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

Quarterly Journal of Economics, Vol. 131, No. 3, Pages 1181-1241, 2016

60 Pages Posted: 15 Dec 2014 Last revised: 16 Dec 2020

Daniel L. Chen

Directeur de Recherche, Centre National de la Recherche Scientifique, Toulouse School of Economics, Institute for Advanced Study in Toulouse, University of Toulouse Capitole, Toulouse, France

Tobias J. Moskowitz

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

Kelly Shue

Yale School of Management; National Bureau of Economic Research (NBER)

There are 3 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: Suggested Citation

Chen, Daniel L. and Moskowitz, Tobias J. 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). Quarterly Journal of Economics, Vol. 131, No. 3, Pages 1181-1241, 2016, Available at SSRN: https://ssrn.com/abstract=2538147 or http://dx.doi.org/10.2139/ssrn.2538147