THE HOT-HAND FALLACY: AN INVESTIGATION OF COGNITIVE BIASES IN SPORTS, FINANCE AND GAMBLING

Abstract

Previous studies have researched the hot-hand fallacy and how it affects people’s cognitive decision making process. This investigation will look to understand their findings better and bring the misconception to light. The hot-hand fallacy is the illusion that past successes have an influence on future events. Using this bias to influence future decisions is not backed up by data nor statistics and can cause people to make decisions that are not optimal. Sports, finance and gambling are three major fields where the hot-hand fallacy has been observed through many studies and experiments. By getting a better understanding of the topic at hand, it will help people be more educated and aware of the possible biases they use when making decisions. This study explores possible ways to mitigate the effect the hot-hand fallacy has on decision making in sports, finance and gambling.