Decision-Making Under the Gambler's Fallacy: Evidence from Asylum Judges, Loan Officers, and Baseball Umpires

60 Pages Posted: 15 Dec 2014 Last revised: 22 Mar 2016

Daniel L. Chen

University of Toulouse 1 - Toulouse School of Economics Institute for Advanced Studies/Harvard Law School LWP; Harvard Law School

Tobias J. Moskowitz

Yale University, Yale SOM; AQR Capital; National Bureau of Economic Research (NBER)

Kelly Shue

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 12, 2016

Abstract

We find consistent evidence of negative autocorrelation in decision-making that is unrelated to the merits of the cases considered in three separate high-stakes field settings: refugee asylum court decisions, loan application reviews, and major league baseball umpire pitch calls. The evidence is most consistent with the law of small numbers and the gambler’s fallacy – people underestimating the likelihood of sequential streaks occurring by chance – leading to negatively autocorrelated decisions that result in errors. The negative autocorrelation is stronger among more moderate and less experienced decision-makers, following longer streaks of decisions in one direction, when the current and previous cases share similar characteristics or occur close in time, and when decision-makers face weaker incentives for accuracy. Other explanations for negatively autocorrelated decisions such as quotas, learning, or preferences to treat all parties fairly, are less consistent with the evidence, though we cannot completely rule out sequential contrast effects as an alternative explanation.

Keywords: gambler's fallacy, law of small numbers, decision-making

JEL Classification: D03, G02, D8

Suggested Citation

Chen, Daniel L. and Moskowitz, Tobias J. and Shue, Kelly, Decision-Making Under the Gambler's Fallacy: Evidence from Asylum Judges, Loan Officers, and Baseball Umpires (January 12, 2016). Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2538147 or http://dx.doi.org/10.2139/ssrn.2538147

Daniel L. Chen

University of Toulouse 1 - Toulouse School of Economics Institute for Advanced Studies/Harvard Law School LWP ( email )

21 allée de Brienne
31015 Toulouse cedex 6 France
Toulouse, 31015
France

Harvard Law School ( email )

8 Mt. Auburn St., 1st Floor
Cambridge, MA 02138
United States

Tobias J. Moskowitz

Yale University, Yale SOM ( email )

New Haven, CT 06520
United States

HOME PAGE: http://som.yale.edu/tobias-j-moskowitz

AQR Capital ( email )

Greenwich, CT
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kelly Shue (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://https://sites.google.com/site/kellyshue/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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