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The Gambler’s Fallacy and the Hot Hand: Empirical Data from Casinos

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Author Info

  • Rachel Croson

    ()

  • James Sundali

    ()

Abstract

Research on decision making under uncertainty demonstrates that intuitive ideas of randomness depart systematically from the laws of chance. Two such departures involving random sequences of events have been documented in the laboratory, the gambler’s fallacy and the hot hand. This study presents results from the field, using videotapes of patrons gambling in a casino, to examine the existence and extent of these biases in naturalistic settings. We find small but significant biases in our population, consistent with those observed in the lab. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11166-005-1153-2
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Bibliographic Info

Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 30 (2005)
Issue (Month): 3 (May)
Pages: 195-209

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Handle: RePEc:kap:jrisku:v:30:y:2005:i:3:p:195-209

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Web page: http://www.springerlink.com/link.asp?id=100299

Related research

Keywords: perceptions of randomness; uncertainty; field study;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Clotfelter, Charles T & Cook, Philip J, 1991. " Lotteries in the Real World," Journal of Risk and Uncertainty, Springer, vol. 4(3), pages 227-32, July.
  2. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
  3. Camerer, Colin, 1996. "Can Asset Markets be Manipulated? A Field Experiment with Racetrack Betting," Working Papers 983, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Shefrin, Hersh & Statman, Meir, 1985. " The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-90, July.
  5. Quandt, Richard E, 1986. "Betting and Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 201-07, February.
  6. Mark Walker & John Wooders, 2001. "Minimax Play at Wimbledon," American Economic Review, American Economic Association, vol. 91(5), pages 1521-1538, December.
  7. Charles T. Clotfelter & Philip J. Cook, 1991. "The "Gambler's Fallacy" in Lottery Play," NBER Working Papers 3769, National Bureau of Economic Research, Inc.
  8. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
  9. Terrell, Dek, 1998. "Biases in Assessments of Probabilities: New Evidence from Greyhound Races," Journal of Risk and Uncertainty, Springer, vol. 17(2), pages 151-66, November.
  10. James Sundali & Rachel Croson, 2006. "Biases in casino betting: The hot hand and the gambler's fallacy," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 1, pages 1-12, July.
  11. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
  12. Charles T. Clotfelter & Philip J. Cook, 1989. "Selling Hope: State Lotteries in America," NBER Books, National Bureau of Economic Research, Inc, number clot89-1, August.
  13. Matthew Rabin, 2002. "Inference By Believers In The Law Of Small Numbers," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 775-816, August.
  14. Ritov, Ilana & Baron, Jonathan, 1992. " Status-Quo and Omission Biases," Journal of Risk and Uncertainty, Springer, vol. 5(1), pages 49-61, February.
  15. Terrell, Dek & Farmer, Amy, 1996. "Optimal Betting and Efficiency in Parimutuel Betting Markets with Information Costs," Economic Journal, Royal Economic Society, vol. 106(437), pages 846-68, July.
  16. Brown, William O & Sauer, Raymond D, 1993. "Does the Basketball Market Believe in the Hot Hand? Comment," American Economic Review, American Economic Association, vol. 83(5), pages 1377-86, December.
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Citations

RePEc Biblio mentions

As found on the RePEc Biblio, the curated bibliography for Economics:
  1. > Industrial Organization > Industry studies > Sports, recreation and tourism > Gambling
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Cited by:
  1. Laurent Bouton & Micael Castanheira De Moura & A. Llorente-Saguer, 2012. "Divided Majority and Information Aggregation: Theory and Experiment," ULB Institutional Repository 2013/136800, ULB -- Universite Libre de Bruxelles.
  2. Kaivanto, Kim, 2008. "Alternation Bias and the Parameterization of Cumulative Prospect Theory," EconStor Open Access Articles, ZBW - German National Library of Economics.
  3. Dohmen Thomas & Falk Armin & Huffman David & Marklein Felix & Sunde Uwe, 2008. "Biased Probability Judgment: Representative Evidence for Pervasiveness and Economic Outcomes," Research Memoranda 008, Maastricht : ROA, Research Centre for Education and the Labour Market.
  4. James Sundali & Rachel Croson, 2006. "Biases in casino betting: The hot hand and the gambler's fallacy," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 1, pages 1-12, July.
  5. Carlson, Kurt A. & Shu, Suzanne B., 2007. "The rule of three: How the third event signals the emergence of a streak," Organizational Behavior and Human Decision Processes, Elsevier, vol. 104(1), pages 113-121, September.
  6. James A. Sundali & Gregory R. Stone & Federico L. Guerrero, 2012. "The effect of setting goals and emotions on asset allocation decisions," Managerial Finance, Emerald Group Publishing, vol. 38(11), pages 1008-1031, November.
  7. David Bruner & Michael McKee & Rudy Santore, 2008. "Hand in the Cookie Jar: An Experimental Investigation of Equity-Based Compensation and Managerial Fraud," Southern Economic Journal, Southern Economic Association, vol. 75(1), pages 261-278, July.
  8. Jürgen Huber & Michael Kirchler & Thomas Stöckl, 2010. "The hot hand belief and the gambler’s fallacy in investment decisions under risk," Theory and Decision, Springer, vol. 68(4), pages 445-462, April.
  9. Hopfensitz, Astrid, 2009. "Previous outcomes and reference dependence: A meta study of repeated investment tasks with and without restricted feedback," MPRA Paper 16096, University Library of Munich, Germany.
  10. Xiao, Erte & Houser, Daniel, 2006. "Public Implementation Eliminates Detrimental Effects of Punishment on Human Cooperation," IZA Discussion Papers 1977, Institute for the Study of Labor (IZA).

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