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The gambler’s fallacy prevails in lottery play

Author

Listed:
  • Brian Dillon

    (Cornell University)

  • Travis J. Lybbert

    (University of California)

Abstract

We use natural experiments in Haiti and Denmark to test recent theoretical predictions about how agents react to random events. Using player-level administrative data, we find that the average lottery player avoids numbers that recently won (the gambler’s fallacy). A small subset of players in each country exhibit the hot hand fallacy, and bet recent winners. We find no evidence of ‘streak switching,’ in which beliefs switch from the gambler’s fallacy to the hot hand fallacy as winning streaks grow. Follow-up survey data in Haiti indicate that almost all lottery players believe that some numbers are more likely to win than others, and that recent winning history is an important factor in subjective beliefs about numbers’ win probabilities.

Suggested Citation

  • Brian Dillon & Travis J. Lybbert, 2024. "The gambler’s fallacy prevails in lottery play," Journal of Risk and Uncertainty, Springer, vol. 69(1), pages 33-56, August.
    • Handle: RePEc:kap:jrisku:v:69:y:2024:i:1:d:10.1007_s11166-024-09434-6
    DOI: 10.1007/s11166-024-09434-6
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    More about this item

    Keywords

    Gambler’s fallacy; Hot hand fallacy; Lottery; Law of small numbers; Haiti; Denmark;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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