Efficient Market Hypothesis and handicapping?

[traynor]

Has anyone correlated the variations of the efficient market hypothesis with handicapping? Several posters have mentioned that they are day traders, and it seems a natural extension (of EMH) to apply it to pari-mutuel racing. Any thoughts or opinions on the topic would be appreciated.
Good Luck

[1st time lasix]

Seems to me that by definition "day traders" do not believe in the "efficient market" hypothesis which suggests that you are taking on way too much risk for the expected return owning any individual stock. That ALL the relevent information is already built in to the stock price and therefore investors should really just own/allocate among low cost indexes. Day traders are trying to beat the market by buying and selling an individual security because they believe the market is really not efficient. Most day traders are more "momentum" type speculators. In theory....horse racing might be similiar. Only way to win over an extended period is to exploit the mistakes of the betting public. {overlays} But there is one big difference....you can pass any race or avoid a particular race condition {sloppy tracks, small fields, higher take out venies} at the track. In the stock market approximately 90-95% of the annual return comes from about four or five trading sessions per year. As a long term investor you have to be "in" the market when those days occur. Miss those and the majority of the return is gone. I think you have an opinion that is a bit contrarian in both areas in order to "beat" the take ....or perform better than the indexes. Doubt there is any study at the races on efficiency other than the ones that indicate that favorites win 1/3 of the time. The reason I play the horses {other than the fun of it} is that I believe all favorites are not equal. Some are very logical and some are vulnerable. If you can find vulnerability of the top or second favorite....or you can spot a entry that has a greater probability than the odds suggest based on your analysis .....then you can win if you structure accordingly. But I could be wrong! :confused:

[Cesario!]

Has anyone correlated the variations of the efficient market hypothesis with handicapping? Several posters have mentioned that they are day traders, and it seems a natural extension (of EMH) to apply it to pari-mutuel racing. Any thoughts or opinions on the topic would be appreciated.
Good Luck

It's the basis for everything I do. Well, at least in concept -- after some (ok, lots) of background reading (I'm a finanical writer during the day), I've tried to apply the concept to my handicapping. The fundamental difference of course is that the efficient stock market has a positive expectation due to growth and an efficient racetrack market has a negative one due to takeout.

Of course, both markets are not completely efficient. Thus, in order to increase your returns over these baselines, the key is exploiting where the markets -- both the racetrack and the stock -- display inefficiences.

[trigger]

There's a huge difference between the stock market and "horse racing market". In the stock market, you know the maximum price you are paying when buying a stock (assuming a limit order) .When betting horses under the pari mutuel system, you do not know the final "price" of your pick when you buy it because the final odds are not known until the pool closes.
In other words, the stock market is a fixed price(odds) exchange market while the pari mutuel system is not.

Trigger

[classhandicapper]

There's a huge difference between the stock market and "horse racing market". In the stock market, you know the maximum price you are paying when buying a stock (assuming a limit order) .When betting horses under the pari mutuel system, you do not know the final "price" of your pick when you buy it because the final odds are not known until the pool closes.
In other words, the stock market is a fixed price(odds) exchange market while the pari mutuel system is not.Trigger

That's no longer true with exchange betting. :ThmbUp:

[PlanB]

Variations of EMH? I'm not sure I understand your twist.

[Robert Fischer]

good topic...

[Dave Schwartz]

Trigger,

There's a huge difference between the stock market and "horse racing market". In the stock market, you know the maximum price you are paying when buying a stock (assuming a limit order) .When betting horses under the pari mutuel system, you do not know the final "price" of your pick when you buy it because the final odds are not known until the pool closes.
In other words, the stock market is a fixed price(odds) exchange market while the pari mutuel system is not.

I am not really sure I agree completely with your example.

To me, the difference between stocks and horse racing is that:

In horse racing

You know the amount of your wager.
You think you know the chances of cashing a ticket.
You don't know precisely what the investment will pay.
You are wagering on a binary outcome (i.e. win or lose).
You pay a high commission.
You get to "roll the bankroll" much more often.
You do not face the inflationary costs of money.


