Most punters lose. They are ill-informed, intrinsically lazy, psychologically flawed, impulsive, ill-disciplined, incapable of appreciating the importance of affect to the decision making process and prone to imitative and repetitive behaviour. When punters lose they typically come back for more (repetition compulsion); when they win, they become overconfident and prone to risk-seeking. Most punters exist in a permanent state of self-denial, as regards their level of competency. Most punters misunderstand the structure and psychology of betting markets (and probabilities). Most punters look to others for signals, and ascribe to others powers that they simply do not have (information that is flawed and incomplete is embraced as being definitive). Most punters overinterpret betting market signals. Most punters prefer to see, interpret, have feelings about, and react to things from a shared point of view. Most punters hop on bandwagons. Most punters lazily embrace heuristics and suffer from every known behavioural bias in the book. Most punters get drawn in by herding and information cascades. Most punters confuse luck with skill. Most punters think that they are not like most other punters. Most punters have simply got no idea of the degree and extent to which they are being influenced by unconscious forces. Most punters willingly embrace the facile opinions and idle chatter of the so-called experts (authority bias/the illusion of validity). Most punters are unable to cast of prevailing interpretations and perspectives. Most punters extrapolate blindly and see meaning in the meaningless. Most punters converge fixedly on the same wrong action, over and over again.

Betting markets are complex - a sea of uncertainty. Each betting market event is unique and it is difficult for anyone to identify, much less predict, all of the variables that will define and determine the outcome of the event. The brain works to determine the causal structure of the world. It processes information by transforming it into patterns, which are then encoded to facilitate adaptive responses. More often than not, these patterns, which are heavily influenced by past behaviour, are simply misread, or merely reinterpreted so as to confirm already existent strongly held convictions. More often than not, it is also the case that during the pattern reconstruction process, a variety of unconscious cognitive, social, and motivational factors creep in to introduce error and distortion into the process.

There is no objective reality in a betting market. We react to the same piece of information in different ways, because of our prior choices, our emotional baggage, the environment, our past experiences, the current context in which we find ourelves, and the way that we respond to conscious and unconscious cues. We confabulate explanations, engage in over-confident story telling, indulge ourselves in unsubstatiated conjectures and fail to make accurate inferences about the causes of our behaviours, or indeed, the behaviour of others.

Most gamblers lack a sense of intrapsychic focus. They believe that there is a coherent I that is rationally calling the shots and fail to account for the fact that there are always inner processes at work that give rise to emotional and behavioural aberrations. Our capacity to intuit what it is that is driving us beneath the surface is weak to nonexistent, and most other people are not prepared to take the risk of telling us. Most people are basically emotionally retarded, but they have constructed a false world and learnt to wear a mask that allows them to stay away from having to deal with tricky self-knowledge.

Gambling as with most behaviours that affect, and are driven by, mood and emotion, is often characterised by repetition. The highs and lows associated with the gambling experience, afford the gambler a false sense of mastery and control. The bookmaker Victor Chandler famously said that he believed that the painter Lucian Freud (from whom it is alleged Chandler won upwards of four million pounds) liked the edge of losing as much as the delight of winning. In a nutshell, gambling affects mood, for better or worse. Syndicates, spoofers, scalpers, and all the other merchants of hope and magical rescuers exploit this fact. People who chase highs are not typically the people that have the patience to sit down and study the form book for six hours at a time.

Where there is risk, there is uncertainty, where there is uncertainty there is doubt, where there is doubt there is a desperate search for meaning. A sense of doubt always hangs over the betting market space and the more uncertain people are about their own judgment, the more likely they will be to allow external informational influences to impact upon their decision making process. Into this gap step the Solutionists/Merchants of Hope - people who propose to have the answers. More often than not the merchants of hope turn out to be nothing mare than narcissistically oriented, mediocre people, who will pull every known grooming trick in the book in order to win new people over into becoming their admirers (The need to be believed, as with the need to be seen to be always right is somewhat pathological). Regarding this general pattern of behaviour, one is reminded of a quote by the famous investor Howard Marks; If someone really knew, why would he share his knowledge?

Liquid betting markets prices are noisy, buffeted by intersystemic and intrasystemic forces - the product of a complex interaction between a heterogenity of impulses, beliefs and emotions. Into the mix one could throw such factors as the way in which different punters are assessing and assimilating recent form, the reputation and influence of tipsters, price action itself, blatant attempts at price manipulation, rumour, the shadow of history, the impact of biases, the impact of late breaking news and a whole plethora of other psychological factors related to the price itself. The complexity of the correlations is illimitable. Contingency lurks in the wings. Even the smartest cookies in the class are basing their valuations of probability on incomplete information.

