scholarly journals Decision Making Under the Gambler’s Fallacy: Evidence from Asylum Judges, Loan Officers, and Baseball Umpires *

2016 ◽  
Vol 131 (3) ◽  
pp. 1181-1242 ◽  
Author(s):  
Daniel L. Chen ◽  
Tobias J. Moskowitz ◽  
Kelly Shue
Keyword(s):  
Decision Making ◽  
Alternative Explanation ◽  
Decision Makers ◽  
Contrast Effects ◽  
High Stakes ◽  
Gambler’S Fallacy ◽  
Gambler's Fallacy ◽  
Loan Officers ◽  
Treat All ◽  
Rule Out

Abstract We find consistent evidence of negative autocorrelation in decision making that is unrelated to the merits of the cases considered in three separate high-stakes field settings: refugee asylum court decisions, loan application reviews, and Major League Baseball umpire pitch calls. The evidence is most consistent with the law of small numbers and the gambler’s fallacy—people underestimating the likelihood of sequential streaks occurring by chance—leading to negatively autocorrelated decisions that result in errors. The negative autocorrelation is stronger among more moderate and less experienced decision makers, following longer streaks of decisions in one direction, when the current and previous cases share similar characteristics or occur close in time, and when decision makers face weaker incentives for accuracy. Other explanations for negatively autocorrelated decisions such as quotas, learning, or preferences to treat all parties fairly are less consistent with the evidence, though we cannot completely rule out sequential contrast effects as an alternative explanation.

Behavioral factors affecting investment decision-making in bank stocks on the Ghana stock exchange

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Alexander Quaicoe ◽  
Paul Quaisie Eleke-Aboagye
Keyword(s):  
Decision Making ◽  
Stock Market ◽  
Stock Exchange ◽  
Investment Decisions ◽  
Mental Accounting ◽  
Content Type ◽  
Gambler’S Fallacy ◽  
Gambler's Fallacy ◽  
Ghana Stock Exchange ◽  
Regret Aversion

Purpose The finance literature is awash with papers bordering on the classical assumption that investors are rational in their decision-making, and hence, would always take decisions rationally given the right information, thus making the stock market efficient. This assumption has, however, been found to be at least inadequate given the fact that investors are complex psychological beings full of emotions. This paper aims to investigate the psychological factors that tend to influence the decisions of investors. Design/methodology/approach The study used a questionnaire to survey a total of 350 investors holding stocks of listed banks on the Ghana Stock Exchange (GSE). Findings The study found the existence of various behavioural biases among the investors surveyed. The most dominant factor or bias found to be influencing investment decisions of respondents was herding with nearly 62% weight. Again, biases such as regret aversion and gambler’s fallacy were also found to strongly influence the decisions of investors, along with mental accounting, overconfidence and anchoring. Practical implications The presence of these behavioural biases, therefore suggests that investors do not always take rational decisions, and hence, making the stock market efficient and that as psychological beings, their investment decisions are impacted strongly by their psychology. Originality/value The study used a questionnaire to survey a total of 350 investors holding stocks of listed banks on the GSE with a special focus on overconfidence, anchoring, herding, gambler’s fallacy, mental accounting and regret aversion as the variables of interest, the first of its kind in Ghana.

Is the Gambler’s Fallacy Really a Fallacy?

2013 ◽  
Vol 1 (3) ◽  
pp. 165-170
Author(s):  
John A Nyman
Keyword(s):  
Alternative Explanation ◽  
Theoretical Expectation ◽  
Gambler’S Fallacy ◽  
Ex Ante ◽  
Low Probability ◽  
Gambler's Fallacy ◽  
The Difference ◽  
Petersburg Paradox

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 increasing.  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 expectation is $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.

scholarly journals The gambler's fallacy fallacy (fallacy)

2016 ◽  
Author(s):  
Marko Kovic ◽  
Silje Kristiansen
Keyword(s):  
Decision Making ◽  
Irrational Belief ◽  
Standard Account ◽  
Gambler’S Fallacy ◽  
Simple Heuristic ◽  
Gambler's Fallacy ◽  
Independent And Identically Distributed

The gambler's fallacy is the irrational belief that prior outcomes in a series of events affect the probability of a future outcome, even though the events in question are independent and identically distributed. In this paper, we argue that in the standard account of the gambler's fallacy, the gambler's fallacy fallacy can arise: The irrational belief that all beliefs pertaining to the probabilities of sequences of outcomes constitute the gambler's fallacy, when, in fact, they do not. Specifically, the odds of the probabilities of some sequences of outcomes can be epistemically rational in a given decision-making situation. Not only are such odds of probabilities of sequences of outcomes not the gambler's fallacy, but they can be implemented as a simple heuristic for avoiding the gambler's fallacy in risk-related decision-making. However, we have to be careful not to fall prey to a variant of the gambler's fallacy, the gambler's fallacy fallacy (fallacy), in which we do not calculate odds for the probabilities of sequences that matter, but rather simply believe that the raw probability for the occurrence of a sequence of outcomes is the probability for the last outcome in that sequence.

scholarly journals A Social Judgment? Extralegal Contrast Effects in Hypothetical Legal Decision Making

2018 ◽  
Author(s):  
Max Edward Butterfield ◽  
Alexandra N. Bitter
Keyword(s):  
Decision Making ◽  
Decision Makers ◽  
Sufficient Evidence ◽  
Social Judgments ◽  
Contrast Effects ◽  
Legal Decision ◽  
Individual Level ◽  
Case Comparison ◽  
Legal Contexts ◽  
Parole Boards

Social judgments in ambiguous situations often rely on heuristics and biases, and legal decision makers are often faced with evidence that does not clearly favor one decision over another. Across two studies, we tested whether one extralegal factor, contrast cases, influenced decision making when judicial factors were held constant. In Study 1, participants (n = 100) evaluated whether an imagined prosecutor had sufficient evidence to send the same three target cases to trial. Before deciding these cases, though, the participants first evaluated cases with either relatively stronger or weaker evidence than the targets. Those in the weak-case comparison group were significantly more likely to send target cases to trial, and they believed the prosecutor had a stronger case. In Study 2, all participants (n = 100) evaluated hypothetical parole applications, but the method was otherwise the same as that used in Study 1. The same contrast-oriented pattern emerged. Participants who first viewed weaker parole applications rated the identical targets as significantly more rehabilitated. Taken together, the results of these two studies suggest that contrast effects may be one extralegal factor involved in shaping individual-level social judgments made in legal contexts such as grand juries and parole boards.

scholarly journals The Gambler’s Fallacy Is Associated with Weak Affective Decision Making but Strong Cognitive Ability

PLoS ONE ◽  
2012 ◽  
Vol 7 (10) ◽  
pp. e47019 ◽  
Author(s):  
Gui Xue ◽  
Qinghua He ◽  
Xuemei Lei ◽  
Chunhui Chen ◽  
Yuyun Liu ◽  
...  
Keyword(s):  
Decision Making ◽  
Cognitive Ability ◽  
Gambler’S Fallacy ◽  
Gambler's Fallacy
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