The key to success is to be an accurate predictor of the win/lose probabilities.

It is hard to become profitable.
If you are profitable, it is easy to attain high growth rates.


In the stock market

You know the amount of your investment.
You think you know the value of the stock.
You don't know precisely what the investment will pay.
You are wagering on an analog outcome (i.e. degrees of gain or loss).
You pay a very low commission.
You don't get to "roll the bankroll" very often.
You face the inflationary costs of money.


The key is to be an accurate predictor of direction of movement.

It is easy to become profitable.
If you are profitable, it is hard to attain high growth rates.



To me, it all boils down to this:

In horse racing it is hard to become profitable but easy to attain high growth rates once you are profitable.

In the stock market just the opposite is true.


Regards,
Dave Schwartz

[spilparc]

Has anyone correlated the variations of the efficient market hypothesis with handicapping?
Good Luck

The Markets are not efficient, and horseracing is anything but efficient. In other words, your decisions matter. Master market timers make more (much more) than buy and holders. If you bet the favorite every race you'll cash about a third of your tickes but lose about 10 cents on the dollar. (If I remember correctly.)

The big advantages of the stock market and horseracing over say, a game like poker is that in poker you have to ante every hand. In the markets, or horseracing for that matter, you can wait three months to splash down a bet and it doesn't cost you anything but time and and perhaps some racing forms.

You don't buy every stock, and you don't play every race, nor do you play every hand in a poker game, but in poker you always have to ante so you're forced to play eventually or you'll ante yourself broke.

Basically, it costs you nothing to wait for the right stock or the right horse. Find your speciality, wait for it, then bet your money. You should have a high probability of success in both games.

Maybe that's a form of efficiency after all.

[PriceAnProbability]

Seems to me that by definition "day traders" do not believe in the "efficient market" hypothesis which suggests that you are taking on way too much risk for the expected return owning any individual stock. That ALL the relevent information is already built in to the stock price and therefore investors should really just own/allocate among low cost indexes. Day traders are trying to beat the market by buying and selling an individual security because they believe the market is really not efficient. Most day traders are more "momentum" type speculators. In theory....horse racing might be similiar. Only way to win over an extended period is to exploit the mistakes of the betting public. {overlays} But there is one big difference....you can pass any race or avoid a particular race condition {sloppy tracks, small fields, higher take out venies} at the track. In the stock market approximately 90-95% of the annual return comes from about four or five trading sessions per year. As a long term investor you have to be "in" the market when those days occur. Miss those and the majority of the return is gone. I think you have an opinion that is a bit contrarian in both areas in order to "beat" the take ....or perform better than the indexes. Doubt there is any study at the races on efficiency other than the ones that indicate that favorites win 1/3 of the time. The reason I play the horses {other than the fun of it} is that I believe all favorites are not equal. Some are very logical and some are vulnerable. If you can find vulnerability of the top or second favorite....or you can spot a entry that has a greater probability than the odds suggest based on your analysis .....then you can win if you structure accordingly. But I could be wrong! :confused:

Actually, the day trader's main function is to provide liquidity in the market, and they do this, which is why you can buy or sell almost any stock instantly.

In return for their always being available to trade, they look for that extra fraction in either direction that is more or less a payoff for being on duty all day to execute their slightly profitable trades.

[PriceAnProbability]

There's a huge difference between the stock market and "horse racing market". In the stock market, you know the maximum price you are paying when buying a stock (assuming a limit order) .When betting horses under the pari mutuel system, you do not know the final "price" of your pick when you buy it because the final odds are not known until the pool closes.
In other words, the stock market is a fixed price(odds) exchange market while the pari mutuel system is not.

Trigger

Despite this, over time, patterns will emerge that let you correlate the two nonetheless.

