When someone is successful over and over we continue to believe that they are likely to be successful again in further attempts. This is what is referred to as the hot hand phenomenon.
The hot hand phenomenon used to be considered a cognitive bias but is now considered more of a fallacy. The difference between the two is that cognitive biases are beliefs that are rooted in the way the brain actually works. Where a fallacy happens because of a failure in reasoning or flawed logic to support a particular point of view.
This phenomenon is particularly focused on the sports industry where if a player has had repeated success at scoring, there is an assumption that they will continue to be successful. Other terms we refer to this to is as being in the zone, in rhythm or on fire.
In reality, a study by Standard University who examined thousands of games found that actually the probability of a successful shot does not depend on the shots that come before.
To say someone has “hot hands” is that player is on a streak particularly in basketball
What is actually going on is that people confuse the difference between chance and averages.
Examples of where this fallacy occurs
Most often the hot hand fallacy is referenced in sports, this could be basketball like the Standard University study but it can also happen in any number of sports. For example, a goal keeper saving penalties in football or a golf player making birdies on the previous holes will continue their lucky streak in the round of golf. What happens `
As well as sports it can happen in gambling and trading. In gambling, the common example is when someone is on a wining streak instead of cashing in on their good luck they continue playing, often to find their luck expires and they lose what they’ve gained. This also ties into the Monte Carlo fallacy. With both biases, the hot hand or Monte Carlo fallacy (also known as the Gambler’s Fallacy) what is happening is that we are looking for a hidden order to justify why it happens.
As well as having “hot hands” there is also the belief of cold hands, that if someone is on losing streak they will stop betting, gambling or decrease their wagers because they assume that further bets will have the same outcome of lost.
Why it happens and how to avoid it
Randomness and chance is not something that we are comfortable accepting, instead we seek to find trends and patterns to justify why things happen in the world. We are also basing our decisions on a small-sample size, by only looking at the small sample-size we fail to see the bigger picture.
We should instead look at this wider picture and try make predictions based on larger samples of data. By looking at more data we should see less patterns and are therefore less likely to belief that because something happen multiple times we should continue investing in it.
If we don’t take this wider view on events and evaluate our decisions more carefully then we run the risk of making a poor decision based on a hot hand rather than an informed decision.