Loss chasing typically defines the transition from recreational gambling to disordered gambling. It is the tendency of a gambler to amplify their betting in an effort to recoup prior losses. Loss chasing for traders and gamblers occurs when discipline to a pre-determined strategy is abandoned in favour of a more aggressive approach. When traders review their profit and loss (P&L) spreadsheets, this is when they can usually see the escalating downward trend of losses following a big loss. Loss chasing can be witnessed within a trading session and between sessions.
Thanks to people like the late Professor Kahneman, and his colleague Amos Tversky, we can see brain function in simple terms such as our slow deliberate and logical, and, therefore, rational part versus our intuitive, fast and automatic part. We need the latter part to be predominant or we would not get things done efficiently in everyday life. However, we need the former part to be active when we are called upon to make big decisions. It is important to be very rational and purposeful when making investment decisions, for example, and this applies crucially to gambling. It is difficult, however, to stay in that rational part when we become triggered and our autonomic nervous system (the body’s survival fight-flight system) is activated.
Loss chasing is when the pain of a loss produces a strong emotional and cognitive reaction (loss aversion) and users will seek to recover their losing positions in an attempt to soothe the pain of those losses. Loses can trigger the fight flight system and when operating in this mode it is usual that bad decisions are made. Compromised exceutive functions occur, such as inhibitory control, mood related impulsivity (urgency) and compulsivity. This neurocognitive maladaption does not usually end well for a trader’s P&L account.
Successful traders will retain discipline. That means staying largely dispassionate when assessing odds and likely outcomes. When a loss occurs, there is usually no sudden change of course in investment decision making. Discipline is maintained by adhering to a long term winning formula, in spite of short term volatility. Their rational part will mostly stay focused on the longer term picture. Their loses will still hurt but they will say to themselves that tomorrow is another day. They resist the urge to immediately recover loses in spite of the temptation to do so. They don’t adjust stop loss options in the roller coaster emotional journey of attempting to regain losing positions. Instead they will be patient in their trading and will wait for another appropriate opportunity to get involved again.
Problem gamblers, on the other hand, will typically lack this kind of discipline. Their risk appetite will suddenly spike higher. Their staking plan rapidly changes as they chase loses, taking on greater and greater risk in the ensuing trading session(s). What they really need to do is to take time out and readjust their emotional and mental states. This would give them an opportunity to reset their rational decision making part. But that would entail having to deal with the emotional fall-out of a loss and to process difficult feelings and emotions. Gamblers often have trouble processing guilt, fear, shame and self recrimination. For those who are susceptible to addiction, this is a phase that is especially difficult.
The gambling industry represent businesses that are out to make money from gambling. They will have transparent data from their user accounts which will clearly demonstrate evidence of loss chasing, and in real time. Users will suddenly show evidence of increasing their risk appetite after a loss, perhaps changing the volume of bets or changing the type of bet they gamble on, and showing a change in time between bets.
It is worth pointing out that not all loss chasing is doomed to failure. Some traders will increase their staking strategy after a loss, recover to a break-even point, and then revert to their original staking plan. This might imply that loss chasing can also be due to a subjective valuation of the outcomes to the gambler (the need to break even), rather than necessarily to a neurocognitive function. But such success in chasing is usually short term. Successful traders simply won’t chase their loses, and problem gamblers might get lucky every now and then.
At-risk gamblers are typically screened in addiction recovery circles by the Problem Gambling Severity Index (PGSI for short) which categorizes gamblers with risk status. The index uses scores of gambling severity which are classified into three categories. These are 0–1, which is no problem gambling; 2–5, which is low to moderate; and 6 or more, representing high severity. The term ‘at-risk’ can also imply that people who have a PGSI score of 1 to 2 or 3 to 7 (representing low or moderate risk gambling) will progress up the scale to a PGSI score of 8 or more and will experience problem gambling. The ones who chase their loses will have a high score.
The gambling industry like to tell us that people who are at-risk of developing problems with their products are those what have a high susceptibility to addiction in the first place. The industry likes to maintain that most people can engage with recreational gambling in their leisure time and that the tyranny of a legislative clampdown from the nanny state should not preclude the majority from having their fun. Industry representatives will point to the statistics from Gambling Prevalence Studies as evidence.
To break the negative cycle of loss chasing with at-risk gamblers is to bring greater insight into the cognitive and emotional regulation skills necessary for recognising and controlling loss chasing urges when gambling. A gambler is essentially fighting their own inner demons, in order to maintain their rational decision making, and not to chase their losses. That is why taking time out is crucial following a loss. This, of course, assumes that such gamblers can gamble successfully long term, with or without a susceptibility to addiction, and does not presume that gambling by its very nature being inherently addictive for them, and actually designed to be addictive.
Noel Bell is a UKCP accredited psychotherapist and can be contacted on 07852407140.