How a widespread fallacy causes bad decisions
People’s tendency to expect the opposite of what just happened could lead to costly mistakes
- People who make repeated decisions as part of their jobs are likely to suffer from the “gambler’s fallacy”— the mistaken belief that they are unlikely to see a streak of good or bad cases in a row, even though this often occurs by chance. This belief leads decision-makers to mistakenly alternate their decisions, according to Daniel Chen of ETH Zurich and Chicago Booth’s Tobias J. Moskowitz and Kelly Shue.
- The researchers find that asylum judges were up to 3.3 percentage points less likely to grant refugees political asylum if the previous case was approved than if it was denied (see chart). The likelihood of granting asylum fell even more after the granting of two previous requests in a row. The researchers examined decisions in 150,357 US refugee asylum cases from 1985 to 2013.
- Baseball umpires were 1.5 percentage points less likely to call a pitch a strike if they called the previous pitch a strike. Analyzing 1.5 million called pitches from 2008 to 2012, the researchers find that the effect was stronger after the calling of two consecutive strikes.
- The research suggests that the tendency to commit the gambler’s fallacy can diminish by changing incentives. Loan officers (in a field experiment in India) were much less likely to commit the gambler’s fallacy when they were given strong monetary incentives for accuracy.