Should I bet against my party winning?

17th April, 2010

Dear Economist,
As canvassing for the general election gathers speed, I’ve been thinking about the gambling possibilities. Without going into specifics, I’m considering placing bets on the rival team’s victory – as insurance in the event of having to live in a world not entirely to my liking.

Would this be psychologically effective, or am I wasting my money? What price should I place on my political ideals?
Justin, south-east London

Dear Justin,

In principle, your plan makes sense, but the practicalities are more troubling. One possible difficulty is “habituation”, our tendency to adjust psychologically to what we have. Some research on happiness economics suggests that people get used to extra money more quickly than they get used to ongoing situations such as a long commute. I could imagine you winning big when your party loses, but then quickly taking the extra cash for granted, while the smug face of the wrong prime minister infuriates you every day. Would your win have compensated you in any significant way?

A more basic problem is that many people object strongly to losses – a phenomenon called, unmysteriously, “loss aversion”. The idea is that a gain of £10 may be mildly pleasant, while a loss of £10 is infuriating.

Your plan guarantees a loss either way.

I worry that if you won your bet you would find it was scant compensation for your party losing the election, while if your party won the election, the celebrations would be ruined by your knowledge that you lost the bet.

If you do decide to bet, you are best placed to judge how much compensation is necessary. You clearly find the outcome more significant than I do. And a word of warning: you imply that if your favoured party wins the election, the world would be entirely to your liking. I can assure you that this possibility is remote.

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