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Changing the riskiness of bets to make hot hands happen

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We came across this writeup (excuse the click-baity title) of a new paper by Juemin Xu and Nigel Harvey called “Carry on winning: The gamblers’ fallacy creates hot hand effects in online gambling” and found it to be fascinating. It’s one of those things you read and think “how could no one have thought of this before”?


People suffering from the hot-hand fallacy unreasonably expect winning streaks to continue whereas those suffering from the gamblers’ fallacy unreasonably expect losing streaks to reverse. We took 565,915 sports bets made by 776 online gamblers in 2010 and analyzed all winning and losing streaks up to a maximum length of six. People who won were more likely to win again (apparently because they chose safer odds than before) whereas those who lost were more likely to lose again (apparently because they chose riskier odds than before). 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 believing in the gamblers’ fallacy, they created their own hot hands.

Xu, Juemin and Nigel Harvey. (2014). Carry on winning: The gamblers’ fallacy creates hot hand effects in online gambling. Cognition, Volume 131, Issue 2, May 2014, Pages 173–180. [Full text and PDF free at the publisher’s site]

Photo credit: https://www.flickr.com/photos/jesscross/3169240519/


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