Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Nov, 2018, Volume 86, Issue 6

Surprised by the Hot Hand Fallacy? A Truth in the Law of Small Numbers

https://doi.org/10.3982/ECTA14943
p. 2019-2047

Joshua B. Miller, Adam Sanjurjo

We prove that a subtle but substantial bias exists in a common measure of the conditional dependence of present outcomes on streaks of past outcomes in sequential data. The magnitude of this streak selection bias generally decreases as the sequence gets longer, but increases in streak length, and remains substantial for a range of sequence lengths often used in empirical work. We observe that the canonical study in the influential hot hand fallacy literature, along with replications, are vulnerable to the bias. Upon correcting for the bias, we find that the longstanding conclusions of the canonical study are reversed.


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Supplement to "Surprised by the Hot Hand Fallacy? A Truth in the Law of Small Numbers"

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