Gamblers Fallacy

Some Critical Thinking on the Gambler’s Fallacy

You’re getting ready to put some money on a match-up between the Los Angeles Lakers and Denver Nuggets. The Nuggets have lost to the Lakers the last three times they met and this is the final game of the regular-season series. You decide to put your money on Denver because they are “due” to win. You figure, “The Nuggets can’t lose four straight times to the same team, it’s got to even out at some point.”

Or maybe before the start of the MLB season you’re looking to throw some cash down on the Tampa Bay Rays to win the American League Pennant, but you decide not to because of how unlikely it is for a team to win two league championships in a row.

The fact is that the Nuggets may beat the Lakers and the Rays may not repeat as American League champs, but the reasoning used in both examples is fallacious, representing what’s called the Gamblers’ Fallacy. A fallacy is a defect in an argument, resulting in the argument being invalid, weak or unsound. The Gambler’s Fallacy occurs when someone makes the assumption that what happens in the long run or on average will be corrected or adjusted in the short term.

This is the way that it works.
1. X has occurred.
2. X does not coincide with what is expected to happen on average or over the long run.
3. Thus, X will not occur this time.

The Gambler’s Fallacy is based on the idea that something is due to happen and the reason it’s due to happen is that eventually things even out. This misconception is based on connecting independent phenomenon as a string of related events.

In the first example that features the Denver Nuggets and the Los Angeles Lakers, the four-game regular-season series between the two NBA teams is seen as being a battle between the law of averages. If you came to the same basic conclusion that the Nuggets would beat the Lakers the fourth time around, but it was based on match ups, statistical analysis, fatigue and injury factors and other elements that can control the outcome of a game, then you’d be making a sound bet. But betting on a team because they are or are not due does not constitute sound betting practices.

The example concerning the difficulty of a team repeating is a common one. And although it sounds logical, it isn’t. It is true that it’s rare for clubs to repeat as champions, but that rarity has little to do with the likelihood of winning two titles in a row and more to do with the changing currents that make each baseball season unique.

The fact is that teams don’t repeat for a conglomeration of reasons that make it tough to do so. Influencing factors include injuries, changing personnel and the improvement of other teams within the division and league, as well as many other issues.

Relying on the Gambler’s Fallacy to make your wagering decisions instead of doing your research and analysis is simply lazy gambling. Doing so will undercut your chances of winning and making money. Remember that the New York Yankees have won the AL flag three or more years in a row nine times! Plus, they won the pennant five straight years from 1949-1953 and from 1960- 1964. They did it not because of some cosmic break in a trend regarding the law of averages but because they put the best team on the field each time.