A study on cognitive biases in gambling: Hot hand and gamblers’ fallacy

Abstract

People who appear to believe in the hot hand expect winning streaks to continue whereas those suffering from the gamblers’ fallacy unreasonably expect losing streaks to reverse. 565,915 sports bets made by 776 online gamblers in 2010 were used for analysis. People who won were more likely to win again whereas those who lost were more likely to lose again. However, selection of safer odds after winning and riskier ones after losing indicates that online sports gamblers expected their luck to reverse: they suffered from the gamblers’ fallacy. By following in the gamblers’ fallacy, they created their own hot hands. Some gamblers consistently outperformed their peers. They also consistently made higher profits or lower losses. They show real expertise. The key of real expertise is the ability to control loss.

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