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Gambler’s Fallacy: From the Definition to the Solution
Human psychology has its own way of flow! None can track it completely. Even if you get the highest academic degree possible in life swallowing a multitude of books, you will not be able to learn it properly. It will trick you all the time with its unprecedented alleys. There are numerous interesting facts about human psychology. One of them is Gambler’s Fallacy! Wait, dude! Before you tag me as a brand ambassador of any casino, let me tell you that it is not about the gambling game.
You might have heard about the term but do not have a clear idea about it. If it is so, then you are at the right place. Let’s discuss everything you need to know about the Gambler’s Fallacy. Get some interesting facts here that will blow your mind.
Gambler’s Fallacy: What on earth is this?
How many times have you assumed that the next flip of the coin will bring a “tail” as the previous ones brought “head”s consecutively? I am sure we all do this often. Our human mind tends to think in this way. This is what Gambler’s Fallacy is. It is a subconscious thought process in which a person assumes that an event is less likely or more likely to happen in the future if it has happened frequently or has not happened in the past respectively. In reality, every incident that happened on this earth is independent.
Although there may be cause-and-effect connections for some incidents, nothing is dependent on past events. So, if you are thinking that your 11th lottery result will bring you luck just because you lost your money in the last 10 results, you are the prey of the Gambler’s fallacy.
Gambler’s Fallacy: What the Psychology Says?
The psychological explanation of Gambler’s Fallacy is many. The two famous psychologists named Amos Tversky and Daniel Kahneman initially said that this fallacy is a result of a psychological heuristic, namely the representativeness heuristic. What is a psychological heuristic? Let us tell you.
It is a tendency to make quick judgments about anything to find the solutions. And representativeness heuristic refers to the tendency of making judgments about the probability of a thing at an uncertain condition. It can happen at any time, anywhere. The psychologists put it under the category of the flawed notions of judgments.
Gambler’s Fallacy: Why Such Name?
If we want to find the origin of the name, we have to go back to one of its famous instances. In 1913, an interesting incident took place at the Monte Carlo casino in Las Vegas. The roulette’s ball fell on black several times, and this made people over there believe that next time it would fall on red. So, people bet many a time on that prediction. But, unfortunately, it took the ball 27 times to fall on red. Thus, many people lost a high amount of money on that day due to the Gambler’s fallacy.
So, from here, the name came. It is also known as the Monte Carlo fallacy. This wrong understanding of probability often puts people in trouble. So, it is essential to know how to avoid it. After all, we can not go long in life with such a flawed notion of probability. We cannot put our successes and failures at stake due to a fallacy. However, we will here discuss how to avoid this fallacy. But, before we delve into the solution, let’s know the problem a bit more.
The Different Variations of Gambler’s Fallacy
According to many researchers, there are two types of Gambler’s Fallacy- Type one and Type two. Type one defines the assumption in which people think that an incident will happen only because its alternative has happened frequently in the past. And type two is about the thought process in which a person wrongly determines the number of observations to detect a favorable outcome.
For example, one watches the game of roulette’s ball for a certain length of time and bets on the numbers that frequently came. It is likely to fail to bring the desired result, as such highly random events ask for too much observation for a long time. And practically, it is next to impossible. Only a few observations and quick judgment following it may lead to failure to achieve that desired result. Gideon Keren and Charles Lewis proposed the type two variation.
Another interesting variation is the Retrospective Gambler’s fallacy. In this fallacy, one assumes that a particular thing happens now because it has not happened for a long time in the past. When one becomes the prey of this fallacy, he or she is likely to draw interference to the unknown past events based on the known present events. For example, if someone finds a colin flip to bring “tail,” he or she may assume that previously all of the results were”heads.” It is called retrospective Gambler’s Fallacy.
The hot-hand fallacy is another variation of Gambler’s fallacy. It is a flawed thought that if something is happening around for a long time, similar things will likely happen in the future. For example, if someone has got the 6 twice on the rolls of a dice, the hot-hand fallacy may let him think that he may get another 6 at the third roll. But in reality, each roll of dice is independent.
Gambler’s Fallacy and its Influence on the Investors
The fallacy is likely to influence the investors very much. When it comes to investing in the stock market, investors often connect past events with present events. They often think the stock will lose or gain value just because the opposite has taken place previously multiple times. Many people tend to believe that a position is likely to decline after a successive series of gains in the stock market.
However, this is another example of Gambler’s fallacy or Monte Carlo fallacy. And due to this notion, investors often liquidate a position after seeing it going up after a long series of trading sessions. In this way, many investors lose their assets or get low profit out of their investments.
So, instead of falling for Gambler’s fallacy, focus on the current status of the market and have a detailed analysis of the previous results. It will help you more to get the right direction to invest and achieve maximum profit.
Gambler’s Fallacy: How to Avoid It?
Enough of the problems! Let’s talk about the solutions now! To avoid tye fallacy, you first have to be aware of it. We can hope that you are well aware of it, after reading the article till now. You have to keep in mind that it is a problem that occurs often, and you are not the only one facing it. Once you are aware of it completely, follow some debiasing techniques to reduce the biases.
Believe that Every Fact is Independent:
Yes, you have to internalize the concept that every fact that happens is independence without influencing the past on it. Murmur it in your mind, and it will thus stick to your consciousness gradually.
One of the best solutions is to avoid Gambler’s fallacy by asking questions about the past influence on the probability. For example, if you take a dice or a coin and expect to get a six or a tail after the opposite events occurred in the past, simply ask these questions. The questions are:
- How far can the previous rolls of dice or flipping of a coin influence the future rolls?
- Can the dice or the coin remember their previous rolls or flips?
Explain the Scenario:
You can explain the scenario to your friend or yourself. It will help to get the facts clear out of your head. Instead of thinking through the incidents, it is always better to discuss to avoid any fallacy.
Except for these techniques, the general debiasing techniques like slow yet steady decision-making process, slowing down reasoning, etc.
Summing it Up
When it comes to studying human psychology, we find nothing more astonishing than it. Gambler’s fallacy is one of the interesting psychological factors we discussed. We hope you enjoyed reading it. Next time you fall for this fallacy, keep the tips in mind to get out of it. If you have any more interesting information about human psychology, share it with us! The comment box is all yours!
If you are interested to know more about human psychology, you may read about lab-induced hallucinations. Although it is considered to be a psychological disorder, it often helps to treat different problems. Click here to learn how it happens.