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Thrill of the game

Gambling or investing, same basic drives are involved

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Few seasoned gamblers would argue with cautionary advice offered by Kenny Rogers' tune The Gambler.

But what fascinates psychologist Dr. Michael Ellery is not how we know when to hold 'em or fold 'em so much as why we even choose to hold any cards in our hands in the first place.

"Mostly I look at what's called affective reasons for gambling, so emotional reasons for gambling, as well as gambling cognitions -- in other words, irrational beliefs about gambling," says the assistant professor at the University of Manitoba.

Ellery has primarily studied problem VLT gamblers and how their addictions might be exacerbated by underlying mental illness such as depression. But he is now focusing on professional poker players and how they may or may not differ from problem VLT gamblers. He even spent four months in Las Vegas recently observing them in their gaudy habitat.

Ellery admits he, too, enjoys a good game of cards and, undoubtedly, money makes the game all the more pleasurable and exciting.

On the surface, gambling may appear to have little to do with how we carry out our day-to-day financial lives. Yet the motivations behind gambling and our often misguided beliefs about its potential financial payoffs say much about the deeply rooted psychological connection to money.

Money is arguably a tangible and widely understood expression of the ability to fulfil our most basic needs and desires. It deeply influences our instinctual behaviour, circumventing rational thinking more than we realize.

Gambling is just one of the more obvious manifestations of our often irrational relationship with money.

And the desire to gamble -- or more precisely, to take on risk -- is a more frequent occurrence in our financial lives than we would like to let on.

Curiously, however, Ellery says research into gambling motivations -- particularly for problem gamblers -- has often overlooked the role of the almighty dollar.

"We've totally missed this money motive in a lot of our gambling research in psychology, which kind of seems a little stupid in retrospect," he says.

"But at the time, it made sense because we were just taking these measures that already had established psychometric properties and tried to apply them to gambling."

Most studies into VLT addiction, for example, have looked at the problem through the lens of drug addiction, in particular cocaine, because that drug and gambling share a commonality: They stimulate the same parts of the brain.

But a couple of years ago, Ellery and a colleague investigated whether money is indeed an important gambling motivation, asking gamblers in a questionnaire how much money affected their enjoyment of the activity.

"We wanted to see whether that was something that people would endorse, and they do -- obviously," he says. "People gamble to win money, but it tends to link to that excitement factor; people use money to make it exciting."

Ellery's area of study has focused on poker and VLTs, but he says the psychological motivations that drive people to gamble in casinos could play a role in the investment world.

Undoubtedly, the investment world attracts its share of gamblers. Traders may make educated bets on bonds, stocks, currency and commodities, but they're wagers all the same.

The recent multibillion-dollar loss at JP Morgan, incurred by a rogue trader referred to as the "London Whale," is probably one of the more extreme examples. He earned his nickname because his wagers were so big they distorted markets. Yet his moniker could have easily been a reference to the term's meaning in the gambling world.

"A 'whale' is a really high roller, and casinos will cater to them a lot by flying them to Vegas and putting them up," Ellery says. "These guys are betting millions of dollars, as opposed to you and me."

These high rollers may win from time to time, but the reason they receive the royal treatment is because the casinos are likely to get their investment back when the whales lose a big wad of cash at the tables.

It's hard to pinpoint the London Whale's exact motivations, but certainly the promise of big money with little personal risk seems likely to have played a leading role. It certainly did in numerous other instances in recent history, such as the collapse of AIG, Lehman Brothers and Bear Stearns.

Of course, not all traders are irresponsible gamblers, nor are all gamblers addicts.

But Ellery says most gamblers experience physiological changes while gambling, and perhaps these same changes occur in Wall Street and Bay Street brokers and day traders.

Gambling turns us on, to put it bluntly. Our heart rate increases and, inside the brain, a complex chemical reaction sets in motion feelings of pleasure and reward that are similar to what drug users experience.

"Stimulant drugs like cocaine and nicotine increase heart rate and along with that comes a flood of brain chemicals, in particular dopamine, that activate the reward system in the brain," Ellery says.

Dopamine helps regulate how we experience pleasure and pain. It plays a role in how we learn and affects our motivation.

"It tells you when you're doing the right thing by producing that pleasurable effect telling you this is the right thing you should be doing," he says.

"The other thing is it tells you what's salient in your environment."

