The “gambler’s fallacy”

[rollover]

Creates deceptive biases that lead you to anticipate patterns that don’t really exist.

A worryingly common error that can derail many of our professional decisions, from a goalkeeper’s responses to penalty shootouts in football to stock market investments and even judicial rulings on new asylum cases.

BBC

I think HPI running on similar fallacy.

[shlomo]

 

Creates deceptive biases that lead you to anticipate patterns that don’t really exist.

A worryingly common error that can derail many of our professional decisions, from a goalkeeper’s responses to penalty shootouts in football to stock market investments and even judicial rulings on new asylum cases.

BBC

I think HPI running on similar fallacy.

A good read, thanks, i may buy the book when it is out

[Huggy]

 

I think HPI running on similar fallacy.

...with economy and personal finance busting levels of money.

Casinos helpfully have the past several results from the roulette wheel visible so you know what number is 'likely' to come up next....Fine if it's $10 in Vegas, less so with a quarter million+ mortgage.

Luckily we have a "super-vigilant" BoE now

[Will!]

An interesting read.

I also like this by Tim Harford in the Financial Times:

What puzzles and poker teach us about misinformation

[24gray24]

Belief in this being a fallacy rests on an assumption that you're Trying to stick to the average, and therefore betting on reversion to mean. 

But if you're betting on the streak continuing, you're actually doing something else: you're betting there's an unknown cause operating.

Eg a rigged casino wheel. 

[A.steve]

 

BBC

The BBC article says:

"Sometime in 2003, however, the number 53 simply stopped coming up on the Venice wheel – leading punters to place increasingly big bets on the number in the certainty that it must soon make a reappearance."

Nassim Taleb discusses this idea at length in "The Black Swan" (and other books).

Taleb talks about 'Fat Tony' and 'Dr. John'.  Tony would never have made that error because he's from Brooklyn and has "street smarts".  Tony would have bet that the machine was probably broken and would assume 53 is less likely than it should be.  John, on the other hand exists within an idealised mathematical bubble and would be inclined to think that the only influences of the outcome would be entirely random - no matter how implausible that hypothesis seemed.  While Tabeb's popular books are very approachable... something I disliked about the narrative was that the protagonists were assumed to be oblivious to their own biases... and had no conception of the scope of their own analysis... which I found difficult to swallow.  If the BBC story about the number 53 is true... then the Italians in question don't even seem smart enough to fall for the fallacies I found implausible and assumed must be beneath just-about anyone's intellect.

[Freki]

 

Creates deceptive biases that lead you to anticipate patterns that don’t really exist.

A worryingly common error that can derail many of our professional decisions, from a goalkeeper’s responses to penalty shootouts in football to stock market investments and even judicial rulings on new asylum cases.

BBC

I think HPI running on similar fallacy.

Maybe but if 95% of people on this board agree there is an issue, on income / HP there are 2 ways forward:

Income increases and HP remains stable : inflationary

Income remains stable and HP drops: deflationary

I will buy in 2021, I am more concerned of the first than the second.  I won't go all in and get the biggest mortgage I can but you've got the idea. 

[24gray24]

 

Maybe but if 95% of people on this board agree there is an issue, on income / HP there are 2 ways forward:

Income increases and HP remains stable : inflationary

Income remains stable and HP drops: deflationary

I will buy in 2021, I am more concerned of the first than the second.  I won't go all in and get the biggest mortgage I can but you've got the idea. 

What about income drops and HP goes up?

Or income drops and HP go down?

(That seems just as likely as income rises.)

Is it still buy? 

[Martin_JD]

i understand the theory.  In terms of a coin flip - it's a 50/50 chance of heads or tails, and the next coin flip is also 50/50 - because the two events arn't linked.

But here's what i don't understand - if you flip a coin 1000 - you'd be more likely to see a mix of heads and tails, rather then all heads - so how does that fit in with the theory? 

[Si1]

 

 to stock market investments and even judicial rulings on new asylum cases.

BBC

I think HPI running on similar fallacy.

I'm not sure I agree with this. Markets are subject to reversion to the mean precisely because they have a history and internal behaviour.

[Si1]

 

i understand the theory.  In terms of a coin flip - it's a 50/50 chance of heads or tails, and the next coin flip is also 50/50 - because the two events arn't linked.

But here's what i don't understand - if you flip a coin 1000 - you'd be more likely to see a mix of heads and tails, rather then all heads - so how does that fit in with the theory? 

You're right. But it's the same chance to get an exact specific combination of coin flips out of ten compared to 10 heads in a row.

[Martin_JD]

cheers, i understand now.

[rollover]

 

i understand the theory.  In terms of a coin flip - it's a 50/50 chance of heads or tails, and the next coin flip is also 50/50 - because the two events arn't linked.

But here's what i don't understand - if you flip a coin 1000 - you'd be more likely to see a mix of heads and tails, rather then all heads - so how does that fit in with the theory? 

I think it's more to do with probability.

Probability is how likely an event is to occur, or how likely it is that a proposition is true.

