Author Abstract
Recent papers have demonstrated that the way people acquire information about a decision problem, by experience or by abstract description, can affect their behavior. We examine the role of experience over time in the emergence of the Gambler's Fallacy in binary prediction tasks. Theories of the Gambler's Fallacy and models of binary prediction suggest that recency bias, elicited by experience over time, may be necessary for the fallacy to emerge. Experiment 1 compares a condition where participants sequentially predict the colored outcomes of a roulette wheel with a condition where the wheel's past outcomes are presented all at once. Subjects are yoked so that the same history of outcomes is observed in both conditions. The results reveals a tendency towards negative recency when outcomes are experienced that disappears when the same outcomes are presented all at once. Experiment 2 examines a boundary condition where outcomes are presented sequentially in an automatic fashion without intervening predictions. Here too, the Gambler's Fallacy emerges suggesting that it is the mere presentation of information over time that gives rise to the bias. Implications are discussed.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: September 2008
- HBS Working Paper Number: 09-029
- Faculty Unit(s): Negotiation, Organizations & Markets