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Predicting Lotto Numbers: A Natural Experiment On The Gambler'S Fallacy And The Hot-Hand Fallacy

Author

Listed:
  • Sigrid Suetens
  • Claus B. Galbo-Jørgensen
  • Jean-Robert Tyran

Abstract

We investigate the "law of small numbers" using a unique panel data set on lotto gambling. Because we can track individual players over time, we can measure how they react to outcomes of recent lotto drawings. We can therefore test whether they behave as if they believe they can predict lotto numbers based on recent drawings. While most players pick the same set of numbers week after week without regards of numbers drawn or anything else, we find that those who do change, act on average in the way predicted by the law of small numbers as formalized in recent behavioral theory. In particular, on average they move away from numbers that have recently been drawn, as suggested by the "gambler?s fallacy," and move toward numbers that are on streak, i.e. have been drawn several weeks in a row, consistent with the "hot hand fallacy."
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Suggested Citation

  • Sigrid Suetens & Claus B. Galbo-Jørgensen & Jean-Robert Tyran, 2016. "Predicting Lotto Numbers: A Natural Experiment On The Gambler'S Fallacy And The Hot-Hand Fallacy," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 584-607, June.
    • Handle: RePEc:bla:jeurec:v:14:y:2016:i:3:p:584-607
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    File URL: http://hdl.handle.net/10.1111/jeea.2016.14.issue-3
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    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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