Surprised by the Hot Hand Fallacy? A Truth in the Law of Small Numbers

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Title: Surprised by the Hot Hand Fallacy? A Truth in the Law of Small Numbers
Authors: Miller, Joshua B. | Sanjurjo, Adam
Research Group/s: Microeconomía Aplicada (GIMA)
Center, Department or Service: Universidad de Alicante. Departamento de Fundamentos del Análisis Económico
Keywords: Law of small numbers | Alternation bias | Negative recency bias | Gambler’s fallacy | Hot hand fallacy | Hot hand effect | Sequential decision making | Sequential data | Selection bias | Finite sample bias | Small sample bias
Knowledge Area: Fundamentos del Análisis Económico
Issue Date: Nov-2018
Publisher: The Econometric Society
Citation: Econometrica. 2018, 86(6): 2019-2047. doi:10.3982/ECTA14943
Abstract: We prove that a subtle but substantial bias exists in a common measure of the conditional dependence of present outcomes on streaks of past outcomes in sequential data. The magnitude of this streak selection bias generally decreases as the sequence gets longer, but increases in streak length, and remains substantial for a range of sequence lengths often used in empirical work. We observe that the canonical study in the influential hot hand fallacy literature, along with replications, are vulnerable to the bias. Upon correcting for the bias, we find that the longstanding conclusions of the canonical study are reversed.
Sponsor: Financial support from the Department of Decision Sciences at Bocconi University, and the Spanish Ministries of Education and Science and Economics and Competitiveness (ECO2015-65820-P) and Generalitat Valenciana (Research Projects Gruposo3/086 and PROMETEO/2013/037) is gratefully acknowledged.
URI: http://hdl.handle.net/10045/85611
ISSN: 0012-9682 (Print) | 1468-0262 (Online)
DOI: 10.3982/ECTA14943
Language: eng
Type: info:eu-repo/semantics/article
Rights: © 2018 The Econometric Society
Peer Review: si
Publisher version: https://doi.org/10.3982/ECTA14943
Appears in Collections:INV - GIMA - Artículos de Revistas

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