If It Looks Like a Duck... It Might Not Be a Duck (Part 3): Chasing

The term chasing is shorthand for chasing losses, the act of increasing the persistence and, usually, the size of one’s bets after extensive or improbable losses in the—often desperate—hope of recouping those losses. It tends to correspond with a manic mixture of strong emotions and thoughts related to having been very unlucky already, having made and lost bets that the gambler started the day committed not to make, and finally being in a state of desperation with near total loss of self-control. Chasing can look like belief in the gambler’s fallacy because bets are increased after an improbable series of losses, and then they tend to decrease when those losses finally result in a big win, as they often eventually do.

Mathematically, chasing works much like the martingale system described in the previous essay. The blessing and the curse of chasing, like the blessing and the curse of martingale, is that it so often works. If my only goal is to get back to even and I keep increasing the size of my bet hoping for one good win that can make up for all the losses, chasers will often get that win, sometimes after going into debt that they can ill afford, reinforcing subsequent reliance on the dangerous behavior.

It is worth note that just as there are many species of martingale-like betting systems, there are many ways to chase, with different relationships to the likelihood one will eventually getting back to even or one will return to the chase. One way to chase is to bet on unlikely outcomes with large payoffs (such as parlays in sports betting, betting large amounts on single numbers in roulette, or hoping for a jackpot in slot machines). That kind of chasing is less likely to work. Another way is more directly akin to martingale: playing even-money bets with close to 50:50 odds and simply betting more and more after the losses. Chasing rarely looks just like martingale because the bets are less systematic, and so it also does not work as often.

Why is a system that usually works a curse? Because, like martingale, when it does not work, it results in losses far larger than the gambler had bargained for. If the impetus for chasing one’s bets is a large loss that leads the gambler to lose their good sense, then the result of an unsuccessful chase can be disastrous: debt that cannot be repaid, lying to one’s spouse and children about the extent of the losses, theft from employers or company accounts, suicide. Because chasing so often work and is associated with pathological gambling, those who chase often do so again and again over time, almost ensuring that eventually the consequences will be severe.

It would be nice to conclude that chasing is simply irrational with the idea that if gamblers could be taught the consequences of the activity, they would see how foolish it is. There are two problems with this picture. First, gamblers rarely chase because they believe it is rational. Nearly every experienced gambler will advise less experienced gamblers not to chase. Yes nearly every one of those gamblers will be able to tell you about a time—knowing full well what a bad idea chasing is—when they did it against their better judgment. Chasing is an act of desperation, done when it subjectively feels to the gambler like it is their only hope out of an already terrible situation. That belief may not be true, but the miserable feeling in the moment and the recognition that a successful chase could erase that feeling is often enough to drive gamblers to chase even while they consciously tell themselves what a terrible idea it is.

Second, like the person who rationally uses the martingale system when desperate to win just $50 more dollars that they need for an operation, chasing can often be a rational response to a desperate situation. If I have already lost more than I can afford to lose, to the point where my bank account is empty and I do not know how I will pay rent or pay back a debt, the marginal disutility of the extra losses (in the form of debt I accrue by maxing out a credit card, for example) may be less that the disutility of the original loss, even if objectively the additional loss is much higher. Consider someone who has lost $10,000, and—in the process—gone from having $5,000 in the bank to having credit card debt of $5,000. How much debt after that point is equivalently bad to that initial loss of $10,000? Depending on the person’s situation: their capacity to earn back the lost money through work, the possibility of losing one’s spouse or house or car as a result, etc., there may be no amount of additional debt that may seem worse than the initial $10,000. This is part of the reason that casino gambling is often referred to as a tax on the poor: in desperation where the only possible way to get out of poverty is gambling, it can be rational—for those who can afford it least—to play a game with a negative expected return.