[NobodyInParticular]

 

The BBC article says:

"Sometime in 2003, however, the number 53 simply stopped coming up on the Venice wheel – leading punters to place increasingly big bets on the number in the certainty that it must soon make a reappearance."

Nassim Taleb discusses this idea at length in "The Black Swan" (and other books).

Taleb talks about 'Fat Tony' and 'Dr. John'.  Tony would never have made that error because he's from Brooklyn and has "street smarts".  Tony would have bet that the machine was probably broken and would assume 53 is less likely than it should be.  John, on the other hand exists within an idealised mathematical bubble and would be inclined to think that the only influences of the outcome would be entirely random - no matter how implausible that hypothesis seemed.  While Tabeb's popular books are very approachable... something I disliked about the narrative was that the protagonists were assumed to be oblivious to their own biases... and had no conception of the scope of their own analysis... which I found difficult to swallow.  If the BBC story about the number 53 is true... then the Italians in question don't even seem smart enough to fall for the fallacies I found implausible and assumed must be beneath just-about anyone's intellect.

Yes, Taleb does talk some nonsense between the self-praise. I have no 'street smarts' , and I would avoid 53 too. I even know someone from Brooklyn, but not called Tony. 

[ucnvpe0]

 

Creates deceptive biases that lead you to anticipate patterns that don’t really exist.

A worryingly common error that can derail many of our professional decisions, from a goalkeeper’s responses to penalty shootouts in football to stock market investments and even judicial rulings on new asylum cases.

BBC

I think HPI running on similar fallacy.

Nice post. Thanks 

[shlomo]

 

Maybe but if 95% of people on this board agree there is an issue, on income / HP there are 2 ways forward:

Income increases and HP remains stable : inflationary

Income remains stable and HP drops: deflationary

I will buy in 2021, I am more concerned of the first than the second.  I won't go all in and get the biggest mortgage I can but you've got the idea. 

If that were the only two impacts on the situation, you have masses of dodgy money being used to buy up london property, people who do not want to make a profit but do not want their wealth to decrease 

[shlomo]

 

Yes, Taleb does talk some nonsense between the self-praise. I have no 'street smarts' , and I would avoid 53 too. I even know someone from Brooklyn, but not called Tony. 

I even know someone out of Compton called ice 

[longgone]

Head over to the bitcoin thread for a inplay demo.

[dryrot]

The gamblers fallacy exists because in the normal world events are not random. That is, if it is rainy it will eventually stop, and every day of rain makes the sun more likely. A roulette wheel is a precision instrument designed to be random (and the odds give an edge to the house, of course)

Prof Schulls "Addiction by Design: Machine Gambling in Las Vegas" is informative and depressing in equal measure.

Wrt HPI, the table is rigged, not random. Those gambling on a crash should have a line to the controllers

 

[Byron]

How about a 'Dominium 'gambling machine?

[Huggy]

 

Head over to the bitcoin thread for a inplay demo.

Maybe don't go over there this evening. The price movements today have made us a little more animated than usual.

[winkie]

Say a driving examiner had to test six people ........would the last person tested have the same chance of passing if five previous people had passed?.......or would they have a better chance of passing if the previous five had failed?

[scb]

 

Say a driving examiner had to test six people ........would the last person tested have the same chance of passing if five previous people had passed?.......or would they have a better chance of passing if the previous five had failed?

But humans are not random and what you have now introduced is game theory. It’s why Deal or No Deal rarely gave away the top prize. Mathematically someone should have won ever 25 shows. In reality, human nature takes over and you accept the guaranteed amount. Human nature is to be risk averse.

 

Anyway, going back, a person bets in a number because it hasn’t appeared for a long time so it’s surely due to happen soon. Ask that same person if they want to fly Quantas who have never had a major disaster or Malaysia Airlines who have had the most major disasters. Using their theory Quantas are due a load of disasters so their planes should be dropping out of the sky, right? 

[Riedquat]

 

But humans are not random and what you have now introduced is game theory. It’s why Deal or No Deal rarely gave away the top prize. Mathematically someone should have won ever 25 shows. In reality, human nature takes over and you accept the guaranteed amount. Human nature is to be risk averse.

Not necessarily, there's mathematics and there's the goal you're trying to reach. Let's say we had computers playing Deal or No Deal, and they are programmed to maximise the payout over many games. The top prize would be paid out less than 1 in 25 because a degree of risk averseness is the way to go. Aiming for the top prize may get the most but probably won't.

When it comes to just playing one game it's actually more complicated because you can't average out over multiple ones so it becomes harder to define what the actual outcome you're aiming for should be. Personally I think I'd go with figuring out what the average payout over multiple games designed to maximise returns would be an accept anything bigger than that, but I'm not sure if you can really eliminate subjectivity at that point.

[Glenn]

 

Say a driving examiner had to test six people ........would the last person tested have the same chance of passing if five previous people had passed?

No difference in theory but (and its the same with MOTs) they are aware of what the national average pass rate is and know they might get a visit from an inspector if they differ significantly from that.