“The first principle is that you must not fool yourself and you are the easiest person to fool.” – Richard Feynman
Clear, dispassionate thinking and the analysis that flows from it are crucial to all speculative endeavors. It is essential that we embrace ambiguity and sit comfortably with it in order to make good betting decisions.
Unfortunately, this is an uphill battle. Both the traditional schooling system and (more importantly) our own hardwired human deficiencies hinder our ability to do this effortlessly. In this chapter we’re going to discuss how to get past instinctive tribalism, embrace uncertainty, and begin a process of becoming better speculators (bettors) by becoming less sure of what we know.
Betting successfully requires a certain mastery of self that transcends our most common instincts.
Because we are playing a game against other market participants – and one of the most enduring edges in any competitive marketplace is that humans in large groups are reliably insane. We can take advantage of behavioral biases for betting profits, but only if we can prevent (or reduce) the same cognitive errors from arising in our own thinking. Most market participants have the capacity for rational action, but tend not to take it. The effect is magnified in groups. Those poor decisions can be our gain – but only if we play our cards right. It turns out that becomes exponentially harder to do when we cling to our desire for certainty.
Be Open, Stay Rational
I’m going to guess that you probably have some strongly-held opinions.
These opinions form part of the basis of your identity and guide your brain through shortcuts about how to quickly interpret the information your senses receive. These are known as heuristics. The part we’re most interested in, though, is how these opinions actually become a focal point to be confirmed by new information rather than a byproduct.
Consider for a moment how a lawyer builds a case. Both opposing sides start with the same set of facts (roughly) and potential ambiguities. Each side begins with the position or outcome they are advocating for and works backwards through the facts to produce the sequential trail leading to their preferred judicial finding. This is how most people also interpret new information they encounter – they use it to confirm ideas or opinions they already have.
We know this phenomenon as confirmation bias. This may win you some trials in a courtroom, but will lead you to spectacular disaster when betting against other people. If you only see what you want to see, new information can only serve to push you in the wrong direction and will not assist you in developing a sharper assessment than your competition.
The first key of interpreting new information clearly is therefore to not have such strongly held opinions – or to at least be able to suspend them long enough to make a rational assessment.
You Are Not Your Priors
A lot of people think that they can separate their personal opinions from their betting. I’m not so sure this is the case – frequently personal opinions and speculative analysis have an insidious way of becoming inseparable. Motivation affects perception, as is conveyed by the following Buddhist aphorism:
“When a thief meets a monk, all he sees are his pockets.”
Shedding preemptive motivation is thus one method of seeing things more clearly. It helps to keep you away from the traps that first-order consensus thinking will walk you directly into.
This process isn’t an all-or-nothing situation. Everyone has beliefs and opinions and there is nothing inherently wrong with that. I believe the sun will come up tomorrow. I believe Canada’s income tax policies are overly onerous. I believe Korean fried chicken is the best fried chicken on the planet. The idea is to leave your opinions open to change based on new information and to not hold them so strongly that they become a focal point to be confirmed rather than a byproduct of evidence. You don’t want the confirmation bias engine to be running your mental process.
Basically, be more Bayesian.
What Do You Really Know?
For example, let’s look at my previously stated belief that Canada’s taxation policies are overly onerous. The snap conclusion one might draw from that is that Canada’s taxes are too high and thus “bad.” In fact, that’s a very easy argument to make.
But reality is messy – and there are few easy answers.
Our particular tax policies in Canada fund many beneficial social programs, reduce our Gini index score and prevent the entire economic system from becoming destabilized due to extreme differences in quality of life between the most well-off and the worst. We also happen to know that wealth tends to get centralized into fewer and fewer hands in competitive games, and taxes form a useful counterbalancing mechanism (to some degree) that keeps things functioning.
So is Canada’s tax system good or bad? It’s hard to be sure. There are persuasive arguments to be made for both sides – and even though I’d happily pay less in taxes every year, I can see the argument for why higher taxes might be a positive when viewed from a higher “maintain economic stability” perspective.
Be less certain of what you “know” to be true.
Become Less Certain
To get even further into the weeds, many of our opinions aren’t even actually our own. They are accepted or inherited as part of some tribal membership – which is an even more leveraged form of outsourced thinking. Tribalism is a preference for the benefit in-group membership supplies despite the cost it demands. It serves our human desire to be part of something larger than ourselves, our desire for certainty via siding with consensus views and our desire to support our preexisting beliefs all wrapped up in one convenient package. Unfortunately, cognitive tribalism necessarily requires a smoothing of conflicting facts into glossy narratives, which is where unhelpful heuristics take over from adaptive learning and rational assessment.
Maslow’s hierarchy of needs is gunning for your betting bankroll.
One effective approach to overcoming tribalism and confirmation bias is to actively seek out diverse perspectives and information sources – even those you might initially disagree with (in fact, so much the better).
By exposing ourselves to different viewpoints, we broaden our understanding of the possibilities (and distributions) which can help to defend against our desire for certainty. Instead of treating our opinions as sacred, we should subject them to rigorous scrutiny. This involves constantly questioning the foundations of our decision making by seeking counterarguments and seeking out evidence that challenges the strength of our convictions.
None of this is meant to convey an equivocation along the lines “everyone is equally right (or wrong) about everything” — the point is simply about escaping confirmation bias and cognitive tribalism by becoming less certain of what we know. It’s about dealing with the information around us in terms of probabilities rather than binaries, shades of gray in a spectrum rather than black and white.
Opportunity in Ambiguity
Law school was very good for developing nuanced thinking about stronger and weaker (“colorable”) arguments. As the law school preparation book Getting to Maybe says about exam writing:
“What you will find inside the typical law school exam question is ambiguity, and … learning to live with it – indeed, learning to search it out, embrace it and exploit it – is the key to doing well on law school exams.”
It’s arguably the same with finding plus-EV bets. The desire for certainty that drives us to find the singular “right answer” must be lessened and ambiguity embraced. That’s where the opportunity lies, but it’s hard to see that without a mind unencumbered with strong opinions.
The process of becoming less certain of what we know requires intellectual humility, a commitment to continuous updating based on evidence, and the ability to tolerate ambiguity.
It’s not an easy thing to do, but if we succeed even slightly, we can approach speculative endeavors with a clearer and more open-minded perspective that will help us identify intermittent edges over the consensus market opinion.
Of course, in the entirety of this essay I’m only talking about other people’s opinions, not yours. All of your opinions are (naturally) righteous and correct and the only conclusion other right-thinking people could arrive at. Just like everyone else.
And I’ll see you on the other side of them in the betting markets, ready to hammer distorted overconfidence back into place.
About the Author
Andrew Mack is a professional sports bettor and quantitative retail trader. He is the founder of Mack Analytics, a private trading & quantitative research company.
Andrew holds a BA in social sciences from the University of Victoria, a JD from the University of Manitoba where he won several awards for his academic performance and an MSc in data science. He is also a Red Seal Journeyman Electrician.
When he is not trading markets or betting on sports, Andrew can usually be found at the gym or reading a book on Bayesian statistics. Andrew lives in Calgary, Alberta with his family. He can be reached on Twitter at @Gingfacekillah.
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