[DJofSD]

And I thought this guy had said it all about efficient markets and the race track. (http://www.interchange.ubc.ca/ziemba/)

[traynor]

The Markets are not efficient, and horseracing is anything but efficient. In other words, your decisions matter. Master market timers make more (much more) than buy and holders. If you bet the favorite every race you'll cash about a third of your tickes but lose about 10 cents on the dollar. (If I remember correctly.)

The big advantages of the stock market and horseracing over say, a game like poker is that in poker you have to ante every hand. In the markets, or horseracing for that matter, you can wait three months to splash down a bet and it doesn't cost you anything but time and and perhaps some racing forms.

You don't buy every stock, and you don't play every race, nor do you play every hand in a poker game, but in poker you always have to ante so you're forced to play eventually or you'll ante yourself broke.

Basically, it costs you nothing to wait for the right stock or the right horse. Find your speciality, wait for it, then bet your money. You should have a high probability of success in both games.

Maybe that's a form of efficiency after all.

That pretty well defines the efficiency issue; if you only look for bets or stocks that offer an opportunity for profit, you are looking for an inefficient market, in which the entry is an underlay or the stock is underpriced.
Good Luck

[traynor]

It's the basis for everything I do. Well, at least in concept -- after some (ok, lots) of background reading (I'm a finanical writer during the day), I've tried to apply the concept to my handicapping. The fundamental difference of course is that the efficient stock market has a positive expectation due to growth and an efficient racetrack market has a negative one due to takeout.

Of course, both markets are not completely efficient. Thus, in order to increase your returns over these baselines, the key is exploiting where the markets -- both the racetrack and the stock -- display inefficiences.

The positive expectation of growth in the market may not be a given. Consider the current housing market, and builder's stock. That could be seriously negative.

Perhaps I'm looking at (for) the wrong thing, but I see the same type of patterns in market valuations and fluctuations that I see in mutuel pools. The technical traders all make essentially the same type of evalutions as a railbird poring over the Form; past performance equals future performance. Both want to be compensated for risk in the form of greater potential return, which is in turn quantifiable in degree according to specific formulas.

I am particularly fascinated by the distribution of data points commonly called a "pennant," in which the deviations from a baseline become narrower as the market "strives" (or "moves") toward equilibrium. That tends to suggest that the functions of technical traders (and bettors) creates a self-fulfilling prophecy, based on the perceptions of those involved in the market.

Gross example; Oscar Barrera turned the New York racing scene upside down because his entries tended to run better than expected, especially "moving up in class." (I am not interested in how he did it, or what kind of "vitamins" he may or may not have provided his entries.) I knew exotic bettors who invariably included Barrera's entries in exacta and trifecta wagers. That is a perception, and that perception reduced the return, while doing nothing to decrease the risk--only Oscar knew when his horses would run well (or so it seemed). The result was a pennant on Barrera's entries, especially in the exotic pools; most were overlays, at any price.

So what? That perception created a distortion in market efficiency. Not on Barrera's entries, but on the other entries in the same race. It seems there should be a way to plot when such inefficiencies exist, other than the simplistic "morning line" or "true odds" concepts.
Good Luck

[traynor]

Trigger,



I am not really sure I agree completely with your example.

To me, the difference between stocks and horse racing is that:

In horse racing

You know the amount of your wager.
You think you know the chances of cashing a ticket.
You don't know precisely what the investment will pay.
You are wagering on a binary outcome (i.e. win or lose).
You pay a high commission.
You get to "roll the bankroll" much more often.
You do not face the inflationary costs of money.

The key to success is to be an accurate predictor of the win/lose probabilities.

It is hard to become profitable.
If you are profitable, it is easy to attain high growth rates.


In the stock market

You know the amount of your investment.
You think you know the value of the stock.
You don't know precisely what the investment will pay.
You are wagering on an analog outcome (i.e. degrees of gain or loss).
You pay a very low commission.
You don't get to "roll the bankroll" very often.
You face the inflationary costs of money.

The key is to be an accurate predictor of direction of movement.

