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The Gambler's Fallacy is a cognitive bias that leads individuals to believe that future probabilities are altered by past events, despite the events being independent. It is the mistaken belief that if something happens more frequently than normal during a given period, it will happen less frequently in the future, or vice versa.
This fallacy arises from the incorrect assumption that random processes are self-correcting. People confuse the law of large numbers, which states that as a sample size grows, the sample mean will get closer to the population mean, with the belief that deviations from average outcomes in a short sequence of random events means future deviations will balance out immediately.
Believing in the Gambler's Fallacy can lead to poor decision-making in gambling, investments, and even personal life. It can cause individuals to place unwarranted bets based on supposed 'patterns' and 'hot streaks', often resulting in financial loss, increased risk-taking, and decision paralysis.
To counteract the fallacy, it's important to understand the nature of randomness and independence in events. Education about probability and statistical independence can help. Cognitive-behavioral strategies can also be used to challenge erroneous beliefs and encourage a more analytical approach to risk and probability.
Some critics argue that what is often classified as the Gambler's Fallacy may be rational in contexts where individuals lack information, such as uncertain complex systems, where perceived patterns might sometimes result from underlying factors not yet understood. Nonetheless, in strictly independent random processes, the fallacy holds no ground.
What's next? Judging sequences of binary events
Oskarsson, A. T., Van Boven, L., McClelland, G. H., & Hastie, R. (2009)
Psychological Bulletin, 135(2), 262-285
The 'Gambler's Fallacy' in Lottery Play
Clotfelter, C. T., & Cook, P. J. (1993)
Management Science, 39(12), 1521-1525