Because of the constant noise that pertains in a highly liquid betting market, it is extremely difficult for anybody to consistently strike the right balance. There are those that will always place too much emphasis on their own private information to the exclusion of everyone and everything else and there are those that will choose to ignore their own private information, when presented with even the smallest piece of new information. (Information Cascaders). Others lie somewhere along this continum; changing with the wind. Many bettors demonstrate a pathological need to confirm their behaviour with the behaviour of others. Many demonstrate a pathological tendency to overestimate the signals that the betting market is sending (appreciating, for example, a traders wilingness to lay an event but underestimating his private information.).

An information cascade occurs when individuals, having observed the actions of others, take the same action regardless of what views they may have previously held. During the early part of the 2018 flat horse racing season, for example, everybody knew that the Aidan O'Brien horses were running below par. However, without fail, every time money was seen to come for an O'Brien runner, the herd joined in the gamble. Gustav Klimt was a good example, backed into 15/8F form 5/2 and well beaten in the Hungerford Stakes at Newbury.

A majority of people do not have the executive apparatus that is required to deal with complex situations. It stands to reason therefore, that most people are incapable of unpicking or dealing with the rolling complexity that is a dominant feature of all betting markets. Under conditions of uncertainty, mirror neurons make people prone to take flight into the collusive solace of group allegiance. Being wrong with the crowd is preferable to being wrong on ones own. Being right with the crowd also infers a sense of fusion and belonging. In Freudian terms, the betting market is like returning to the mother's womb.

Social scientists equate the conformity of individuals in large groups with irrationality, fads, mass psychology or the madness of crowds. Janis showed how groupthink leads to a deterioration of mental efficiency. People who fuse with the crowd and join in so-called gambles are of course merely guessing that somebody in the crowd knows something that they don't. Bookmakers and the Betfair scalpers are only too aware of this fact and it is in their joint interest to create the impression that there is significant money around for a particular event. Mugs, like Gleeson and Chapman on ITV racing unknowingly assist them in this task. Those that ride the waves of popular euphoria invariably get drowned in the longer term in the slough of despond.

The reason why the very early money is such a bad predictor of the immediate trend of betting market prices is simple: people who rush to reveal their hand too quickly, are, more often than not, guilty of weighing their own private information too heavily, whilst giving too little weight to sentiment, momentum, spoofing, herding, information cascades and late breaking public information. They may indeed know something, but unless they are dealing on insider information, they cannot know everything. Accordingly, they are more often than not simply acting in an overconfident fashion, and their action will invariably get lost in the noise of the market as it develops over time.

It is a feature of overconfidence, that one shows a total disregard for the information that others may hold. The internal dynamics of the betting market, leave one open to being scalped by momentum traders and more rational, patient traders, who are prepared to embrace Bayesian updating. Few possess an ability to time the betting market. The O'Brien trained THE Pentagon 7.4 out to 11.5 on momentum ..... overdone? Not at all; he continued to drift out to 16.0 before getting well beaten. Many grew rich laying the O'Brien stable during the spring and summer of 2018, and many gew poor, believing that recovery in the stable's fortune was just around the corner.

Hypermentalizing, in the context of a betting market, concerns a propensity to overinterpret noise and to accordingly lose focus. Typically, under these circumstances, the emotion regulation system fails to fire in the first instance, causing the bettor to overinterpret the behaviour and supposed information held by others. In the second instance, the bettor becomes trapped as he realises that he has made an error but he is unable to move to correct it. It is a classic double bind par excellence. Under this scenario, private information, in so far as it ever existed, is simply downplayed to the point of being discarded. This scenario is played out every day on the Betfair betting exchange. The arrival of money for a Harry Skelton trained runner almost without exception triggers an information cascade. A sense of doubt is suddenly created in the minds of individuals who had actually fancied other runners in the race. Under conditions of uncertainty most people wobble and do things that they simply never intended to do.

