Why sports betting has nothing to do with investing

Key takeaways

  • Betting pushes the brain to release dopamine, a chemical that causes happiness and elation and often pushes to continue betting.

  • Sports betting can appear less risky as it involves a somewhat familiar field, but this is commonly known as illusion of control – a brain shortcut or “heuristic”.

  • On the surface, investing appears to have similarities with betting, but the former is based on rigorous analytical processes and thorough vetting of available opportunities that reduces the “alea” – the luck part.

Gambling and your brain

Sports betting does feel good. According to a 2013 study published in Frontiers in Behavioral Neuroscience, though the appeal of gambling ostensibly lies in monetary gain, the real reward is a brain release of dopamine, a chemical that helps us feel pleasure. 

Interestingly, the study found that while the first dopamine release coincided with a gambler’s first win, over time simply placing a bet could trigger a spike. This is one of the reasons why people continue to place sports bets even when they’re losing and it is the main driver of gambling addictions. 

Studies have also shown that people who are less worried about losing money and more invested in earning more money are more likely to keep betting, even if they keep losing. According to a 2021 Italian study, people who gamble more believe they have more to gain, while people who gamble less, conversely, believe they have more to lose. 

Sports betting can give a false sense of familiarity 

Of course, while sports betting isn’t all about money, winning money is a big part of the appeal. 

People like to bet on sports because they believe – wrongly – that they can correctly assess the risk  — bettors believe they are knowledgeable about the teams and athletes they’re betting on or against, and that they can calculate the odds and pick and choose their wagers accordingly. This gives people a false sense of control over their bets.

Still, it’s harder to win than you think. Even “successful” sports bettors win, on average, only 55 percent of their bets, and often, these people are gambling pros with statistics degrees and Excel spreadsheets that track their favorite athletes – a surprisingly similar analytical approach to the one analysts use in public equity markets. 

In fact, when a bettor analyzes sport events scientifically, drawing conclusions with statistical significance, there can be similarities between trading (which is not investing) and betting. But this is not what usually happens. 

That is not to say that betting is wrong per se – casual bettors enjoy adding an extra element of excitement to a sports season, as long as they’re realistic about the potential money loss and don’t bet more than they can afford to lose.

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How sports betting compares to investing

A noteworthy 2020 study from the University of Ghana found that sports betting behavior “had a complementary rather than a substitutionary effect on investment behavior. The participants were both risk-aware and risk-averse, but engaged nevertheless in betting for a chance of winning a high payoff.” Another 2020 study published in the Journal of Economics and Finance found that sports bettors tend toward lottery-like stocks that are priced low at entry but can yield high returns. 

Nevertheless, investing usually involves a much higher degree of scrutiny compared to even the most scientific forms of betting. Analysts carefully vet a company’s profitability and future prospects by looking into its financial statements, while economists attempt to make sense of the macroeconomic context and political analysts study the degree of political and geopolitical risk affecting a specific investment opportunity. 

Even retail investors have access to sophisticated analytical tools, and many utilize artificial intelligence to guide their investment decisions in a way that is not even remotely comparable to what happens in sports betting. While there are reckless gamblers within the investment community, and sentiment can be a strong market driver – especially following black swan events such as pandemics, wars, financial crises – successful investors tend to rely on rational decisions made by experts on their behalf. 

Yieldstreet offers access to a variety of carefully vetted investment opportunities. While risk is inherent in any investment decision, a thorough due diligence process can help better gauge both the potential upside and downside of an investment product, allowing. In addition, transparency can help build trust within the investment community. 

Learn more about the ways Yieldstreet can help diversify and grow your portfolio.

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