Making Better Gambling Decisions – The Sunken Cost Fallacy

Check out your wardrobe. Is there an item of clothing in there that does not really fit you or you do not really like but cost you a lot of money? Is it taking up precious space but you are reluctant to discard it as you have hardly ever worn it? This is an example of what we call the sunken cost fallacy.

In this article we are looking at making better gambling decisions and are examining some of the ways in which errors in the way we think and perceive circumstances and events causes us to make sub-optimal decisions. Here we will look at how the sunk cost fallacy as outlined above can prove counter-productive in the casino.

The force behind the sunken cost fallacy is that because we have already invested in something we feel heavily committed to it and although the best decision would be to get out as soon as possible we still hang on in.

A perfect example of this is in poker. We might find that we are over committed to the pot and that although there is no opportunity of making any form of value bet we hand on in, in the blind hope that something will turn up, when we know that we do not have the strongest hand and that the best thing to do is to fold.

It is analogous to playing on the stock market and hanging on to rapidly falling stock in the hope that the change in price will reverse. It rarely does.

The way to get out of situations like this is to tell ourselves that there is no use in crying over spilt milk. What has happened in the past has happened, and there is nothing we can do to reverse the situation. By continuing to chase it is wasting money. Although it is not pleasant to lose, it is better than investing in something that you really know is not a winner.