause-and-effect relationships may be a fundamental part of what the superstitious activity is.

Superstition, and being superstitious, thus, comes from two sources. The first one is that we are very bad at math. But the second reason is a key property of humans: we love and crave for systematicity in everything – may that be weather, the markets, or the meaning of life. We want systematicity because we hate uncertainty. In the past, when people lacked the necessary technology to make weather forecasts, they tried to make simple observations and deduce something from them. One such example is the day of Saint Medardus (or for Britons: Saint Swifthun): if it rains on the day of Medardus (June 8th), it won’t stop raining for 40 days. As it is usually a season with a significant amount of rain, this acted as a self-fulfilling prophecy.

The question arises: can we overcome these fallacies? Well, we might. The first step is knowing our shortcomings. A psychologist might argue that self-knowledge is key if we want to live a happy life. The second step is we need to realize when we are doing exactly these fallacies. A theory developed by O’Donoghue and Loewenstein (2004) states that most of the time, willpower can develop whether we decide based on heuristics, or our “rational side”. Or in plain English: if we are tired, we are more likely to decide impatiently; if we concentrate, we might be able to avoid making the mistakes above.

References and Further Readings

Ayton, P. and Fischer, I. (2004). The hot hand and the gambler’s fallacy: Two faces of subjective randomness. Memory & Cognition, 32(8), pp. 1369-1378.

Cohen, J. (1972). Psychological Probability. London: Allen & Unwin.

Lewin, K. (1936). Principles of Topological Psychology. New York: McGraw-Hill.

Loewenstein, G. and Donoghue, O. T. (2004). Animal Spirits: Affective and Deliberative Processes in Economic Behavior. SSRN.

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