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Is the Gambler's Fallacy Really a Fallacy?


  • John A. Nyman

    (University of Minnesota)


The behavior known as the gambler's fallacy is exhibited when gamblers increase their wager after a series of losses. The conventional interpretation of this behavior is that, after a series of losses, the gambler views the probability of winning as having increased. However, if the probability is independently and identically distributed (as it normally is), previous losses do not affect the probabilities of subsequent gambles, hence the fallacy. This paper suggests an alternative explanation for the gambler's fallacy behavior. It holds that the gambler views the probability of a series of (outcomes resulting in) losses as very small. Therefore, from an ex ante perspective, consumers strategize that if they lose, they will increase their wagers because a long series of losses is unlikely. A simulation demonstrates the rationality of the gambler's fallacy behavior by showing positive winnings when the theoretical expected winnings are $0. This same behavioral assumption is also behind the St. Petersburg Paradox. The difference is that the low probability of a series motivates people to gamble with the gambler's fallacy, but motivates people not to gamble with (or more accurately, not pay very much for) the St. Peters Paradox. If anything, the gambler's fallacy is a fallacy regarding the adequacy of the consumer's bankroll, rather than a fallacy regarding a change in the probability of winning.

Suggested Citation

  • John A. Nyman, 2007. "Is the Gambler's Fallacy Really a Fallacy?," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 1(3), pages 165-170, November.
  • Handle: RePEc:buc:jgbeco:v:1:y:2007:i:3:p:165-170

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    References listed on IDEAS

    1. John J. Siegfried & Andrew Zimbalist, 2000. "The Economics of Sports Facilities and Their Communities," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 95-114, Summer.
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    3. Robert Baade & Robert Baumann & Victor Matheson, 2005. "Selling the Big Game: Estimating the Economic Impact of Mega-Events through Taxable Sales," Working Papers 0510, College of the Holy Cross, Department of Economics.
    4. Robert Baade & Victor Matheson, 2005. "Have public finance principles been shut out in financing new sports facilities in the United States?," IASE Conference Papers 0527, International Association of Sports Economists.
    5. Dennis Coates & Brad R. Humphreys, 2002. "The Economic Impact of Postseason Play in Professional Sports," Journal of Sports Economics, , vol. 3(3), pages 291-299, August.
    6. Robert A. Baade & Victor A. Matheson, 2001. "Home Run or Wild Pitch?," Journal of Sports Economics, , vol. 2(4), pages 307-327, November.
    7. Dennis Coates & Brad R. Humphreys, 2001. "The Economic Consequences of Professional Sports Strikes and Lockouts," Southern Economic Journal, Southern Economic Association, vol. 67(3), pages 737-747, January.
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    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism


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