Tuesday, July 10, 2012

Cognitive Bias: the "Hot hand fallacy"

Gambler (album)
Gambler (album) (Photo credit: Wikipedia)
When a gambler starts winning consecutively, he's said to have a "hot hand". To some people who are not familiar with probabilities, this means the gambler with a "hot hand" is "believed" to win more often than when he doesn't have a "hot hand", when the "streak" itself is a mere artifact in probabilities. As each game of chance is NOT related to the NEXT game of chance (there are exceptions, like card-counting), a "streak" has no effect on the next game. Thus, believing that those who are winning will CONTINUE to win, is a fallacy, known as "hot hand fallacy".

To visualize this, just think about this scenario. Say you flip a coin and record the results each time. Say you got 5 "heads" in a row. What are the odds when you flip a coin the sixth time?

Exactly 50% for head, and 50% for tail. The odds never changed.

Yet those who believe in a "streak" or a "hot hand" would think that there's a BETTER chance for heads than even odds.

That is not logical. Yet people continue to believe in it.

This argument is often used by affiliates of suspect schemes, to defend their scheme from changes of problems. When it was pointed out that their scheme is having problems, their response is often

"I have been in this for a while and never had a problem. This problem is only temporary, and will be quickly solved."

They are committing a "hot hand fallacy". They believe their pattern of "no problem" will continue. They believe in a streak, when there's no such thing.

This is also known as "appeal to tradition" in some cases.

A: The good times will go on.
B: Why?
A: Because it had always been that way.

This is a fallacy, and it's easier to show you an example:

A: The sun will rise from the east.
B: Why?
A: Because it's always been that way.

See the problem? "It has always been that way" is not an explanation. It's a "pattern", that doesn't explain the WHY. It just shows the "how", but you're lead to think it explains the "why".


The "hot hand fallacy" has a much more famous sibling known as "gambler's fallacy".

Gambler's fallacy basically says that a streak CANNOT continue. In the same scenario above, if you did get 5 heads in a row, gambler's fallacy would lead the person to conclude that the sixth flip would have LESS chance of being "head" (i.e. chances for the streak to be broken is BETTER than even).

But the chances for the flip to come up heads is exactly 50%. It is NOT affected by prior flips, either way.

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