Is the Gambler's Fallacy Really a Fallacy?

9 Pages Posted: 15 Nov 2006

See all articles by John A. Nyman

John A. Nyman

University of Minnesota - Twin Cities - Division of Health Policy and Management

Date Written: November 13, 2006

Abstract

This paper suggests that the behavior characterized as the gambler's fallacy can be rational, even though it appears to be contradicted by theory. It suggests that a gambler exhibiting this behavior may not be increasing a wager in response to a fallacious increased conditional probability of a marginal outcome occurring in a series of wagering opportunities (events), but instead wagering on the correct probability of a series of outcomes occurring. The gambler might simply be constrained by the mechanics of the game to bet on a series by making a wager on the marginal event. A simulation shows that such behavior is rational because it results in positive winnings, even though the theoretical gain from a gambler's fallacy perspective is $0. This motive is similar to the motive behind the behavior associated with the St. Petersburg paradox. Both are linked to the concept of luck.

Keywords: gambling, gambler's fallacy, St. Petersburg paradox

JEL Classification: D81

Suggested Citation

Nyman, John A., Is the Gambler's Fallacy Really a Fallacy? (November 13, 2006). Available at SSRN: https://ssrn.com/abstract=944573 or http://dx.doi.org/10.2139/ssrn.944573

John A. Nyman (Contact Author)

University of Minnesota - Twin Cities - Division of Health Policy and Management ( email )

Division of Health Services Research
516 Delaware St SE
Minneapolis, MN 55455
United States
612-626-4425 (Phone)
612-624-2196 (Fax)

HOME PAGE: http://www.sph.umn.edu/Faculty/Nyman.htm

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