Decisions: Risk and Reward

Johnnie E.V. Johnson,Alistair Bruce

• Éditeur: Routledge
• Année: 2008
• ISBN:
  9781134092505
• Édition: 1
• Sujet: Commerce
• Sous-sujet: Commerce Général

In recent years leading figures in a variety of fields - political, financial, medical, and organizational - have become acutely aware of the need to effectively incorporate aspects of risk into their decision-making. This book addresses a wide range of contemporary issues in decision research, such as how individuals deal with uncertainty and comp

Part I
Motivation for betting and risk taking

Introduction

An understanding of the decision to engage in risk-taking activity such as betting is central to helping to explain subsequent decision-making behaviour. To this end the chapters in this part attempt to disentangle the decision-making characteristics of those with motives such as financial gain, excitement, peer esteem and intellectual challenge. The damaging impact of excitement on decision-making in a risky environment is also highlighted and illustrated. This part of the book represents one of the few attempts to assess the impacts of motivation for risk taking on decision-making behaviour in naturalistic environments.

In particular, the chapters in this part consider issues associated with the motivations underlying horse-race betting by exploring, empirically, whether subsets of the aggregate betting population are associated with particular motivational factors. The distinctive betting behaviour of these subsets of bettors is also addressed. This part also explores the extent to which the motivations of financial gain, intellectual challenge, social interaction and excitement can be discerned from the behaviour of bettors. The betting characteristics of those motivated by excitement and financial gain are discussed in depth.

Chapter 1 examines the proposition that the motivation to bet varies between individuals. The chapter introduces and explores the concept of the off-course betting office as a population characterised at different times by different densities of bettors with varying motivations. Classifying subgroups of bettors by the time they place their bet is a novel approach to the discernment of betting motivation. A rationale is presented for expecting individuals’ betting motivations to be reflected in the nature and timing of their betting activity. A large sample of decisions made in off-course betting offices is analysed to test for differences in betting behaviour between these subgroups. An important contribution of the chapter lies in its identification of clear differences in the financial performance, staking and risk taking associated with subsets of bettors. These subsets are clearly defined by time-specific and bet-related variables. It is argued that these differences in behaviour offer strong support for the possibility of drawing clear motivational distinctions between time-defined subsets of the betting population. The results provide an important step towards a better understanding of betting behaviour and in particular they offer support for the existence of four specific betting motivations. They represent an advance on previous laboratory-based research or questionnaire/interview surveys since they utilise the actual betting decisions of a large, geographically dispersed sample of bettors made in the naturalistic environment of the betting shop, where subjects were unaware that their behaviour was being monitored.

Chapter 1 indicates that excitement represents an important motivation for betting and this theme is explored further in Chapter 2. In particular, this chapter explores the effects which excitement has on the nature of betting decisions and the financial penalties which can attend excitement. A literature survey reveals that, whilst a number of studies have identified excitement as an important motivational drive in explaining betting behaviour, few attempts have been made to measure the specific impacts which excitement has on betting behaviour in a naturalistic environment. Chapter 2 addresses this neglected area.

The notion of distinct time periods in the off-course betting office is introduced where factors which could be expected to generate excitement are most prevalent. The coincidence of these time intervals with periods of maximum information availability is also noted. A large sample of betting decisions made in off-course betting offices throughout the UK was divided into a number of time-defined periods, representing periods offering relatively great or little scope for excitement. An important finding of the chapter was that despite informational advantages associated with the periods of maximum excitement potential, the consumption of excitement involves a substantial financial penalty and significantly higher staking levels. This issue is further explored in Chapter 6. The results are found to be robust, since controls were applied to discount the possibility that the results were attributable to the effects of information complexity or other non-motivational influences such as alcohol consumption. The chapter clearly confirms the importance of excitement as an influence on betting behaviour and makes an important contribution in attempting to cost the ‘consumption’ of excitement. Arguments are presented which suggest that these findings could provide an insight into the impact of excitement in wider decision-making contexts.

