The Gambler's Fallacy tested on Real-Life Gamblers leads to an unexpected realisation

Gambling Research

Any behavioural researcher will tell you that often people who say they believe something will exhibit actions that cause the complete opposite to occur.

A recently published study by University College London's psychology professor Nigel Harvey and graduate student Juemin Xu, found that online gamblers believed in the "Gamblers fallacy" and this belief led them to experience the opposite effect which was termed the "hot‐hand fallacy".

The hot‐hand fallacy occurs when players think that what seems to be a winning streak is more likely to continue. This belief is based on the principle that if one has already won a number of bets, the probability of winning the next bet or number of bets will be improved. These players believe that luck will continue to favour them and the more favourable outcomes they achieve, the more they will continue to do so in future.

This is in complete contrast to the gamblers fallacy which dictates that if a player is experiencing a losing streak, his/her luck is bound to turn around and they will start winning. In this theory, the repetition of a specific outcome decreases the probability of the outcome occurring in future.

The problem with both schools of thought and the reason why they are termed fallacies is the fact that most casino games are games of chance and no single outcome is dependent on another. If the ball lands on red after a single spin in a game of roulette it is no more or less likely to do so again on the next spin. Each time a round is played it does so independently of the previous one or the subsequent one.

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Due to this fact, so-called "streaks" have no particular meaning and if you win a bet five times in a row this has no bearing on the outcome of your sixth bet. This means that the hot‐hand fallacy which believes that winning many times in a row increases your chances of winning on the next wager, and the gamblers fallacy which believes that losing multiple times in a row will increase your odds of winning on the next wager, are both incorrect.

It is somewhat surprising then to learn that Harvey and Xu actually found evidence that the hot‐hand effect really does occur. After analysing online sports betting data containing information on multitudes of wagers on horse and dog races as well as football matches they discovered that the longer a streak continued, the greater the likelihood that a punter would win his/her next bet.

Harvey and Xu also discovered a mirror image effect with those experiencing losing streaks ‐ the longer a losing streak persisted, the more likely that they would continue to lose their bets.

These are very interesting findings indeed, especially because the outcomes of a horse race or football match should not have any effect on the outcomes of the subsequent game that someone bets on. Could it be that the people enjoying winning streaks were placing better wagers than the people who were experiencing losing streaks?

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Harvey and Xu compared the overall return figures for players who had experienced at least one streak of six wagers in a row to those who didn't and there was absolutely no difference in the figures. This ruled out the notion that winning streak gamblers were better at picking winners than other players.

Harvey and Xu then examined the types of wagers that were being made by players experiencing both winning and losing streaks and discovered something truly amazing...

Gamblers were behaving as is the gamblers fallacy was true and that a winning or losing streak would mean that their luck was about to change on their next wager which inevitably leads to the hot‐hand effect identified.

By comparing the odds of winning for the next wager played by both gamblers on winning and losing streaks alike, Harvey and Xu discovered that players experiencing winning streaks became more conservative in their bets and began wagering on races and games with better odds, acting like their luck was about to change. Conversely, players experiencing losing streaks risked more and began to bet on long shots, also believing in the gamblers fallacy that things were bound to change some time and help them to recoup their losses.

From this study it seems that gamblers behave as though they believe in the gambler's fallacy, whether they are consciously aware of this behaviour or not, which is actually leading to the hot‐hand effect which leads to the opposite effect of making both winning or losing streaks lasting longer.

These findings definitely make one think and realise the need to be aware of one's beliefs and motivations when gambling as they could actually be affecting the outcomes more than we realise.