The Psychology of Risk in Sports Wagering

Explore the psychology of risk in sports wagering, delving into risk perception, cognitive biases, and strategies for rational betting. Understand how factors like the Sunk Cost Fallacy, Gambler's Fallacy, and Endowment Effect influence your betting behavior and learn how to develop a data-driven, sensible betting strategy.

Claudia Hartley
Claudia Hartley

Last Updated: 2024-07-02

A. Tzamantanis

7 minutes read

Man on rope

Even the most surefire bets have an element of risk attached. So how can we call them a certainty? We each have our own unique way of perceiving risk, which informs how we behave in situations of risk.

When it comes to sports betting, most people who bet often are less risk averse, allowing them to engage in what could be seen as ‘risky’ behaviour. That’s not where the psychology of risk in sports betting begins and ends though! There’s a whole lot more to it.

We’re going to take a look at risk tolerance, cognitive bias, how to develop a sensible betting strategy and plenty more. By the end, you’ll hopefully understand your own relationship to risk better and be able to use that to inform your betting strategy.

Understanding Risk Perception in Sports Betting

To understand the root of the psychology of risk, we’ve got to understand how we perceive risk first. We’re going to take a look at how we define risk and how this relates to sports betting.

So, What is Risk?

There are risks in all areas of life. You take a risk every time you cross the street. You also take a risk whenever you place a sports bet. Both of these risks are pretty small, but we come to that realisation by looking at two factors:

  • The impact of the outcome: how negatively this would impact your life if the risk didn’t pay off
  • The probability of the outcome: how likely or unlikely it is that the negative outcome could happen

In the case of crossing the street, the impact of the outcome is large, but the probability of getting hit by a car is incredibly small - assuming you look both ways!

In the case of making a bet, the probability of the outcome is much more likely, you could lose the bet, but the scale of the outcome is small - assuming you bet with a sensible amount of money.

Risk vs. Reward in Sports Betting

Now that we know what risk is, it’s time to take a look at how risk and reward works in sports betting.

In the instance of a sports bet at fairly long odds, say 10/1. You’ve got a pretty hefty reward for a pretty small risk. If you put just $10 on, you could get $100 back. That seems like a pretty good risk vs reward balance.

However, you’ve got to consider the probability of the outcome, like we talked about above. That 10/1 shot is probably at those odds for a good reason. In fact, bookmakers have whole teams creating odds to make them money.

The bookmaker has to make the odds seem appealing enough for a bettor to make that bet, whilst still making them short enough for the house to make money.

Behavioral Traps in Betting

As you might have guessed, people who gamble often tend to have different ways of perceiving risk (and reacting to it) than people who don’t. Let’s take a look at some of the reasons why and what we can do to counteract them:

  • The Sunk Cost Fallacy: this makes us feel as though we should continue betting to recoup lost funds. The best way to avoid falling into this trap is to set deposit/loss limits in your sportsbook account preferences.
  • Gambler’s Fallacy: It can often feel like you’ve been on a ‘losing streak’ and that it should end soon if you just keep betting. It’s just not the case! Past events don’t impact future ones in this way. Revising your own strategy is the best way to avoid this pitfall.
  • Endowment Effect: We naturally tend to overvalue our own predictions simply because they’re ours. It can make us bet larger on our own predictions and refuse to hedge bets even when it could prevent a loss. The only way to overcome this is through being able to look at your selections critically and remain flexible in your approach.

Developing a Rational Betting Strategy

Now that you know about the psychology of risk in sports betting, you’ve probably got a few ideas about how you’re going to tweak your own betting strategy. Maybe you’ve noticed some of the fallacies that you fall into.

Let’s take a look at how you can develop a more robust betting strategy, that takes into account the psychology of risk.

  • Set Limits: The most important step in any betting strategy when it comes to limiting losses, is setting limits. You can set yourself a daily or monthly spending limit that you can stick to yourself, or you can manually set deposit/loss limits in your account settings at your favourite sportsbook.
  • Use Data: Focusing on data-driven bets is the key to success. Look at historical data before you make a wager, trying to ignore your gut feelings and emotions about the sport, in order to focus on cold, hard, facts.
Claudia Hartley
Claudia HartleySports Betting Writer

With a decade of experience in the sports betting industry, Claudia can spot a value bet from a mile off. She prides herself on not just being a sports writer, but a fastidious researcher too.