Hot hand fallacy là gì

The "hot hand" is the notion that because one has had a string of successes, an individual or entity is more likely to have continued success. For example, if one flipped a (fair) coin and guessed correctly that it would land on heads three times in a row, it might be said that they have a "hot hand." Under such circumstances, a person believes that their odds of guessing which side the coin will land on next are greater than the 50% they actually are. When there is a series of failures, the same concept works as the "cold hand."

While the hot hand feels like it happens all the time, academic research has shown this phenomenon to be purely psychological. Newer studies, however, do show some support for the hot hand in certain sporting events.

Key Takeaways

• The "hot hand" is the notion where people believe that after a string of successes, an individual or entity is more likely to have continued success.
• Psychologists believe that the hot hand is a fallacy that stems from the representative heuristic, as identified by behavioral economics.
• Still, some research shows that for certain sporting events, the hot hand may be real.

How the Hot Hand Works

The belief in a hot hand is one shared by many gamblers and investors alike and is believed by psychologists to stem from the same source, the representative heuristic. For example, there is data to suggest that the decision of an investor to buy or sell a mutual fund depends largely on the track record of the fund manager, even though there is evidence that this factor is highly overrated. Hence, it would appear that such investors are making decisions based on whether or not they feel the fund managers are "hot" or not.

The hot hand fallacy is the psychological condition that people believe an individual is "hot" or "cold" depending on past performance, when that performance has no bearing on future outcomes. For instance, rolling a die is independent of how you rolled it in the past.

Evidence for and Against the Hot Hand

When gambling, as in investing, it is possible to experience a winning streak driven by what seems to be momentum. However, the idea that favorable outcomes are a result of a hot hand is purely a psychological phenomenon. In reality, once an investor or a gambler begins to think they have a hot hand, many proven biases can arise. Several common behavioral gaps, which can be brought on by a hot hand include overconfidence, confirmation bias, the illusion of control, recency bias, and hindsight bias—just to name a few from the growing list of the popular market psychology factors.

New research using modern statistical analysis supports the bit of evidence for the "hot hand" in certain sporting events. The Supreme Court's May 2018 decision to ease federal laws prohibiting commercial sports betting in most states opened the door to legalizing the estimated $150 billion in illegal wagers on professional and amateur sports in the U.S. every year. As sports betting becomes more mainstream, it's not unthinkable that investment strategies explicitly following a hot hand will pop up.

The hot-hand fallacy is most commonly discussed within a context of sports or gambling. While making an incorrect prediction on the outcome of a sports game may not alone have negative consequences, often, people make bets based on the rationale influenced by the hot-hand fallacy. Once money becomes involved, the irrational and illogical belief of the hot-hand fallacy can begin to have more serious consequences.

If we make a bet on a sports game based on a successful run in the first ten minutes of the game, we are putting money down without considering all of the data. Just because a team or player is performing well in a short period of time does not counter their overall average statistics, but the hot-hand fallacy makes us believe it does. We are likely to make bets that reflect a logical fallacy and lose money as a result. 

Similarly, in gambling, when we have a winning streak, because of the hot-hand fallacy, we believe that our success will continue. In reality, most gambling games have to do with chance, and subsequent performance is completely independent from previous performance. We might get careless with our bets believing our good luck will continue and we can lose a lot of money in the process.

Fans are not the only people susceptible to the hot-hand fallacy when it comes to sports. Managers and coaches also often have to make decisions based on a small sample of observation, such as which players should be part of the starting line. Players need to decide which of their fellow teammates to pass to each game. The hot-hand fallacy affects not only those betting on the game, but may even impact the outcome of the game.

Moving away from sports and gambling, the hot-hand fallacy can come into play whenever we have to make assumptions or decisions based on a small sample of observations. For example, consider how politicians become delegates: they have to win a number of primaries. If a politician wins a few primaries in a row, we might be led to believe they will win the general election, even if this sample is not representative of the overall percentage of primaries they are likely to win. This can cause us to change our vote, or can perhaps even cause other candidates to drop out of the race, believing they don’t stand a chance.

As humans, we tend to try and find patterns and trends in order to make sense of the world. However, this tendency makes it difficult for us to understand chance because we pull together data into patterns that don’t necessarily exist. We are unable to properly understand randomness and chance, causing us to believe that independent events are actually dependent.1

The hot-hand fallacy occurs in part because of the law of small numbers.2 We often believe that small samples are representative of the larger samples that they are drawn from — that is in fact what all behavioral science experiments conclude, because it is too difficult to study the entire relevant population. However, these small samples often show patterns that don’t exist in large sequences.

Small numbers often don’t behave the way that large numbers behave. For example, it isn’t that unlikely that we would get five heads in a row in a coin toss when we only toss it five times. Yet, because we believe that there should have been more alterations, since there is a 50/50 chance of getting heads or tails, we think there is a hot streak. In fact, if we tossed the coin 100 times, we are likely to have an overall number of heads closer to 50%, but each smaller portion of the larger sequence will not necessarily reflect this.2

The hot-hand fallacy means we are making decisions based on faulty reasoning instead of logic and rationality. As a result, we find ourselves making sub-optimal decisions. We misidentify patterns and base following decisions on these made up trends.

