Mar

9

 This article on "the hot hand" uses sports betting rather than basketball or baseball to look into the effect:

"After winning, gamblers selected safer odds. After losing, they selected riskier odds. After winning or losing, they expected the trend to reverse: they believed the gamblers' fallacy. However, by believing in the gamblers' fallacy, people created their own luck. The result is ironic: Winners worried their good luck was not going to continue, so they selected safer odds. By doing so, they became more likely to win. The losers expected the luck to turn, so they took riskier odds. However, this made them even more likely to lose. The gamblers' fallacy created the hot hand."

This seems consistent with real life. From the day trader that makes money early in the morning and winds down participation to the big money managers that early in their career achieve 50-100% return, it creates the illusion of skill, increases AUM, shifts risk preferences and focus on the fees.


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1 Comment so far

  1. Claude on May 31, 2015 4:05 am

    brilliant blog I am a big football fan from Sweden

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