End-of-the-day betting effect
Bettors take bigger risks late in a session to recoup losses.
The end-of-the-day betting effect is a cognitive bias in which bettors shift toward higher-risk, higher-reward wagers as their betting session concludes, often to recover losses. This pattern was first identified by William McGlothlin and Mukhtar Ali through observations of betting behavior at horserace tracks. The effect is notable because the preference for longshots over conservative bets on the final race can be so strong that betting on the favorite to show in that race may yield a profit despite the track's take.
Quick Facts
- Discoverers
- William McGlothlin and Mukhtar Ali
- Year of discovery
- 1956 and 1977
- Setting
- Horserace tracks
Facts from the source article.
Explanation
The expected utility hypothesis cannot account for the shift in risk preferences across a betting day if bettors integrate their wealth, as the last race is not fundamentally different from the first. Prospect theory offers an explanation by assuming that people open a mental account at the start of the day, close it at the end, and dislike closing an account in the red. This effect aligns with prospect theory's risk aversion in gains and risk seeking in losses: bettors begin with a reference point of zero daily profit and gamble in the domain of losses to break even. Since the racetrack takes a substantial portion of each dollar, most bettors are losing money as the last races approach. Anything below the target is seen as a loss, triggering risk-seeking behavior to break even. Diminishing sensitivity to successive losses makes the cost of the final bet seem trivial compared to prior spending, and bettors avoid wagers that would not recoup their losses if successful.
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