Abstract

https://ssrn.com/abstract=2538147
 


 



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


Daniel L. Chen


Toulouse School of Economics / The Institute for Advanced Study in Toulouse/ LWP, HLS; Harvard Law School

Tobias J. Moskowitz


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

Kelly Shue


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

January 12, 2016

Fama-Miller Working Paper

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.

Number of Pages in PDF File: 60

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

JEL Classification: D03, G02, D8


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Date posted: December 15, 2014 ; Last revised: March 22, 2016

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

Contact Information

Daniel L. Chen
Toulouse School of Economics / The Institute for Advanced Study in Toulouse/ LWP, HLS ( 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
AQR Capital ( email )
Greenwich, CT
United States

University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-2757 (Phone)
773-702-0458 (Fax)

Chicago Booth School of Business Logo

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/

Chicago Booth School of Business Logo

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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