I’m not much of a gambler, neither by skill nor by frequency. I did put a decent amount on last year’s Preakness, though, and because the money had been in my TVG account since I had a bunch of relatives bet $10 each on the Kentucky Derby.
Two people chose the 80-1 long shot Rich Strikea horse that was considered so bad that it only became eligible to race when another horse withdrew the day before: our daughter’s boyfriend, because he played with house (read: my) money and thought why not shoot for it best return, and my mother-in-laws because she thinks three is a powerful number, and two plus one equals three, and the horse’s post position was 21. (Which of course begs the question why not just horse 3, Epicenter? )
Pretty cool. They both won a lot of money.
But here’s the thing. Just before the race, my wife considered betting $2 on Rich Strike to win. Unlikely returns, sure, but hey – what’s $2? Other people in our family say they did too.
Thousands of other gamblers probably did too. Shoot, I did.
Oh, I just had a look at Rich Strike. I thought, “Hmm, 80-1 chances. Maybe I should throw him in a trifecta, the payoff would be huge.” But I also thought of at least ten other horses I hadn’t bet on.
I had many thoughts about many horses, most of them fleeting. And they are all forgotten now.
Except for the fact that I briefly considered Rich Strike.
That makes it tempting to think I “knew” he would win.
Prejudice afterwards
That’s the power of hindsight bias, in this case the tendency to think you knew an event would happen after it happened.
Looking back, you should have bought Apple stock back then because you knew Apple would become a multi-billion dollar company. Looking back, you should have bought that house you saw on Zillow because you knew the real estate market would explode. Looking back, you should have bought Bitcoin for relative cents because you knew cryptocurrency would be huge.
Even if you didn’t really know – otherwise you would have done it.
Retrospective bias makes us think we knew.
And can lead us to make bad decisions in the future.
That’s the real lesson you can learn from Rich Strike’s long shot payout. If you’ve really considered putting Rich Strike on an exact bet, you’re kidding yourself: a $2 bet paid $4,100.
If you really considered putting Rich Strike in a trifecta, a $1 bet paid $14,800.
And as for the superfecta, pick the four best horses in order? A $1 bet paid $320,000.
But I didn’t. Not really. And neither do most people — because Rich Strike was a contender for a reason.
In seven starts, his only win was in a $30,000 claim race for horses that had never won. (He was claimed after the race, meaning he cost his owners $30,000. One of the favorites, Taiba, was bought for $1.7 million last year.)
He was “not a factor” when he finished fifth against Derby favorite Epicenter in December. He passed only one horse in the trajectory of his last race for the Derby.
His jockey had never won a graded stakes race, the races reserved for horses of the highest quality.
Nobody knew Rich Strike would win.
Not even his owners. They did the horse in the Derby because just to have a derby horse seemed like a dream. †After the race they said:“What planet are we on?”)
How to avoid hindsight bias
If you didn’t bet on Rich Strike, did you make a bad decision? New. If you think you’ve done this, you could be placing countless similar bets in the future that yield nothing.
Decisions cannot always be judged by results; the only way to judge a decision is to decide whether you made the best decision based on the information available at the time.
Doing it right doesn’t mean you made a good decision; maybe you just got lucky. Being wrong doesn’t mean you made a bad decision; factors that you – even few – could have predicted may have influenced the outcome.
Smart people make the best possible decisions and then evaluate the outcome to see how they can improve their decision-making process. To include data they may have missed. To seek input instead of standing alone. Test, revise and test again before going relatively all in.
Because afterwards we are all tempted to believe that we knew.
But the important thing is to resist that temptation and accept the fact that we didn’t know.
Because that’s the best way to make sure you make smart decisions in the future.