Chapter 3 explores financial gain as a potential motivational force for betting activity; in particular, it examines the extent to which enhanced financial performance can be achieved by subsets of bettors. A large sample of betting decisions made in off-course betting offices was separated into time-defined subsets, associated particularly with differential exposure to market information. Significant differences in financial performance of bets placed in these time periods is explained in terms of information complexity, environmental stimuli which increase excitement and completeness of the information set required to make effective betting decisions. A particular subset of bets, which is demonstrated to be associated with significantly superior financial performance, is argued to be associated with qualitative and quantitative informational advantages. It is argued that there are a priori grounds for believing that individuals whose bets are associated with this subset (bets placed late in the market) are most likely to be those who are primarily motivated by financial return.

The research presented in Chapter 3 also represents an important contribution to the market efficiency literature. Previous literature has focused on identifying profitable opportunities for bettors. However, the research outlined in this chapter identifies opportunities for financial gain and quantifies the extent to which they are exploited in a naturalistic betting environment. This chapter isthe first to examine the financial gains actually achieved by subsets of bettors in non-pari-mutuel betting markets. The results also provide a valuable insight into the response of betting behaviour to market-generated information. The chapter integrates economic and psychological perspectives on the use of information – issues which to date have largely been explored in isolation; as such the chapter provides rich insights into betting behaviour, in particular the potential for achieving financial gain through this activity.

In summary, the chapters in Part I contribute a novel means of identifying relative densities of bettors in off-course betting offices with particular motivations and an insight into the betting behaviour of those primarily motivated by: financial gain, excitement, intellectual challenge and social interaction. Few attempts have been made to assess the impact of motivations for betting on behaviour in naturalistic environments. Consequently, the clear differences in financial performance, staking and risk taking observed in the studies reported here, which were conducted in a non-laboratory setting, represent a valuable contribution towards a better understanding of betting behaviour. In addition, the chapters focusing on the performance of those motivated by financial gain make an important contribution to the market efficiency literature. The work reported in this part quantifies the extent to which opportunities afforded by qualitative and quantitative informational advantages are exploited by bettors in real-world settings to achieve significantly superior financial performance.

1 Towards an explanation of betting as a leisure pursuit

A.C. Bruce and J.E.V. Johnson

This chapter uses an analysis of betting decisions to explore the motivations underlying off-course horse-race betting – a leisure activity which accounted for a turnover of £4.3 billion in the UK in 1989–90. Specifically, four possible motivations are considered: financial gain, intellectual challenge, social interaction and excitement. A testable proposition is developed, linking each motivation to a particular time period in which the bet is placed and as to whether the bet is placed at starting price. Hence, four distinct subsets of the aggregate betting population are defined. The proposition is tested by examining betting behaviour in each subset according to three bet characteristics–financial return, average stake and degree of risk taken, where the value of each characteristic is held to be indicative of an underlying motivation. The results indicate significant support for the proposition that individuals vary in their motivation to bet which is reflected in the nature and timing of their betting activity.

Introduction

The objective of this chapter is to explore the pattern of motivations underlying horse-race betting as a leisure activity in the UK via the analysis of a large sample of real betting decisions in betting offices throughout the country.

Following this brief introduction, the chapter proceeds in five sections. The first explores the various motivations associated with betting and reviews the literature in this area; the second describes the characteristics of the database from which the subsequent results are derived, stressing its incorporation of real betting decisions from throughout the UK and its ability to locate precisely the time at which bets were placed and the exact time profile of evolving betting markets. This leads to a discussion of the degree to which betting associated with particular motivations is likely to be time-specific in nature. In addition, the motivational aspects of the board price/starting price decision are discussed. Punters may elect to have their bet, on a particular horse, settled at the odds prevailing in the market when the bet is struck (board price). If they do not elect to do this, the bet is settled at starting price, the official, independently estimated average odds prevailing in the betting market at the start of the race. It is argued that the taking of board price or the acceptance of starting price is indicative of particular betting motivations. The material on betting motivation is formalized by developing the proposition that there exist distinct subsets of the betting population, each characterized by a different dominant motivation and defined in terms of timing of bet placement and, in one case, position on the board price/starting price decision. This proposition is tested, using analysis of bet-specific variables which are indicative of the underlying motivation to bet. The results appear to offer an encouraging degree of support for the proposition in general and strong support for particular features of motivational subset distinctions. Lastly the approach adopted and the contribution of the chapter are summarized.