Although the hot-hand fallacy is most commonly researched in sports and gambling contexts, it can impact day-to-day behavior as well. If we feel as though we have been lucky recently, we may think we’re on a lucky streak, and make decisions based on that feeling. We might buy a lottery ticket and pick numbers based on last week’s winning ticket, even though neither our past luck nor the past winning numbers actually affect our likelihood of winning the lottery.

The hot-hand fallacy can also impact decision-making when it comes to our consumer behavior, making it a dangerous heuristic. One study conducted by Joseph Johnson, professor of marketing, found that consumers are more likely to buy into a stock when it has been experiencing a positive earning trend.3 However, a previous trend is usually based on a small amount of data, such as the three-to-seven-day period in Johnson’s study and is not likely reflective of the overall pattern of stocks that involves many ups and downs. 

In order to try and understand what causes the hot-hand fallacy, Dr. Alan Castel, Professor of Psychology at UCLA, examined whether age impacted the likelihood that someone will fall victim to the hot-hand fallacy.4 

There is a common belief that the older we get, the more we rely on heuristics for our decision-making. Castel therefore believed that older adults would be more likely to believe that a player is more likely to make a third successful shot after they had made two successful shots.

The study began by telling all participants ranging from 22-90 years old that usually, players in the NBA make around 50% of their shots. Next they were asked the following two questions:

1. Does a basketball player have a better chance of making a shot after having just made the last two or three shots than after having missed the last two or three shots?
2. Is it important to pass the ball to someone who has just made a few shots in a row?

Castel found that older participants were more likely to answer yes to both questions, suggesting they were influenced to a greater degree by the hot-hand fallacy.4 The study provides evidence that older people are more likely to rely on heuristic-based processing, even though their older age suggests that they are more likely to have more experience. This suggests awareness of the hot-hand fallacy might not be enough to counter it, as with age, we would assume people would have experienced more random sequence events.

As the hot-hand fallacy seems to lead to opposing beliefs to the gambler’s fallacy, Dr. Peter Ayton and Dr. Ilan Fischer, Professors of Psychology, wanted to better understand in what situations each one is more likely to occur.5

The researchers showed participants a computer-generated roulette wheel that would spin after a bet or prediction was made on what color the spinner would land on. When making their predictions, participants also had to rate their confidence levels as either “no confidence” or “strong confidence”. 

The researchers found that when there was a streak of a certain color, participants were likely to be influenced by the gambler’s fallacy and believe the next spin would result in the opposite color. However, the reports of confidence levels showed that a past run of successful predictions led to increased confidence levels in future predictions.5

From these results, Ayton and Fischer concluded that the hot-hand fallacy is more likely to influence decision-making when people are considering human performance, whereas gambler’s fallacy is more likely to impact gambling decisions that are based on inanimate mechanisms like the roulette wheel. 

However, the experiment does not reveal how likely we are to fall victim to the hot-hand fallacy in situations that involve inanimate mechanisms that we are not betting on. Participants in gambling situations may behave differently than people who are just trying to guess heads or tails in a coin toss.

What it is

The hot-hand fallacy describes our tendency to believe that a successful streak is likely to lead to further success. For example, if a basketball player has made three consecutive shots, we may believe he has a greater chance of making the fourth than is actually likely. 

Why it happens

The hot-hand fallacy occurs because we believe that small samples of data are representative of larger samples of data, when in reality, this is not the case. We often look for patterns in sequences and find it hard to properly understand randomness and chance, causing us to make predictions based on reasoning that is illogical. 

Example 1 - The hot-hand fallacy increases with age

Many psychologists believe that the older we get, the more we rely on heuristics in our decision-making processes. Supporting this theory, evidence has shown that older people are more likely to be misled by the hot-hand fallacy when it comes to predicting the future performance of basketball players when they’ve had a successful streak.  

Example 2 - The hot-hand fallacy has a stronger influence when people believe human skill impacts the outcome

The hot-hand fallacy is a heuristic that seems to contradict the gambler’s fallacy, because the hot-hand fallacy suggests future outcomes will be alike previous outcomes, whereas the gambler’s fallacy suggests future outcomes will be different to previous outcomes. The hot-hand fallacy may be caused due to increased confidence in our ability to predict what will happen when we have made a run of successful predictions. Alternatively, the gambler’s fallacy may be more likely to occur when we believe outcomes are only influenced by inanimate mechanisms, not human skill. 

How to avoid it

As the hot-hand fallacy is in part caused by the incorrect belief in the law of small numbers, we can try and make predictions based on larger data pools. By using more data, it is more difficult to ‘find’ a pattern that doesn’t actually exist, meaning that our decisions are less likely to be influenced by fallacious reasoning.