The price pertaining at any particular moment in time in a highly liquid betting market is a product of an interaction of many simultaneous factors, each which in their own right may have some explanatory power, but none of which can be isolated as being the most significant at that particular moment in time. Accordingly, until the betting market closes, truth is ambigous, a veritable moving target, and, on occasion, it can even remain a mirage. Prices can be irrational and stay irrational until the close of the betting market. Before the betting market closes, however, many are quite happy to wager that they are somehow the magical one, blessed with the rare and special insight of knowing what the true price should be .... more often than not of course, they are simply plain wrong. Truth in a highly liquid, live betting market is always relative and partial, until the market closes. It is very difficult, however, for anybody studying prices in a live betting market to not be sucked in to ascribing to them a validity and significance that they simply do not have.

Contrary to what many believe, the serial manipulator of the early betting markets on the betting exchanges does not generally have privileged access to some deep well of inside information. He is trading purely and simply on human psychology. Knowing that irrational behaviours have the ability to sow doubt in the minds of others, he is seeking to deceive them with a calculated sleight of hand. He knows, for example, that if people studying the early illiquid markets see what they consider to be a large informed trade, that they will accordingly infer from it, an increased likelihood that some sort of information event, has occurred (somebody must know something). They will, then, most likely, be duped into following the money in. When betting market moves have been driven soley by sentiment, herding, group think, and informational cascades, they are more likely to experience a sudden reversal.

Cognitive biases, a product of mental blind spots, cast a long shadow over the entire betting market. On the one hand, you have the overconfident bettors who decide to ignore betting market signals completely: never stopping to consider the fact that the trades of others are signalling that they may actually be at an informational disadvantage. These types of bettors find contrary views or inconvenient facts discomfiting, and will, more often than not, come up with reasons to discredit them. They always know better, even when they get things wrong. In fact, as far as they are concerned they are never actually wrong; they attribute events that disconfirm their beliefs to bad luck or sabotage.

By comparison, there are those that are obsessed with the betting market - to the point of anthropomorphising it. These individuals make the classic mistake of weighing the information of the crowd as revealed in betting market prices too heavily, whilst significantly failing to take into account the influence of factors acting upon the price as sentiment, momentum, spoofing, herding, information cascades and late breaking public information. More often than not, the behaviour of these individuals is characterised by an over-emotional response to price movements, contributing to them consistently bailing out of trades at the wrong moment. Predicting the direction of the price in a highly liquid betting market is akin to attempting to map out the projected trajectory of a spice fiend staggering out of a Dublin underpass.

Prices in a liquid betting market are constantly changing, and they are (consciously or unconsciously) acting upon the mind of the observer. The price existing at any particular moment in time, represents an average opinion of the likelihood that a particular event will prevail: it is there for traders to react to; nothing more, nothing less. What are the specific dynamics that drive betting market prices? Besides moving on the back of a collective analysis of recent form, news and rumour, the betting market price also acts upon itself (it is self-referential), to the extent that any movement is and will be affected by both earlier price movements and also by the current range of prices generally on offer in the broader betting market. Prices can engender confidence, when they seem to supports ones own beliefs, but they can also elicit fear, panic and uncertainty. When the price of a horse is seen to drift wildly, the drift can of course become a self-fulfilling prophecy. It is a very brave (or indeed foolish) man who on entering a betting market and finding his selection at 10/1 instead of the anticipated 3/1, does not question his earlier judgement and rush for the exit.

Professionals are intensely curious about human psychology, energetic about gathering data and willing to adjust, revise, refine and reconsider their views in the face of new evidence. They exercise effective personal control; learn from their mistakes, regulate their emotions, and, to the best of their ability, objectively weigh up risk. They make decisions that take into account their own current feelings, their previous patterns of behaviour under similar and different conditions, their own opinions and the opinions of others. They remain conscious of how much they don’t know. They are able to tap into a degree of self-reflectiveness that allows them to judge their predictive ability; when they are wrong they accept it and they learn from it. They perservere in the face of complexity because they have faith in their ability to affect their own behaviour and conviction in their subsequent ability to produce desired results. They recalibrate and reframe. What chiefly differentiates them from the ordinary bod is their willingness to invest time, effort and resources towards achieving their stated outcome.

Most of the other actors in the betting market display defects in adjustive techniques, have a degree of confidence in their ability to predict outcomes that is totally misplaced (the Dunning–Kruger effect), have problems with distinguishing between the present and the past, confuse feelings with reality, patterns with probability, luck with skill and blur the lines between internal and external forces whilst constantly searching for repeated gratifying experiences. They also engage in selective recall when it comes to assessing their past behavior - and it is this trait that allows them to carry on making the same mistakes over and over again. In nuce, their incompetence ensures that they remain blissfully unaware of their own incompetences.

Pasteur (1854) "chance favors only the prepared mind."

Tweet