Gambler's fallacy vs Hot hand: two myths in opposite directions | Ludwig Explains

[00:00:00]A roulette wheel lands on red eight times in a row. Is black due?

[00:00:04]Your gut says yes. Your gut is wrong.

[00:00:07]This is the gambler's fallacy.

[00:00:09]The wheel has no memory. Each spin is independent. The probability of red is the same every time, about 47% on an American wheel.

[00:00:19]Eight reds in a row is unlikely, but every single spin individually is exactly as likely as it always was.

[00:00:26]Streaks don't use up the chance of an outcome. But now flip the script. A basketball player just hit four shots in a row. Is he hot? Are his odds higher on the next one?

[00:00:37]Most fans say yes. A famous 1985 paper by Gilovich, Vallone, and Tversky said no.

[00:00:44]The streaks were just randomness. The hot hand was a fallacy.

[00:00:48]That finding stood for 30 years. Then in 2018, two economists, Miller and Sanjurjo, spotted a subtle statistical bug in the original method. When you sample streaks the way Gilovich did, you systematically underestimate the conditional probability.

[00:01:05]Correct that bias, and the hot hand is real.

[00:01:09]Just smaller than fans claim. A few percentage point boost after a streak, detectable, modest, real. Two famous fallacies, they point in opposite directions.

[00:01:19]Gamblers, streaks reverse. Hot hand, streaks persist.

[00:01:24]The deep idea, independent events have no memory. Skill events do. The trick is knowing which one you're looking at.

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