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Investment Trios Are Less Prone to the Hot Hand and Gambler’s Fallacies and Make Better Investment Strategies

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  • Pamela Denice Arao
  • Seanne Veniene Esguerra
  • Cris Jon Quinalayo

Abstract

An experimental study was conducted to determine the minimum group size for which the mitigating effect for the hot hand and gambler’s fallacies can be felt. This is quantified by looking if groups are as prone to the hot hand and gambler’s fallacies in making decisions as their individual counter parts. Results suggest that groups maximize their investment returns better than individuals as the former choose to decide on their own more and rely on the experts’ opinions less. Triads are the least biased with the hot hand and gambler’s fallacies and thus are able to make more rational decisions and consequently maximize their investments better than the other treatments.These data allowed us to recognize the benefits of forming investment clubs consisting of three members since their decisions are more likely in line with the profit maximizing strategy in comparison with the decisions made by pairs and individuals.

Suggested Citation

  • Pamela Denice Arao & Seanne Veniene Esguerra & Cris Jon Quinalayo, 2021. "Investment Trios Are Less Prone to the Hot Hand and Gambler’s Fallacies and Make Better Investment Strategies," European Journal of Interdisciplinary Studies Articles, Revistia Research and Publishing, vol. 4, May - Aug.
    • Handle: RePEc:eur:ejisjr:203
    DOI: 10.26417/ejis.v4i2.p123-146
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    1. Gianmarco I. P. Ottaviano & Giovanni Peri, 2021. "Rethinking The Effect Of Immigration On Wages," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 9, pages 245-290, World Scientific Publishing Co. Pte. Ltd..
    2. Gianmarco I. P. Ottaviano & Giovanni Peri, 2016. "Rethinking The Effect Of Immigration On Wages," World Scientific Book Chapters,in: The Economics of International Migration, chapter 2, pages 35-80 World Scientific Publishing Co. Pte. Ltd..
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    Keywords

    Investment; hot hand; gambler; profit;
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