It is easy to become profitable.
If you are profitable, it is hard to attain high growth rates.



To me, it all boils down to this:




Regards,
Dave Schwartz

It is not quite accurate to say that betting on horse races does not involve the inflationary cost of money. I think you might mean the "time value" rather than inflationary value; the general premise that a dollar today is worth more than a dollar a year from now because of inflation. Viewed as time value, the same dollar costs more to wager now, because if you lose, you lose not just the dollar, but the value of whatever investment you could have made with that dollar.
Good Luck

[traynor]

Seems to me that by definition "day traders" do not believe in the "efficient market" hypothesis which suggests that you are taking on way too much risk for the expected return owning any individual stock. That ALL the relevent information is already built in to the stock price and therefore investors should really just own/allocate among low cost indexes. Day traders are trying to beat the market by buying and selling an individual security because they believe the market is really not efficient. Most day traders are more "momentum" type speculators. In theory....horse racing might be similiar. Only way to win over an extended period is to exploit the mistakes of the betting public. {overlays} But there is one big difference....you can pass any race or avoid a particular race condition {sloppy tracks, small fields, higher take out venies} at the track. In the stock market approximately 90-95% of the annual return comes from about four or five trading sessions per year. As a long term investor you have to be "in" the market when those days occur. Miss those and the majority of the return is gone. I think you have an opinion that is a bit contrarian in both areas in order to "beat" the take ....or perform better than the indexes. Doubt there is any study at the races on efficiency other than the ones that indicate that favorites win 1/3 of the time. The reason I play the horses {other than the fun of it} is that I believe all favorites are not equal. Some are very logical and some are vulnerable. If you can find vulnerability of the top or second favorite....or you can spot a entry that has a greater probability than the odds suggest based on your analysis .....then you can win if you structure accordingly. But I could be wrong! :confused:


<In the stock market approximately 90-95% of the annual return comes from about four or five trading sessions per year. As a long term investor you have to be "in" the market when those days occur. Miss those and the majority of the return is gone.>
I don't understand. Are you saying that applied to the stock market in general, to day trading, to trading in general, or to something else?
Good Luck

[betovernetcapper]

Of course, both markets are not completely efficient. Thus, in order to increase your returns over these baselines, the key is exploiting where the markets -- both the racetrack and the stock -- display inefficiences.

I think Cesario has it right. On the same subject Warren Buffet said

"The professors who taught Efficient Market Theory said that someone throwing darts at the stock tables could select stock portfolio having prospects just as good as one selected by the brightest most hard working security analyst. Observing correctly the the market was frequently efficient, they went on to conclude incorrectly that it was always efficient"
The parallel to horse racing is obvious.

Found a really well written article on EMH at Wekipedia
http://en.wikipedia.org/wiki/Efficient_market_hypothesis#The_EMH_and_popular_cu lture

interesting thread :)

[traynor]

I think Cesario has it right. On the same subject Warren Buffet said

"The professors who taught Efficient Market Theory said that someone throwing darts at the stock tables could select stock portfolio having prospects just as good as one selected by the brightest most hard working security analyst. Observing correctly the the market was frequently efficient, they went on to conclude incorrectly that it was always efficient"
The parallel to horse racing is obvious.

Found a really well written article on EMH at Wekipedia
http://en.wikipedia.org/wiki/Efficient_market_hypothesis#The_EMH_and_popular_cu lture

interesting thread :)

When the EMH is developed, the argument is that it is a closed system. Because everyone has essentially the same information, and uses the same type of analysis, they come up with the same valuations. That is, if a stock is underpriced, everyone buys it, driving the price up. Conversely, if a stock is overpriced, everyone holding it will sell, driving the price down. The argument is that the entire concept of technical trading is silly; the only way to beat the market is to have information from outside the loop (as in "insider trading").

