The simple math mistake that can lead to bankruptcy


Whatever the reason for these misconceptions, subsequent research has revealed that player error can have serious consequences far beyond the casino. Bias seems to be present in stock transactions, for example. Many short-term changes in stock prices are essentially random fluctuations, and Matthias Pelster of the University of Paderborn in Germany has shown that investors will base their decisions on the belief that prices will soon “balance out.” So, like the Italian lottery players, they trade for a streak. “Investors should, on average, trade equally ‘in line’ with the streak and against it,” he said. “Yet that’s not what we can see in the data.”

Gamer fallacy is a particular problem in the very professions which specifically require balanced and impartial judgment.

A team of researchers recently analyzed the decisions of American judges whether or not to grant asylum to refugees. Logically speaking, the order of the cases shouldn’t matter. But in line with player error, the team found that judges were up to 5.5% less likely to grant a case if they had granted the previous two cases – a serious drop from the rate of average acceptance of 29%. Consciously or not, they seemed to think that the odds of having the same judgment three times in a row were just too low, and therefore they were more inclined to break the streak.

The researchers then analyzed the bank staff reviewing the loan applications. Again, the order of the requests made the difference: Loan officers were up to 8% more likely to reject an application after they had already accepted two or more in a row – and vice versa.

As a final test, the team analyzed the decisions of the umpires in Major League Baseball games. In this case, the umpires were about 1.5% less likely to call a pitch a strike if the previous pitch was also called a strike – a small but significant bias that could make all the difference in a match. Kelly Shue, one of the study’s co-authors, says she was initially surprised at the results. “Because they are professionals and they make decisions within the framework of their main occupation,” she says. But they were still vulnerable to bias.


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