Gambler’s Fallacy: Definition, How It Works, Causes, Effects and How to Overcome It
The gambler’s fallacy is the belief that a player can predict the outcome of their next bet by analysing the previous outcomes. Rather than looking at the probability of that single game, they instead look at the outcomes of previous games to try and determine the next winning bet. The gambler’s fallacy has been around since 1796 when men tried to predict the sex of their baby before birth and used the number of other boys born as an indicator of how likely they were to have a son or daughter. Then, in 1913, the Monte Carlo Casino roulette game highlighted the gambler’s fallacy as the ball landed on black 26 times. This winning streak on black had many players betting on red and put them on a losing streak.
Ultimately, the gambler’s fallacy is a behavioural issue which is caused by players believing that outcomes are more easily predicted with a smaller sample set rather than a larger sample set of outcomes. The effects can be individual or systemic as players base future outcomes on previous outcomes or use projections of what they think the outcome should be to make a prediction.
What is the Gambler’s Fallacy?
The gambler’s fallacy describes cognitive behaviours of decision making. Those who have fallen prey to the gambler’s fallacy will try to predict a future outcome based on previous outcomes, even when the events are not linked and have individual probability. It can also affect decision making if the person believes there is a quota or projection that must be met. However, the gambler’s fallacy is that future outcomes cannot be predicted as each event is random and has no relation to previous events.
What is the history of the gambler’s fallacy?
The history of the gambler’s fallacy dates back to 1796 as it was first written about in ’A Philosophical Essay on Probabilities’ by Pierre-Simon Laplace. This theory on the gambler’s fallacy looked at how men calculated their likelihood of having a boy. The men would consider how many boys has been born in that month when they were to become a father. The more boys that were born that month, the more they felt it decreased their chances of having a boy too and increased their chances of having a girl. To them, the births of boys and girls should be an equal rate of 50/50. This gambler’s fallacy continues today with many parents believing that if they have already had multiple children of the same gender, that the next child to be born will be the opposite.
While this is one of the earliest depictions of gambler’s fallacy recorded, it is a human behaviour that has likely existed long before. It is still very much present in the world of gambling today whether this be thinking that the ball will have to land on red after a long winning streak on red or that the next spin of a slot reel must result in a win as it has not paid out in a long time. Gambling is one of the most common areas where you will find the gambler’s fallacy acted upon.
The gambler’s fallacy example
An example of the gambler’s fallacy is the Monte Carlo Casino roulette game in 1913. On August 8th, the roulette wheel spun and the ball landed on black 26 times in a row. As roulette is a random game, the likelihood of this happening was around 1 in 66.6 million. However, each spin of the roulette wheel produces random outcomes and not impacted by the last spin. The gambler’s fallacy meant that many decided to continually bet on red thinking that the streaks would end. Many lost millions of francs due to this incorrect bias that the next spin had to land on red. In reality, each time the ball landed, there was a 50/50 chance that it would land on black. This is why the gambler’s fallacy is also sometimes referred to as the Monte Carlo fallacy.
What Is the Cause of the Gambler’s Fallacy?
The cause of the gambler’s fallacy is thinking that smaller sample sets are representative of larger sample sets of outcomes. This is a behavioural issue where people try to guess betting patterns based on previous outcomes or random events, even when the event outcomes are not linked.
And the effects?
The effects of the gambler’s fallacy are the individual effects and the systemic effects that can happen.
Individual effects
When deciding something that may or may not happen in the future, most individuals will consider past events which are related. Many do this as previous events can be viewed as a cause or suggestion of how a future event will play out. While this is the correct view to take for events that are related, it can be a problem for events that we view are related but in actuality are not. Players may look at a slot game that has not paid out in a long time and correlate that to a future spin where it will pay out a large win soon. However, this can cause players to overestimate how successful their future spins may be as the previous independent spins do not have any direct effect on future spins. Slot games are spun randomly, so the gambler’s fallacy can result in players using the wrong indicators to assume a winning spin will occur soon.
Systemic effects
Systemic effects of the gambler’s fallacy look at the implications that may arise from institutions or professions where they use projections and analysis. Many may not even realise that they are doing this as they automatically flip the coin i their decision making. For example, a driving instructor may fail a student after a borderline issue on the test as they have already passed a higher number of students than normal that day. This is done as they may, mistakenly, think that it is unlikely to have all students that day pass their drivers test. However, the sequence of learners is random and a very good learner driver on the previous test has no indication of how the next learner driver will perform.
How to Overcome the Gambler’s Fallacy?
To overcome the gambler’s fallacy, people can use education and awareness, embracing probabilistic thinking, seeking others advice and self-reflection.
Education and awareness
Before you can overcome gambler’s fallacy, you should first know what it is and education is key. Understanding how it can influence your decision making and becoming aware of how it works will help to ensure you do not fall victim to the gambler’s fallacy.
Embrace probabilistic thinking
Embracing probabilistic thinking can help players overcome gambler’s fallacy. This can help players look at each event individually and assess what the outcome could be, rather than basing the probability and outcome on previous outcomes. Players can use this to make more rational decisions in their gambling.
Seek others advice
To help combat gambler’s fallacy, players should seek a range of diverse opinions. Asking others for advice can help them better reason with themselves and if they need to place another bet to chase wins or losses.
Self-reflection
If you feel that you may be falling into the gambler’s fallacy, then self-reflection is one of the easiest ways to combat this. Most are not even aware that they are doing this, so simply acknowledging that you may have a gambler’s fallacy issue is the first step to overcoming it. Take time to look at your past decisions and asses the thought process behind your gambling actions. Using this self-reflection will help players make better decisions in the future.
FAQs
Does the gambler’s fallacy apply to roulette?
Yes, the gambler’s fallacy can apply to roulette. Each spin of the roulette wheel is a 50/50 chance and the previous spin has no impact on the next spin, even if there is a winning streak.
Can the gambler’s fallacy cause financial losses in roulette?
Yes, the gambler’s fallacy can cause financial losses in roulette. If players try to determine the outcome of the next roulette wheel spin based on the last rounds and fail to consider the wheel’s randomness, this could lead to financial losses as they have no connection and each spin is a 50/50 chance.
Does the gambler’s fallacy encourage players to chase losses in roulette?
Yes, the gambler’s fallacy can encourage players to chase losses in roulette. If they are on a streak of losses, they may bet past their budget using probability misconception and trying to calculate the outcome of a future spin.
Does the gambler’s fallacy prevent players from stopping at a profit?
Yes, the gambler’s fallacy may prevent players from stopping at a profit as they may try to guess the next winning spin probability based on the previous roulette wheel spins.