Surprised by the Hot Hand Fallacy? A Truth in the Law of Small Numbers
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Abstract:
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 novel form of 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 long-standing conclusions of the canonical hot hand fallacy study are reversed.

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papers.ssrn.com/sol3/papers.cfm?abstract_id=2627354
Date: 23 November 2017, 13:00 (Thursday, 7th week, Michaelmas 2017)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room C
Speaker: Adam Sanjurjo (University of Alicante)
Organising department: Department of Economics
Part of: Department of Economics Seminar
Booking required?: Not required
Audience: Members of the University only
Editors: Erin Saunders, Anne Pouliquen