That means dopamine levels don't just spike when we gamble or a cocaine addict snorts white powder. Just seeing objects related to these activities can trigger the same response. Furthermore, after prolonged exposure, everything else by comparison just doesn't measure up.

"Gambling can be so rewarding and exciting to people with a problem that they have to learn to live their lives without that really exciting part of it, and that's related to dopamine."

Researchers have also discovered that even when we lose while gambling by a narrow margin, our brain tends to release as much dopamine as when we win, which may explain why people continue to gamble while on losing streaks, Ellery says.

This research supports much of the past work of behavioural psychologists that calls into question our concept of free will.

They argue behaviour is largely guided by psychological and environmental factors beyond our control. If you think of VLT players as rats hitting a lever to get a food pellet repeatedly, even though the action hasn't resulted in a pellet in some time, you kind of get the idea.

"That's called an intermittent reinforcement schedule, and the machines do exactly the same thing for people as the lever and pellet reward do for rats," Ellery says. "People will continue to play the machines, even though they don't win very often, just because that pattern of reinforcement produces that long-term play behaviour."

He says behaviourists have taken a lot of criticism for questioning whether we are actually in control of our behaviour.

"People get sensitive about that, but I don't have a problem with it."

Obviously, we often do manage our behaviour for the better, or we would all be problem gamblers or irresponsible managers of money, which is not the case, he says.

But it certainly makes one wonder if the next big financial meltdown might boil down to rat-brain behaviour.

It is the "rat race," after all.

Gambling fast and slow

Investing may share much with gambling, but what often sets it apart for most people is it takes much longer to see the results of our wagers. That's an important distinction, says gambling addiction expert Dr. Michael Ellery. Studies have found the slower the game, the less likelihood someone will develop a problem. That's why VLTs, which provide almost constant stimulation, can be so problematic for some people, particularly those individuals wanting to block out unpleasant aspects of their lives, Ellery says.

Economics and psychology

The bridge between finance and economics occurred in academia more than 30 years ago when psychologists Daniel Kahneman and Amos Tversky developed the Prospect Theory, which can just as easily apply to gambling as it does to investing. "For the same amount of money won or lost, people will experience more displeasure when they lose compared to the amount of pleasure they will experience for winning," Ellery says. They also found we will assess risks to be higher when they are framed in a negative light. "For example, people will prefer treatment that saves 80 per cent of people compared to a treatment that will kill 20 per cent of people," he says. It may be the same treatment, but when it's framed positively, we tend to assess the risk to be less than when it's stated in a negative manner.

Gamblers' tricks, tips and misbeliefs

Ellery studies what makes gamblers tick. Below are a few of the intricacies of the trade he's observed over the years.

Failure to understand probabilities: Gambling comes down to math and probabilities, and the fact is most people don't fully grasp the amount of pure chance involved in winning. Many VLT gamblers, for instance, believe they have a system for finding a hot machine. They may think a machine that hasn't paid out in a while will pay out for them.

"It's the failure to understand how each gambling event is randomly generated," he says. "It's got nothing to do with previous events."

Superstitious feelings

Even though most people don't believe breaking a mirror actually leads to seven years of bad luck, or walking under a ladder puts one on the path to misfortune, Ellery says many gamblers do indeed hold many superstitious beliefs, even though science proves gambling outcomes are completely random. "There are superstitious beliefs that the outcome can be influenced if I hit the buttons a certain way on the machine, or if I just pat it gently and talk dirty to it, I can get it to pay out," he says. Gamblers hold firm to these beliefs, even when he tries to persuade them otherwise. "They don't want to buy what I'm selling about mathematical probabilities."

Behind the poker face: All pro poker players work hard to show little emotion, whether they have a winning hand or they're bluffing, but even some of the best have trouble. That's why some pros wear sunglasses at the table, Ellery says. The fact is we all have certain traits that become evident when we are excited, and they can be difficult if not impossible to control. In many instances, we don't even know we're doing them. Many amateur poker players, for example, will look at their chips quickly when they have a good hand, and they'll glance at the other players' chips when they have a bad hand. But understanding behaviour is only a small part of what makes a good poker player, Ellery says. The really good players understand probabilities. And the great ones understand how others make decisions in light of the probabilities.

Republished from the Winnipeg Free Press print edition August 4, 2012 B8

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