Optimistic Illusion: Why People Lose Money in Gambling and Investing

Optimistic illusion is one of the main reasons why people lose money in gambling and investing. This phenomenon makes individuals overestimate their chances of success and underestimate risks, leading to poor financial decisions.

TABLE OF CONTENTS

1. In Gambling

Gamblers often have an illusion of winning, even when the game is purely based on luck. Some psychological factors behind this include:

Illusion of control: They believe they can “control” the outcome through skills or strategies (even when they can’t).
Gambler’s fallacy: If they lose multiple times, they think a big win is “due soon” – but the odds remain unchanged.
Remembering wins, forgetting losses: People tend to recall their victories but ignore their frequent losses.

🚨 Result: They continue to bet, convinced they’ll recover their losses, but end up sinking deeper into debt.

2. In Investing

Optimistic illusion also leads many investors to make critical mistakes:

Underestimating risks: They believe the market will always rise and ignore warning signs.
Herd mentality: Seeing others profit, they jump in without proper research.
Confirmation bias: They only seek information that supports their optimistic views while ignoring negative signals.
No exit strategy: Believing prices will recover, they hold onto investments even as values plummet.

🚨 Result: When the market crashes or a project fails, they lose everything before realizing their mistake.

💡 How to Avoid Optimistic Illusion?

✔ Always evaluate real risks, not just potential profits.
✔ Base decisions on data and analysis, not emotions.
✔ Set loss limits before gambling or investing.
✔ Learn to accept mistakes and exit at the right time.