Overview & Description:

The Gambler’s Fallacy is a cognitive bias where an individual believes that a certain random event is less likely or more likely to happen based on a previous series of events. For instance, after observing multiple instances of a flipped coin landing on heads, one might incorrectly believe that tails are “due” next.

Key Points:

1. Misunderstanding of Independence: Events like coin tosses are independent of one another, but the Gambler’s Fallacy results from a mistaken belief in the law of averages.
2. Real-world Effects: This fallacy can influence behaviors in various scenarios, from gambling behaviors to decision-making in courtrooms.
3. Contrast with Hot Hand Fallacy: While the Gambler’s Fallacy assumes independence from streaks, the “hot hand” fallacy assumes dependence, believing that success will continue.

Implications:

1. Decision-making: Recognizing the Gambler’s Fallacy can aid in making better decisions in scenarios of chance and probability.
2. Financial and Betting Decisions: Financial markets and casinos are domains where the fallacy can have real financial implications for individuals.

References:

• Tversky, A., & Kahneman, D. (1971). Belief in the law of small numbers. Psychological bulletin, 76(2), 105.