Given the masses of data available, it is surprising that no one seems to think there is room for individual interpretation of the data. That is, if thousands of skilled, competent traders are all analyzing the data--unless something from outside the loop is used--the market will be efficient. Not unknown, as in the person and dartboard, but so efficient there will never (or very rarely) be stocks that are either substantially overpriced or underpriced. Hence, "analysis" is largely an exercise in futility.

The parallel to horse racing is obvious; the only missing ingredient is compensation for the degree of risk involved in each investment or transaction. In stocks, "acceptable risk" can be calculated fairly precisely, while in racing it pretty much a wild guess. Again, I am discounting simplistic definitions of "overlays" created by discrepancies between one person's wild guess at a morning line, and another person's wild guess at the true odds.
Good Luck

[speculus]

Trigger,



I am not really sure I agree completely with your example.

To me, the difference between stocks and horse racing is that:

In horse racing


You know the amount of your wager.
You think you know the chances of cashing a ticket.
You don't know precisely what the investment will pay.
You are wagering on a binary outcome (i.e. win or lose).
You pay a high commission.
You get to "roll the bankroll" much more often.
You do not face the inflationary costs of money.

The key to success is to be an accurate predictor of the win/lose probabilities.

It is hard to become profitable.
If you are profitable, it is easy to attain high growth rates.


In the stock market

You know the amount of your investment.
You think you know the value of the stock.
You don't know precisely what the investment will pay.
You are wagering on an analog outcome (i.e. degrees of gain or loss).
You pay a very low commission.
You don't get to "roll the bankroll" very often.
You face the inflationary costs of money.

The key is to be an accurate predictor of direction of movement.

It is easy to become profitable.
If you are profitable, it is hard to attain high growth rates.



To me, it all boils down to this:




Regards,
Dave Schwartz



The greatest qualitative difference in stock market and horse racing is that unlike horse racing, there is no "REALITY CHECK" in the stock market.

When you invest in stock, you are, in effect, betting on the "collective market opinion or sentiment" of the future, which, whether it happens or not, still remains a (collective market) opinion or sentiment, and is free to sway either way again in the future.


Whereas when I bet on a horse to WIN, a race is actually run, and I am etiher proved right or wrong. This is what I call REALITY CHECK.

[Dave Schwartz]

It is not quite accurate to say that betting on horse races does not involve the inflationary cost of money. I think you might mean the "time value" rather than inflationary value; the general premise that a dollar today is worth more than a dollar a year from now because of inflation. Viewed as time value, the same dollar costs more to wager now, because if you lose, you lose not just the dollar, but the value of whatever investment you could have made with that dollar.

Perhaps you are right.

My thought is that you get to turn the bankroll over so many times between infationary steps so as to minimize the effect of inflation.

In the stock market you do not get to experience that kind of turn over.


Dave

[betovernetcapper]

Looked up pennant-it's a sort of tote board angle for the stock market.

[traynor]

Looked up pennant-it's a sort of tote board angle for the stock market.

Thanks! I sometimes forget that others don't see numbers the same way I do. If you translate the wide end of the pennant as the time you discover a particular betting pattern, angle, or approach, it narrows as others find the same process and use it, until it becomes so narrow that it is no longer profitable, is abandoned, then is (occasionally) followed by a surge in profitability.

If you relate that to specifics like Beyer speed numbers, or some of the old class approaches to handicapping that used the earnings box, the same pattern exists over a span of time. That is, approach A is profitable, numerous handicappers or investors discover it, the movement is toward a state of market equilibrium, at which point they stop using it, and it displays "unusual behavior."

To put that in context, I find an interesting trend in some current "writers" about handicapping to paraphrase and re-cycle ideas from back in the Tom Ainslie/Ray Taulbot eras as if they were the result of some brilliant epiphany of handicapping insight.

