Why is it that some people treat the dumbest bet possible as a stroke of genius when it hits? It’s not genius, obviously, but confusing skill and luck is a common mistake made by gamblers and investors alike. It’s one of many that arise when human nature and gambling collide.
When the House has the advantage, like in most games of chance, winning has nothing to do with brilliance. It’s almost always a bad decision saved by dumb luck. Yet, hindsight bias spares us from being honest with ourselves.
Picture the person who hits on 17 at blackjack and catches a 4. Or another who goes on an amazing run picking numbers playing roulette. It’s not some uncanny ability, infinite wisdom, nor foresight. It’s dumb luck. But the story told is about skill.
The mistake is not only denying good luck after hitting the improbable 4 on a 17 but embracing bad luck after busting on a hit on 17. The failure to account for stupidity is probably worse than being falsely endowed with unnatural gifts. Who learns from bad luck?
Of course, this problem is as old as gambling itself. A case in point is a letter to the editor of The Spectator in 1873. An insightful English gentleman shared a scathing assessment of himself, and his fellow gamblers, after his first experience in a casino.
As anecdotal as it is, there are lessons in it. His honest self-assessment is one, but the obvious 146-year-old lesson — same as it ever was — is that people still invent stories for themselves after winning and losing bets. Too often we let the outcome dictate the quality of our decision-making process rather than judge the process on its own merits.
Human nature, so far as I am acquainted with it, is curiously and perversely imbued with the habit of taking full credit for any success in which it is possible to discern or imagine a voluntary element, and of letting the element of pure chance fall into the background of the mind. It is true that a loser will, in speaking to others of his losses, always dwells on his ill-luck, just as one catches at almost any excuse for a blunder, rather than refer it to one’s own blundering habit of mind. But I have always observed that in ordinary games of mixed chance and skill one thinks better of oneself for winning and worse for losing, if one examines one’s real state of mind without reference to others. I was therefore anxious to see the condition of mind which would accompany games of unmixed chance…
I resolved — strongly, I must admit, against the counsel of my prudent wife, who regarded the notion that there was any psychological gain to be made out of gambling as pure moonshine, and looked upon my notion as only a wilful man’s caprice for burning a bigger hole in his pocket than was at all needful — to pay a short visit to Saxon-Les-Bains, and risk, or rather lose — for I was well aware I should really lose — five pounds there…
Indeed, I felt clear, after watching my companions — one of then a shrewd counsel learned in the law, the other a cool, sagacious Cantab, who came out high in the Tripos the other day — that neither of them had the true gambling instinct as strongly as I, though so far as their experience went, it seemed to confirm my own. And what was that experience? This chiefly — that I was distinctly conscious of partially attributing to some defect or stupidity in my own mind every venture on an issue that proved a failure; that I groped about within me for something in me like an anticipation or warning (which of course was not to be found) of what the next event was to be, and generally hit upon some vague impulse in my own mind which determined me; that whenever I succeeded, I raked up my gains with a half-impression that I had been a clever fellow, and had made a judicious stake, just as if I had really moved a skilful move at chess; and that when I failed, I thought to myself, “Ah, I knew all the time I was going wrong in selecting that number, and yet I was fool enough to stick to it,” which of course was a pure illusion, for all that I did really know was that the chance was even or much more than even, against me. But this illusion followed me throughout. I had a sense of deserving success when I succeeded, and of having failed through my own wilfulness, or wrong-headed caprice of choice, when I failed. When, as not unfrequently happened, I put a coin on the corner between four numbers, receiving eight times my stake if any of the four numbers turned up, I was conscious of an honest glow of self-applause. I could see the same flickering impressions around me. One man, who was a great winner, evidently thought exceedingly well of his own sagacity of head, and others also, for they were very apt to follow his lead as to stakes, and looked upon him with a sort of temporary and provisional, though purely intellectual respect.
But quite convinced me of the real strength of this curious fallacy of the mind, was that when I heard that the youngest of my companions had actually come off a slight winner, having at the last moment retrieved his previous losses by putting his sole remaining two-franc-piece out of the hundred-and-twenty-five francs he was willing to risk, on the number which represented his age, and gained in consequence thirty-two times his stake, my respect for his shrewdness distinctly rose, and I became sensible of obscure self-reproaches for not having made use of like arbitrary reasons for the selection of the various numbers on which I had staked my money during the period of my own play. It was true that there was no number high enough, sad to say, for that which would have represented my own age, so that I could not have staked on that — but then, why not have selected numbers whereon to stake that had some real relation to my own life, the day of the month which gave me birth, or the number of the abode in which I work in town? Evidently in spite of the clearest understanding of the chances of the game, the moral fallacy which attributes luck or ill-luck to something of capacity or gift, or incapacity and deficiency, in the individual player, must be profoundly ingrained in us. I am convinced that the shadow of merit and demerit is thrown by the mind over multitudes of actions which have no more possibility of either wisdom or folly in them than — granted, of course, the folly of gambling at all — the selection of the particular chance on which you win or lose. When you win at one time and lose at another, the mind is almost unable to realise steadily that there was no reason accessible to yourself why you won and why you lost. And so you invent — what you know perfectly well to be a fiction — the conception of some sort of inward divining-rod which guided you right when you used it properly, and failed only because you did not attend adequately to its indications…
And when my wife reproached me, with triumphant references to her own warnings, for the missing five pounds, I replied, what I really feel — though I know I shall never convince her of it — that my experience was not dearly bought. Is it the only case in which the fiction that we ourselves have earned — whether good or evil fortune — forces itself with absurd tenacity upon us? Luther himself could hardly have desired a better proof than this of the pranks which the imagination plays us when dealing with that sense of merit and demerit so closely bound up with our human egotism. We give ourselves credit, and get credit, I suspect, for a vast deal more both of wisdom and folly in life than we deserve. Are nine-tenths of the prizes and the blanks of life at all more ascribable to any fine selective purpose or deficiency thereof in him who draws them, than my losses, or my friend the Cantab’s sudden retrieval of his loss? Yet I still look upon that able and thoughtful Youth with a deep sense of respect for his cleverness in retrieving his losses, and on myself with a melancholy consciousness that, like “Traddles” in “David Copperfield,” my native awkwardness of mind must have been the cause of my very moderate reverses.