Hot Hands in Basketball and Equilibrium
University of Melbourne; Financial Research Network (FIRN)
Interdisciplinary Center (IDC) Herzliyah - Arison School of Business; University of Pennsylvania - The Wharton School
August 1, 2008
EFA 2006 Zurich Meetings
Past literature suggests that success rates in professional basketball are independent of past performance and has been interpreted as evidence that the commonly-shared belief in Hot Hands (HH) is a cognitive illusion. This is often cited as evidence of biased decision-making even when financial stakes are high. We argue that this interpretation ignores changes in both teams behavior after the detection of an HH player. We derive testable hypotheses that differentiate between HH as a real phenomenon and a cognitive illusion. Analyzing an entire NBA season, our results are consistent with HH being a real phenomenon.
Number of Pages in PDF File: 58
Keywords: hot hand, basketball, equilibrium
JEL Classification: D01, D59, D79
Date posted: February 23, 2006 ; Last revised: September 9, 2008
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