In economic terms, this conflicted decision can be modeled as a trade-off between the outcome utility gained by hedging (e.g., money) and the diagnostic costs it incurs (e.g., disloyalty). People make inferences about their beliefs and identity from their behavior. If the diagnostic cost of this self-signal and the resulting identity change are substantial, it may outweigh the outcome utility of hedging, and they may reject even very generous hedges. Gamblers also exhibit optimism, overestimating the likelihood that desired events will occur.
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Not only do the parties hope to gain from the bet, they place the bet also to demonstrate their certainty about the issue. Some means of determining the issue at stake must exist. Sometimes the amount bet remains nominal, demonstrating the outcome as one of principle rather than of financial importance.
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