This is the inverse of how it can be rational for wealthy people to take insurance (a negative expected value bet), even while it is irrational for those in poverty to take insurance: the wealthy person is managing their risk, the marginal cost for the insurance will not affect their lifestyle. The potential, low probability cost of losing everything, however, can change that lifestyle. If a bad insurance bet, from the perspective of expected value, can safeguard against that risk, then wonderful. But for those in poverty, the cost of insurance itself is significant, whereas there may be essentially nothing to lose to insure against. Thus just as a relatively wealthy person can be rational to take a negative-expected return gamble (that is, insurance), a person in poverty can be rational not to take insurance even if they were lucky enough to find an insurance policy with a positive expected return. Similarly, it can be rational for a gambler who has lost everything to “manage their risk” in the opposite direction from how a wealthy person who takes insurance manages risk. If they have relatively little to lose by going further into debt than they already are, but a great deal to win if they get improbably lucky, then playing a game with a negative expected return can have positive expected utility (despite having negative expected value).

This source of rationality, however, is also central to the curse. For gamblers are rarely in such abject states before they have already chased many times, the potential wins are rarely enough to recoup the sustained losses such gamblers have already faced, and even when such wins occur, it is rare that the gambler will then walk away from gambling, thankful for their final luck (even if they swear to themselves ahead of time that they will). The grandmother in Dostoevsky’s The Gambler, quoted extensively in this early post, provides a vivid case of chasing, of the repeated belief that one will walk away after winning, and of the desperate, irrational fever that commonly goes hand-in-hand with the failure to walk away and the eventual return to the chase. Ironically, there often comes a point when the gambler intentionally seeks to lose everything, recognizing that their own will power will not be enough and the only way to escape the cycle is to lose everything.

For those interested in learning more, the clinical psychologist Henry Lesieur—who worked extensively with problem and pathological gamblers—has written about the psychology and horrific experiences underly chasing in his 1984 book, The Chase. The actor Philip Seymour Hoffman, who died before his time, has an award-worthy performance portraying the real-life Brian Molony who embezzled more than $10 million caught up in chasing (based on the book Stung by journalist Gary Ross).

Although many comparisons have been made to the martingale system described in the previous essay, it should be clear by now that chasing is also quite different from martingale. Players rarely endorse chasing, sometimes acknowledging its pending harm even when they are in the midst of doing it. It is a wonderful example of the inner conflict between impulsive and intentional desires as they independently drive behavior. Martingale, on the other hand, is more systematic and is intentional: players use it because they have been tricked by the seeming mathematical certainty of the system. Eventually they reject it, but sometimes even while still believing the system would work if they only had risk tolerance to continue with it.

That said, chasing, like the martingale system, provides a compelling example as to why a behavior that might look like it demonstrates a particular belief (say, the gambler’s fallacy) is often driven by something else altogether: a different set of beliefs, as with martingale, or the conflict between belief and impulse, as with chasing. And, again as with martingale, the defensible rationality of chasing, from the perspective of expected utility, provides a great example as to the complexity and difficulty of evaluating the rationality behind any of these beliefs.

While this is the last post using the “If it looks like a duck…” counter-analogy, the next few posts will continue to discuss the nature of the gambler’s fallacy in an attempt to convincingly argue that that fallacy is more myth than substance. The next essay will consider the inverse of this most resent set of essays: the common case among experienced gamblers when—despite often believing in the gambler’s fallacy—they behave as if they do not. That is because experienced gambler’s believe in a counter-vailing force affecting outcomes over the short-term that is stronger than the long-term “corrective force” associated with belief in the gambler’s fallacy: the belief that luck, like the tides, runs in waves that can be identified and used by skilled gamblers to anticipate short-term patterns. They often believe this while consciously “acknowledging” (incorrectly) that these likelihood-contradicting patterns in luck will eventually need to be corrected (the gambler’s fallacy). But the more important and diagnostic force, as far as most experienced gamblers are concerned, are the waves of luck that make unlikely patterns in previous outcomes more—rather than less—likely.