Survivorship Bias in Gambling Success Stories

Survivorship Bias in Gambling Success Stories

Excerpt: Survivorship bias is the cognitive error of focusing on the winners in a particular domain and ignoring the losers, leading to a skewed perception of the odds of success. This article explores how this bias manifests in the world of gambling and how to avoid it.

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Read Time: 12 minutes

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We’ve all heard the stories: the poker prodigy who turns a small stake into a fortune, the sports bettor who goes on an unbelievable winning streak, the lottery winner whose life is changed overnight. These tales of incredible success are captivating, but they also represent a dangerous cognitive trap: survivorship bias.

Survivorship bias is the logical error of concentrating on the people or things that "survived" some process while inadvertently overlooking those that did not. Because of their lack of visibility, the failures are forgotten, and we are left with a distorted view of reality. In the context of gambling, this means we are bombarded with the stories of the winners, while the far more numerous stories of the losers remain untold.

This article will delve into the concept of survivorship bias, how it applies to gambling, and how you can develop a more realistic understanding of the risks and rewards involved.

The Parable of the Bullet Holes

A classic illustration of survivorship bias comes from World War II. The Allied forces were losing a large number of bombers and wanted to add armor to protect them. The question was, where to add the armor? The military decided to analyze the returning bombers, mapping out the locations of the bullet holes. The most logical conclusion, it seemed, was to reinforce the areas that were most frequently hit.

However, a mathematician named Abraham Wald pointed out a critical flaw in this reasoning. The military was only looking at the planes that survived. The bullet holes on the returning planes showed where a bomber could be hit and still make it back. The areas that were untouched on the returning planes were the areas where a hit was fatal. The armor, Wald argued, should be placed where the bullet holes weren't.

This is a powerful metaphor for gambling. We see the "survivors"—the successful gamblers—and we try to emulate their strategies, their habits, their mindset. But we don't see the countless others who used the same strategies and failed. We are, in effect, studying the bullet holes on the returning planes.

Survivorship Bias in the Gambling World

The gambling industry, both consciously and unconsciously, promotes survivorship bias. Media outlets are naturally drawn to stories of big wins, creating a constant stream of headlines that reinforce the idea that winning is more common than it actually is. We see the jubilant faces of lottery winners, the stoic expressions of high-stakes poker champions, and the celebratory tweets of sports bettors who just hit a massive parlay. The losers, on the other hand, rarely make the news.

This creates a highly skewed perception of the gambling landscape. As a study from the Harvard Medical School revealed, after analyzing the betting histories of over 40,000 customers, only 13% of players returned a profit. The vast majority of gamblers lose money, but their stories are invisible.

The Illusion of Skill

Survivorship bias also fuels the illusion of skill in games of chance. When we see someone consistently winning, we tend to attribute their success to their superior skill, intelligence, or strategy. While skill certainly plays a role in some forms of gambling, such as poker or sports betting, its influence is often overestimated.

As Michael Mauboussin explains in his book "The Success Equation," we often make the mistake of drawing inferences from results, rather than from the process itself. In a domain where luck plays a significant role, a good process can lead to a bad outcome, and a bad process can lead to a good outcome. When we only focus on the winners, we are essentially looking at those who have benefited from a combination of skill and good fortune, and we mistakenly attribute their success solely to skill.

Consider the world of sports tipping services. A verifier of these services, between 2001 and 2011, analyzed 120 services with pre-existing track records. These services, the "survivors," showed a profit over turnover of 17.4%. However, when these same services were tracked going forward, their profit over turnover plummeted to just 1.1%. The initial success of these tipsters was largely a result of luck, and their performance regressed to the mean over time.

How to Counteract Survivorship Bias

So, how can we, as aspiring gamblers, protect ourselves from the misleading influence of survivorship bias? Here are a few key strategies:

• Seek out the stories of failure: Actively look for information about the failure rates in your chosen form of gambling. Understand that for every winner, there are countless losers.
• Focus on the process, not the results: Instead of trying to copy the strategies of the winners, focus on developing a sound decision-making process. This means understanding the math, managing your bankroll effectively, and making bets with a positive expected value.
• Be wary of "guaranteed" systems: There is no such thing as a foolproof system for winning at gambling. Anyone who tells you otherwise is either delusional or trying to sell you something.
• Keep meticulous records: Track your own bets and results honestly. This will give you a realistic picture of your own performance and help you identify areas where you can improve.

A Realistic Perspective

By understanding and accounting for survivorship bias, we can develop a more realistic and ultimately more successful approach to gambling. It’s not about being cynical or pessimistic; it’s about being a clear-eyed realist. The path to long-term success in gambling is not paved with stories of miraculous wins, but with a deep understanding of the odds, a disciplined approach to risk management, and a healthy respect for the power of luck.

By being aware of these cognitive biases, we can make more rational and informed decisions when we gamble. The goal is not to eliminate luck from the equation, but to minimize its negative impact and maximize our chances of success in the long run.