The examination and analysis of betting, and in particular horse-race betting, as a legitimate area of interest within the leisure studies domain springs from its significance as a leisure activity in the UK. The 1991 Mintel Gambling Report gives the total UK turnover on all betting and gaming in 1989–90 as a little over £9.8 billion, of which just over £6.5 billion (66 per cent) was accounted for by on- and off-course bookmaking turnover. The Racing Industry Statistical Bureau reports off-course turnover on horse-race betting alone in 1989–90 as £4.3 billion, this figure forming approximately 80 per cent of total off-course turnover. In financial terms then off-course horse-race betting clearly constitutes a major industry. In terms of participation levels, it has been suggested (Filby and Harvey, 1988) that the number of regular betting shop punters in Britain may be close to five million. MAS Omnibus, in a report prepared for Ladbroke Racing in 1990, found that this level increases markedly for particular events. For example, about eight million people (19 per cent of the adult population) placed bets on the 1990 Grand National, a figure which rose to around 11 million (26 per cent of the adult population) when account was taken of the fact that some bets were placed, in part, on behalf of others.

As regards the recent development of the popularity of horse-race betting in off-course bookmakers, Table 1.1 illustrates nominal and real (1990 prices) turnover figures since 1984–5. These figures illustrate the continued popularity of the activity, with increasing real turnover throughout the period, apart from a slight downturn in 1989–90, a financial year characterized by very high interest rate levels and the end of the vigorous consumer boom of the late 1980s.

Betting motivation

There is a considerable and diverse literature relating to individual betting motivations. This embraces several branches of the social sciences; notably psychology, sociology and economics. Similarly, there are a number of surveys of the literature on betting motivation. For the purposes of this study, we focus onfour aspects of the motivation to bet: betting for financial return, betting as an intellectual challenge, betting to experience excitement and betting as a medium for social interaction. This set of motivations does not claim to be exhaustive; at the same time it recognizes that much betting activity by individuals is likely to be accounted for by a blend of motivational impulses. As Furnham (1985) notes ‘thetypes of motivation for, satisfaction derived from, attitudes to and habits of gambling are interrelated and multidimensional’ (p. 501).

Table 1.1 Off-course bookmakers’ turnover on horse-race betting (£ millions to nearest million)

In the interests of clarity, however, the motivations are considered separately in this section.

Financial gain

An essential feature of placing a bet is the commitment of current funds in the hope of collecting a financial return in the future. A major survey reported by Cornish (1978) found that 70 per cent of those who gambled gave financial gain as their primary motive. As such, it seems reasonable to suggest that the prospect of financial gain will form part of the motivation to bet. At the same time, there is evidence from large samples of actual betting decisions (Filby and Harvey, 1988) to suggest that successful bets (bets generating a positive return) form only about 25 per cent of all bets placed. This clearly presents problems for economic approaches which seek to explain betting as an activity pursued by rational agents in the pursuit of financial gain. In reality, of course, those whose betting is predominantly motivated by the prospect of financial gain may be prone to developing optimistic subjecti...

Table des matières

• Cover Page
• Title Page
• Copyright Page
• List of illustrations
• Notes on contributors
• Preface
• Acknowledgements
• PART I Motivation for betting and risk taking
• PART II The impact of complexity on decision-making behaviour
• PART III Gender differences in decision-making behaviour
• PART IV The use of information by decision-makers and deviations from rational economic behaviour