Handicappers might do well to understand the pennant phenomenon and use it. It seems to apply over both short-term and long-term scenarios; a particular factor or approach may be routinely bet down to an area of non-profitability, abandoned, then experience a sudden surge of profitability again that can be usefully exploited. The potential to utilize that information is lost by heaping raw data into great masses that blur the specifics of the datapoints which comprise the data, and the realities depicted by those datapoints.
Good Luck

[robert99]

When the EMH is developed, the argument is that it is a closed system. Because everyone has essentially the same information, and uses the same type of analysis, they come up with the same valuations. That is, if a stock is underpriced, everyone buys it, driving the price up. Conversely, if a stock is overpriced, everyone holding it will sell, driving the price down. The argument is that the entire concept of technical trading is silly; the only way to beat the market is to have information from outside the loop (as in "insider trading").

Given the masses of data available, it is surprising that no one seems to think there is room for individual interpretation of the data. That is, if thousands of skilled, competent traders are all analyzing the data--unless something from outside the loop is used--the market will be efficient. Not unknown, as in the person and dartboard, but so efficient there will never (or very rarely) be stocks that are either substantially overpriced or underpriced. Hence, "analysis" is largely an exercise in futility.

The parallel to horse racing is obvious; the only missing ingredient is compensation for the degree of risk involved in each investment or transaction. In stocks, "acceptable risk" can be calculated fairly precisely, while in racing it pretty much a wild guess. Again, I am discounting simplistic definitions of "overlays" created by discrepancies between one person's wild guess at a morning line, and another person's wild guess at the true odds.
Good Luck

It always puzzles me why educated economists hardly ever check that their crude assumptions of how markets work actually do work in the real world. They constantly presume that because after a year of racing results the average price roughly "equals" the win strike rate, less the take out, then every single race run that year is near 100% market efficient - so it does not matter which horse you back you are getting "true" odds. :confused:
How many betting are doing so for entertainment and not adding any predictive information at all to the market -95%?? who knows.

Stock market data about individual companies is certainly analysed to death but they forget it is past data, incomplete data and even good company fortunes are effected by all sorts of unpredicted future swings, local and international. If the sector, say banking has buy sentiment, the bad go up with the good and vice versa. The analysis part seems always the job of the bright, keen young entrant without the experience nor wisdom to put the data into proper context. Tracker funds buy more and more shares which are increasing in price but decreasing in value because that is the rule of the fund allocations.

In horse racing, individual horses also get analysed to death but not nearly so much on the real important bit of how each one fits together within the race. Horses that are shortening in price attract a lot more mug money at apparently less value than those lengthening.

[traynor]

It always puzzles me why educated economists hardly ever check that their crude assumptions of how markets work actually do work in the real world. They constantly presume that because after a year of racing results the average price roughly "equals" the win strike rate, less the take out, then every single race run that year is near 100% market efficient - so it does not matter which horse you back you are getting "true" odds. :confused:
How many betting are doing so for entertainment and not adding any predictive information at all to the market -95%?? who knows.

Stock market data about individual companies is certainly analysed to death but they forget it is past data, incomplete data and even good company fortunes are effected by all sorts of unpredicted future swings, local and international. If the sector, say banking has buy sentiment, the bad go up with the good and vice versa. The analysis part seems always the job of the bright, keen young entrant without the experience nor wisdom to put the data into proper context. Tracker funds buy more and more shares which are increasing in price but decreasing in value because that is the rule of the fund allocations.

In horse racing, individual horses also get analysed to death but not nearly so much on the real important bit of how each one fits together within the race. Horses that are shortening in price attract a lot more mug money at apparently less value than those lengthening.

Well said!
Good Luck

[PlanB]

CRude assumptions? LOL, are you an economist? If you were, you might not be so puzzled.

[classhandicapper]

There is one other advantage to the stock market.

If I have a couple million dollars I can allocate it to several undervalued postions without impacting my prices. At the racetrack, the point at which you start hurting your returns comes a lot sooner.

[traynor]

CRude assumptions? LOL, are you an economist? If you were, you might not be so puzzled.

