Surprised by the Gambler's and Hot Hand Fallacies? A Truth in the Law of Small Numbers

@article{Miller2016SurprisedBT,
  title={Surprised by the Gambler's and Hot Hand Fallacies? A Truth in the Law of Small Numbers},
  author={Joshua Benjamin Miller and Adam Sanjurjo},
  journal={Behavioral \& Experimental Finance eJournal},
  year={2016}
}
We prove that a subtle but substantial bias exists in a standard measure of the conditional dependence of present outcomes on streaks of past outcomes in sequential data. The magnitude of this novel form of selection bias generally decreases as the sequence gets longer, but increases in streak length, and remains substantial for a range of sequence lengths often used in empirical work. The bias has important implications for the literature that investigates incorrect beliefs in sequential… 

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March Madness? Underreaction to Hot and Cold Hands in NCAA Basketball

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