Gambler's Fallacy

Question 1

Perceptions of randomness: attribution of mechanism

Answer 1

• When there’s a non-switchy sequence, people are more likely to attribute it to a person (basketball player taking shots)
• When there’s a very switchy sequence, people are more likely to attribute it to chance (coin toss)
• At a statistically random sequence (0.5), are more likely to attribute it to the bball player again -> still feels non-switchy

Question 2

Roulette Predictions study: basics

Answer 2

• Guess RED or BLACK & rate your confidence
• Participants randomly divided into 2 categories:
• • 15 forecasters (“the roulette spins follow a complex computer algorithm” -> skill involved)
• • 15 gamblers (“it’s a game of chance”)

Question 3

Roulette Predictions study: Gambler’s fallacy

Answer 3

likelihood of choosing either colour decreases as a function of run length of that colour (for both forecasters and gamblers)

Question 4

Roulette Predictions study: hot hand confidence

Answer 4

one’s predictions increase as a function of past success (feeling “in the zone”) -> more prominent in gambling condition than forecasting one

Question 5

Hot Hand Fallacy

Answer 5

• in basketball, if a player scores 3 consecutive shots, are they more likely to score on their next shot?
• • Players, fans and coaches all say YES, but when you analyze the data it shows NO
• • Outcomes of previous shots influenced predictions but not performance

Question 6

Roulette predictions study: summary of sequence biases at play

Answer 6

• After a run of one colour, subjects are less likely to predict it -> gambler’s fallacy
• After a streak of wins, subjects are more confident in their next colour prediction -> hot hand effect
• After a streak of losses, subjects are less confident in their next colour prediction -> cold hand effect
• So people show more than 1 sequence bias, even within the same task

Question 7

effect of gambler’s fallacy on loss streaks

Answer 7

loss streaks can cause loss chasing due to robust gambler’s fallacy -> feeling like you must be “due for a win”

Question 8

reference points and wiping the slate

Answer 8

• If people re-reference after each outcome, choices not influenced by past gains or losses, so no loss chasing
• However, if you don’t re-reference between each decision, diminishing marginal utility creates loss chasing
• Realizing losses by physical exchange of money abolishes loss-chasing tendencies