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Biases in casino betting: The hot hand and the gambler's fallacy

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  • James Sundali
  • Rachel Croson

Abstract

We examine two departures of individual perceptions of randomness from probability theory: the hot hand and the gambler's fallacy, and their respective opposites. This paper's first contribution is to use data from the field (individuals playing roulette in a casino) to demonstrate the existence and impact of these biases that have been previously documented in the lab. Decisions in the field are consistent with biased beliefs, although we observe significant individual heterogeneity in the population. A second contribution is to separately identify these biases within a given individual, then to examine their within-person correlation. We find a positive and significant correlation across individuals between hot hand and gambler's fallacy biases, suggesting a common (root) cause of the two related errors. We speculate as to the source of this correlation (locus of control), and suggest future research which could test this speculation.

Suggested Citation

  • 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.
    • Handle: RePEc:jdm:journl:v:1:y:2006:i::p:1-12
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    References listed on IDEAS

    as
    1. Rachel Croson & James Sundali, 2005. "The Gambler’s Fallacy and the Hot Hand: Empirical Data from Casinos," Journal of Risk and Uncertainty, Springer, vol. 30(3), pages 195-209, May.
    2. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, vol. 36(6), pages 643-660, June.
    3. Baron, Jonathan & Ritov, Ilana, 2004. "Omission bias, individual differences, and normality," Organizational Behavior and Human Decision Processes, Elsevier, vol. 94(2), pages 74-85, July.
    4. Ann-Renée Blais & Elke U. Weber, 2006. "A Domain-Specific Risk-Taking (DOSPERT)Scale for Adult Populations," CIRANO Working Papers 2006s-24, CIRANO.
    5. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
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    7. Ann-Renée Blais & Elke U. Weber, 2006. "A Domain-Specific Risk-Taking (DOSPERT) scale for adult populations," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 1, pages 33-47, July.
    8. Weber, Elke U. & Anderson, Carolyn J. & Birnbaum, Michael H., 1992. "A theory of perceived risk and attractiveness," Organizational Behavior and Human Decision Processes, Elsevier, vol. 52(3), pages 492-523, August.
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    Citations

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    Cited by:

    1. Maya Bar-Hillel, 2015. "Position Effects in Choice from Simultaneous Displays: A Conundrum Solved," Discussion Paper Series dp678, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    2. Karin Tochkov, 2009. "The effects of anticipated regret on risk preferences of social and problem gamblers," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 4(3), pages 227-234, April.
    3. Giancarlo Salirrosas Mart'inez, 2016. "Biased Roulette Wheel: A Quantitative Trading Strategy Approach," Papers 1609.09601, arXiv.org.
    4. Judith Covey & Qiyuan Zhang, 2014. "The effect of dynamic proximity cues on counterfactual plausibility," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 9(6), pages 586-592, November.
    5. repec:jdm:journl:v:14:y:2019:i:1:p:51-57 is not listed on IDEAS
    6. Bruce I. Carlin & David T. Robinson, 2009. "Fear and loathing in Las Vegas: Evidence from blackjack tables," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 4(5), pages 385-396, August.
    7. Rachel Croson & James Sundali, 2005. "The Gambler’s Fallacy and the Hot Hand: Empirical Data from Casinos," Journal of Risk and Uncertainty, Springer, vol. 30(3), pages 195-209, May.
    8. Greg Barron & Eldad Yechiam, 2009. "The coexistence of overestimation and underweighting of rare events and the contingent recency effect," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 4(6), pages 447-460, October.
    9. 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.
    10. Livingston, Jeffrey A., 2012. "The hot hand and the cold hand in professional golf," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 172-184.
    11. Maya Bar-Hillel, 2011. "Location, Location, Location: Position Effects in Choice Among Simultaneously Presented Options," Discussion Paper Series dp580, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    12. Y. Ma & Ye Zhang, 2014. "Resolution of the Happiness–Income Paradox," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 119(2), pages 705-721, November.
    13. Shahar Ayal & Guy Hochman & Dan Zakay, 2011. "Two sides of the same coin: Information processing style and reverse biases," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 6(4), pages 295-306, June.
    14. Suetens, Sigrid & Tyran, Jean-Robert, 2012. "The gambler's fallacy and gender," Journal of Economic Behavior & Organization, Elsevier, vol. 83(1), pages 118-124.
    15. Nilsson, Håkan & Andersson, Patric, 2010. "Making the seemingly impossible appear possible: Effects of conjunction fallacies in evaluations of bets on football games," Journal of Economic Psychology, Elsevier, vol. 31(2), pages 172-180, April.
    16. Joshua B. Miller & Adam Sanjurjo, 2014. "A Cold Shower for the Hot Hand Fallacy," Working Papers 518, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    17. Tong V. Wang & Rogier J. D. Potter van Loon & Martijn J. van den Assem & Dennie van Dolder, 2016. "Number preferences in lotteries," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 11(3), pages 243-259, May.
    18. Joshua B. Miller & Adam Sanjurjo, 2015. "Is it a Fallacy to Believe in the Hot Hand in the NBA Three-Point Contest?," Working Papers 548, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    19. Miller, Joshua Benjamin & Sanjurjo, Adam, 2018. "Is it a Fallacy to Believe in the Hot Hand in the NBA Three-Point Contest?," OSF Preprints dmksp, Center for Open Science.
    20. Yanlong Sun & Hongbin Wang, 2010. "Gambler's fallacy, hot hand belief, and the time of patterns," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 5(2), pages 124-132, April.
    21. Andrey Kudryavtsev, 2017. "The Effect of Preceding Sequences on Stock Returns," European Financial and Accounting Journal, University of Economics, Prague, vol. 2017(4), pages 83-96.

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