Current assumptions by academics and business theorists suggest strongly that many of the most cherished assumptions of "classical" economics are simply wrong; they may have worked in years past (or at least seemed to work, because no one had any better explanation for observed phenomena), but the dynamics of a rapidly changing global economy make a number of widely-accepted ideas highly suspect.

If you are an economist, you already know all this, so it should not come as a surprise. If you studied economics more than five or ten years ago, you might be interested in exploring the issue a bit more before making assumptions that the economists of the olden times (meaning anything before China became the major player on the world stage) had all the answers. They definitely did not, do not, and unless they spend more time with reality rather than theory, will not.

Consider one very, very small issue; many prattle on about how China is "competing unfairly" and "creating huge trade deficits" because it is holding the price of the yuan down compared to the dollar. Consider the effect of China deciding to float the yuan, deciding to pass on pumping money into the US economy via the bond market, and deciding to trade its currently held US bonds for ... hmmmm .... Venezuelan oil???? :eek:
Good Luck

[traynor]

There is one other advantage to the stock market.

If I have a couple million dollars I can allocate it to several undervalued postions without impacting my prices. At the racetrack, the point at which you start hurting your returns comes a lot sooner.

In theory, unless you buy the whole schlock at one time, other traders will notice the sudden activity in the undervalued issues, and jump on them. That is the basic idea behind the EMH. It would actually be more profitable to use what is called "the Rothschild maneuver" by some, or, more popularly, as "pump-and-dump." You buy the underpriced issues until the slow-witted traders notice, inflate the prices because of the increased demand, and sell the whole lot at a premium. The followers panic, dump their shares, the price nosedives, and you use your premium return to buy even more shares.
Good Luck

[NoDayJob]

Markets and gambling for the most part are based on emotions that's why most people lose and there are booms and busts. Hard to be logical and emotional at the same time.

[highnote]

Markets and gambling for the most part are based on emotions that's why most people lose and there are booms and busts. Hard to be logical and emotional at the same time.

Good point. That's why it is important to have a large bankroll and only bet a small part of it on any betting occasion so that whether you win or lose any one particular bet is almost inconsequential emotionally.

[traynor]

Markets and gambling for the most part are based on emotions that's why most people lose and there are booms and busts. Hard to be logical and emotional at the same time.

I agree, with an extension; the decisions are based on emotions, but those emotions are generated by perceptions. Example: you see a sudden infusion of money in a given pool, interpret that as "smart money" going on a particular entry, and respond accordingly. The emotion is a secondary response to the primary stimulus of the perception. That is, you are not responding emotionally to the event, but to your perception of what the event signifies.

Once you realize that (all related to the "framing" of decisions), it is easier to separate emotion and logic.
Good Luck

[highnote]

I agree, with an extension; the decisions are based on emotions, but those emotions are generated by perceptions. Example: you see a sudden infusion of money in a given pool, interpret that as "smart money" going on a particular entry, and respond accordingly. The emotion is a secondary response to the primary stimulus of the perception. That is, you are not responding emotionally to the event, but to your perception of what the event signifies.

Once you realize that (all related to the "framing" of decisions), it is easier to separate emotion and logic.
Good Luck

Good point.

It is emotions that motivates us to bet in the first place. When we have a perception we ask ourselves "what does this mean to me - pain or pleasure?"

Pain and pleasure are the primary motivators. We move away from pain and move toward pleasure. So how we interpret the event is important.

If we think that the smart money means we will win if we bet the same horse, then we are motivated to bet because we want to gain the pleasure of winning. And conversely, we say to ourselves that if we don't bet we will experience pain by missing out on a good thing.

In this case, the pain of losing actually motivates us to bet! The pain of "missing out" on a good bet. It is not the fear of losing the bet, it is the fear of "losing an opportunity" of making a good bet that motivates our behavior.

Every single thing we do comes down to whether we perceive something as causing us pain or giving us pleasure. No exceptions.

Whichever is perceived as being the greater force is the direction we move in. The difficult decisions come about when perceived pain and perceived pleasure are equal. Then it's a coin toss.