A heuristic is a strategy that can be applied to a variety of problems and that usually

A heuristic is a strategy that can be applied to a variety of problems and that usually

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Ryan Maroney December 7, 2009 Relating Behavorial Finance to My Habits A heuristic bias is a strategy that can be applied to a variety of problems and that usually, but not always, yield a correct solution. People often use heuristics to reduce complex problem solving to more simple judgmental operations. However, there are some main biases in one’s behavior can cause these heuristics to lead to error. Just as these biases can be applied to the stock market and securities trading, it also leads to misjudgments and errors in the world of sports betting. Being a college student with too much free time on my hands, I have attempted to beat Vegas by gambling on sports spreads and various other things. The result was that I lost some money, and part of this could be attributed to what games I bet money on, what casino games I played, and my reasons for thinking my bets would be winners. The first main bias of behavioral finance that can be translated to the concept of sports betting is known as overconfidence. Overconfidence is a trait that has led me to believe I know more about sports than I really do. At the beginning of the NBA season, I was set to use the same strategy I had employed the previous year, which was to bet on the Celtics and the Denver Nuggets. Both of these teams routinely were able to beat down on the less talented teams in the NBA, and the same proved true for the beginning of this season, as I was able to make quick profits off these two teams at the beginning of the year. I was on a roll and was up a solid amount of money, until I became overconfident. One should never mistake momentum for knowledge, but that is exactly what I did. I began to place larger bets on games I wouldn’t have
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This note was uploaded on 03/02/2010 for the course ECON 345 taught by Professor Ricks during the Spring '10 term at Bay State.

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A heuristic is a strategy that can be applied to a variety of problems and that usually

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