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

Joshua B. Miller and Adam Sanjurjo

Econometrica, 2018, vol. 86, issue 6, 2019-2047

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 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.

Date: 2018
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