Financial Abstraction

Elsewhere on this site, we have learned that mindlessly accepting the authority of others can have disastrous consequences on our betting, and that we need to constantly monitor when we might be doing it, because Stanley Milgram’s experiments, first carried out in the 1960s, showed that we are cognitively hard-wired to blindly follow whatever someone in a white coat (or racing commentator with a microphone) tells us.

The Milgram experiments potentially teach us more, though. Whilst the results in themselves are stark – many of us will deliver a possibly fatal electric shock to an innocent victim if we are told to – the reasons behind those results are arguably more interesting.

Postulating why participants behaved in the ways they did, Milgram offered the agentic state theory, which suggested that once someone detaches themselves from responsibility, they no longer view their actions as their own, and so they cease to apply their morality in the same way they usually would.

Philippa Ford’s famous thought-experiment, first proposed in the 1960s, gives an insight as to why. If a runaway train carriage is headed for five stricken humans, would you pull a lever to switch the carriage to another track, where it would only kill one? According to Ford, most of us would.

But the thought-experiment continues: if you could also save the five men, but would have to push a man standing beside you on to the rails to guarantee the carriage’s derailment, could you still do it? Most, apparently, wouldn’t.

Ford’s explanation is that the first option is more acceptable to us because pulling a lever is abstracted from the direct act of killing someone, whereas pushing the man is not. In one, we view ourselves as being an agent of death; in the other, we distance ourselves from that agency.

Anyone who has seen the WikiLeaks video of the Apache Attack Helicopters in Iraq, allegedly killing Reuters photojournalist Namir Noor-Eldeen and assistant Saeed Chmagh, among others, whilst the pilots react as if playing a computer game, have seen a blunt vision of the dangers of this dissociated agency in action: the pilots were not shooting human beings, they were playing a computer game, detached from the magnitude of their actions.

This kind of dissociation occurs in the financial world, too. US financial guru, Adam Carroll, has observed how his children fundamentally change their approach to playing Monopoly when, instead of handing out fake notes at the start of the game, his children are instead given $10,000 in real dollar bills.

When money is abstracted from reality – as it is in a traditional game of Monopoly – then why not seek to complete the set of Flinders Way and Kings Avenue, simply on the basis that you like the colour? Carroll uses this experiment to explain why so many US students find themselves insolvent at a young age – if the loans they take out to fund their education are just large numbers on a screen, disproportionate to the amounts of money they have dealt with before, how can they be expected not to spend it irresponsibly?

At a global level, the abstract nature of modern finance can have disastrous consequences. When Nick Leeson, a Singapore trader for Barings Bank – immortalised in the film, Rogue Trader – began hiding bad trades and losses in the now infamous 88888 error account, it soon spiralled to a point where the bank owed $1.3billion and was declared bankrupt.

Reading interviews with Leeson is illuminating, and should be required reading for any would-be successful punter. In one interview, he talks about becoming “blinkered”, where “large sums” do “not feel like real cash”. He feels he has been taught “the true value of money” because of his experience, and warns others: “When you forget about this, problems can occur.”

In the days when betting was something you did in cash – down at the pub or the local TAB – the bets you placed had a very real value: they represented a round of drinks, a tank-full of petrol, or that week’s grocery bill. With the notes in your hand, and the experience of spending those same notes on things that allow you to live your day-to-day life, betting was a much more conscious and deliberate act.

Increasingly, though, the bets we place are not in real cash. Very few people reading this will place any of their bets other than online, using electronic funds.  This has many advantages, of course, but one disadvantage is that it allows us to very easily detach and dissociate ourselves from what that money represents. Now, punters who previously wouldn’t have dreamt of wagering more than $20 on a horse race will eagerly commit much more when betting with an electronic bank online. And, why wouldn’t they? After all, it’s not real money, is it?

In many countries, healthcare professionals have reported significant year-on-year increases in the number of people they treat with gambling addictions, with one 2014 study, in the UK, tellingly reporting more than a three-fold increase in punters regularly placing bets greater than $70. Could it be that the problem is compounded by the abstract nature of the money that punters are using to bet? After all, similar increases have been seen globally in shopping addictions, driven by internet commerce.

Whatever the explanation, as punters, we need to be aware of the dangers of financial abstraction. One way to guard against it is to follow a rigorous process for managing your online betting bank and deciding on the amount to stake. Elsewhere on this site, much sage advice has been written about the Kelly Criterion and other staking methods. Making that advice central to your punting is crucial, because no matter how unreal the money might feel online, it becomes very real when there’s not enough left to pay the mortgage.

About The Author – Jack Houghton 

As a passionate sports’ fan and punter, Jack has written about sports and betting for over a decade, winning the Martin Wills Award for racing journalism in 2002 and writing Winning on Betfair for Dummies, first published in 2006 and now in its second edition, having sold over 35,000 copies in two languages.

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