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The Emotional Hedge Bet

Gambling is a dangerous game to start with—and when you start looking into hedging bets based on past bets and existing bets in play, it gets even more cluttered. While watching the 2011 Super Bowl, a hedging idea came to mind. It may not be a  completely original idea, but I can expand on it and add a new flavor.

The theory behind an Emotional Hedge is to bet against the team you are emotionally attached to, so if they lose, you will win money and not feel bad about your team losing.

The way Chad Millman describes it; you need to follow three rules in order for it to work:

1) Only make the Emotional Hedge when your team is the underdog

2) Know your limits

3) Tell people about your plans

These three simple little rules may seem nice to follow, but they are much too loose for something like the Emotional Hedge to actually work. True, following these rules might get you compensated to an extent for the loss of your favorite team, but will you be compensated enough to make up for the disappointing feeling from a loss? Critiquing rule number 2 specifically, Knowing Your Limits could vary wildly between those who are able to actually put the money down, and it ignores a more important factor—your emotional utility limit—to be explained later.

Chad Millman’s Three Simple Rules do not cover enough to make sure you make the appropriate Emotional Hedge—but I’m not about to bombard you with a huge list of my own rules. On contrary, I am going to propose One Big Complex Rule that will better describe when and how the Emotional Hedge should be executed.

The One Big Complex Rule

1) You Must Be A Rational Fanatical Fan Of A Team In A Championship Game

Now, time to attempt an explanation.

Let’s work backwards from the three main topics covered by the One Big Complex Rule. Your team must be in a championship game.  This applies to the Super Bowl, game 7 of the NBA/NHL/MLB Finals, the World Cup Final etc… The whole point behind this bet is to nullify your sadness in the case that your team loses, but if your team loses in any situation when it isn’t a one-shot chance to be the champs, it shouldn’t matter enough to make the bet. The sadness you will experience of not making the Super Bowl compared to losing in the actual big game and being “That close!!” is where you draw the line.

The second part to this hedge is that you really have to be a fanatical fan. You have to care, care more than you should, about your team losing in a championship game. If you are a part time fan and your team loses in the finals, you probably aren’t going to miss work the next day, as heartbroken as if your dog had just died. Some people in the world feel this strongly about their teams—this bet is for them. If you aren’t a fanatic, making this bet and figuring out your bet amount isn’t going to be worth the time.

This guy fits the bill

Ok, on to the most important part of making this Emotional Hedge work. To ensure you do not end up throwing away money because you didn’t bet enough, or alternatively revert to rooting for the team playing against your favorite team, you must wager a rational amount.

My theory behind this requires the bettor to self-evaluate their emotional attachment with their team and their financial standings in order to create utility values for three specific variables (utility being how much the possible happiness or lack thereof is worth to you in dollars. Credit to my Intermediate Macroeconomics prof Joseph Fong for very confusingly explaining utility through examples of different product “bundles,” pronounced in the thickest Asian accent you can muster).

What are your emotions worth?

The first utility variable (X) the bettor must accurately value is determined by answering the question: In a theoretical situation where Macuilxochitl, the Aztec God of Sports Gambling (look it up, I did not invent this), came to you before the game and told you that he could guarantee your team will win, what is the maximum amount of money that you are willing to part to ensure victory?  The last time I would have had a reason for the Emotional Hedge—I’m sure many Edmonton readers can relate—was game 7 of the 2006 Stanley Cup Finals. X is the amount I would have paid to guarantee the Oilers would beat the Hurricanes. (This has to be answered without considering the actual result of the game.)

The second utility variable (Y) is valued by answering the following question: If you were walking out of the stadium/arena right after your team lost the championship game and Macuilxochitl walks up to you and offers you a certain amount of money, how much would it take to completely neutralize your negative emotions from the game you just witnessed? The amount Macuilxochitl gives you cannot leave you disappointed that your team lost, or overly happy with the amount of money you received. (Oilers fans, think about how we all felt after losing game 7 and driving home from our friend’s place. Belly full of pizza but a heart full of aching.)

Macuilxochitl, the Aztec God of Sports Gambling

The third variable (Z) is easy to figure out once you have X and Y. Z= Y/X

So, once these are figured out we can get down to business and determine if this bet should be made or not.

X = The amount you will be betting on the opposing team to win

Y = The amount you will win if your team loses

Z= The payout odds on the bet for when the opposing team wins

and Y > X. I think this rings true, as you would be willing to pay less money prior to the game when the outcome is in question, then to after the fact when you have lost.

For the bet to work, the bettor must look up the payout odds(Z) for the opposing team, put their already determined X into the equation, and see if the payout is close to Y. These variables must be very close for this bet to work.

This process will help you determine whether or not to make the bet, but it will also indicate how rational of a fan you are in this specific situation.

Betting on the Underdog Works

The odds released for a game should align closely with the public perception of who is expected to win the game. This should indicate how disappointed a rational fan will be if their team loses. With an example, I’ll use these facts to argue against Millman’s rule #1(only bet if your team is the underdog). I am going to use the 2007 Super Bowl between the New York Giants and the New England Patriots. (I do not have the historical betting odds for this game so I am just speculating to what they may have been. If you know please comment).

The Pats were heavily favored in this game after going 18-0 through the regular season and playoffs. Due to this, the payoff for betting on the Pats to win would have been much lower than the payoff for the Giants to win. For arguments sake, let’s say that a Pats win would pay 1.5 to 1.0 and a win by the Giants would pay 2.5 to 1.0.

Not only do these odds represent the public opinion of those teams’ chances of winning, but in the context of the Emotional Hedge, it should represent the level of negative utility experienced by a fan if their team loses.

Comparing hypothetical rational fans of each team, the Pats fan’s expectations of winning is going to be much higher than a Giants fan’s, so the Pats fan is going to be more disappointed if the Pats lose than the Giants fan will be if the Giants lose.

This correlates perfectly with the betting payouts. If the Pats fan make the Emotional Hedge, they are going to have a higher Y (money needed after the game to nullify the loss) than the Giants fan’s Y. If they both do the Emotional Hedge, the Pats fan is going to bet on the Giants winning and will get a higher payout than the Giants fan who bets on the Pats to win.

Due to this, you should only be making the Emotional Hedge when your team is a heavy favourite, not a big underdog. In the situation where your team is the favorite, you are going to have high expectations for a win—and a high level of disappointment if they lose. You’ll need a higher amount of money to be paid out after the loss, which you will receive because you are getting such good odds.

Hopefully I didn’t lose anyone through all of this. In case I did, a quick recap:
– Championship game only
– Huge fan of the team
– Must know how much your sports-based happiness and sadness costs in dollars, and must have rational expectations for the outcome of a game. These expectations must also align with the gambling odds.

When you boil it all down, this is not a very fun bet to make. It is actually very labour-intensive and mentally straining. I think I have designed it for the very-risk-adverse-but-fanatical sports-fan.

If that person exists out there, I hope this helps you avoid ever feeling overly happy or overly sad, because this bet, if done correctly, will give you just that.

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