A Subjective Theory of Belief in the Gambler's Fallacy

Jawwad Noor and Fernando Payró Chew

No 1588, Working Papers from Barcelona School of Economics

Abstract: Studies suggest that people often believe that random processes exhibit reversion to the mean, regardless of the size of the sample. In a canonical coin-tossing environment, a belief in mean reversion towards some bias θ∗ is straightforward to define if it is assumed that the tosses are objectively i.i.d. with bias θ ∗ . In this paper we define and represent a belief in mean reversion without assuming the existence of an objective random process. This decouples the notion of a belief in mean reversion from the notion of misspecified beliefs that is predominantly used in the literature.

Keywords: belief biases; gambler’s fallacy; mean reversion (search for similar items in EconPapers)
JEL-codes: D01 D9 (search for similar items in EconPapers)
Date: 2026-07
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