Search Results (3)

In some instances, such as in sports, individuals will cheer on the player with the “hot hand”. But is the hot hand phenomenon a fallacy? The current research investigated (1) whether the hot hand fallacy (HHF) was related to risky decisions during a gambling scenario, and (2) whether metacognitive awareness might be related to optimal decisions. After measuring for baseline tendencies of using the hot hand heuristic, participants were presented with a series of prior card gambling results that included either winning streaks or losing streaks and asked to choose one of two cards: a good card or a bad card. In addition, we examined whether high metacognitive awareness—as measured by the ability to discriminate between correct and incorrect responses—would be negatively related to the risky decisions induced by the hot hand heuristic. The results showed that our predictions were partially supported. For winning streaks, individuals who had a weak tendency for using the heuristic exhibited fewer risky decisions with higher metacognitive awareness. However, those with a strong baseline tendency for using the hot hand showed no sign of decrease with metacognitive awareness. On the whole, the complex data suggest that further research on the HHF would be helpful for implementing novel ways of avoiding the fallacy, if needed. Full article

This paper innovatively analyses the joint occurrence of cognitive biases in groups of stock exchange investors. It considers jointly a number of common fallacies: confirmation bias, loss aversion, gambler’s fallacy, availability cascade, hot-hand fallacy, bandwagon effect, and Dunning–Kruger effect, which have hitherto been studied separately. The paper aims to highlight the diverse range of investor’s profiles which are characterised by such fallacies, and the considerable differences observed based on their age, stock market experience and perception of market trends. The analysis is based on k-means and hierarchical clustering, feature importance and Principal Component Analysis, which were applied to data from the Tehran Stock Exchange. There are a few essential findings which contribute to the existing literature. Firstly, the results show that gender does not have a role to play in diversifying the investors’ profiles. Secondly, cognitive biases are bundled, and we distinguish four investors’ profiles; thus, they should be analysed jointly, not separately. Thirdly, the exposure to cognitive biases differs significantly due to the individual features of investors. The group most vulnerable to almost all analysed biases are inexperienced investors, who are pessimistic about market developments and have invested a large amount. Fourthly, the ages of investors are essential only in connection with other factors such as experience, market perception and investment exposure. Young (20–40 years), experienced investors with huge investments (+1000 mln rials/+24,000 USD) are mostly less exposed to all biases and much less risk-averse. Additionally, older (50+) and experienced investors (5–10 years) who are more optimistic about trends (hot hand bias) were affected much less by cognitive biases, only showing vulnerability to the Dunning–Kruger effect. Fifthly, more than 40% of investors apply consultation and technical analysis approaches to succeed in trading. Finally, from a methodological perspective, this study shows that unsupervised learning methods are effective in profiling investors and bundling similar behaviours. Full article

Several articles have looked at factors that affect the adjustments of point spreads, based on hot hands or streaks, for smaller durations of time. This study examines these effects for 34 regular seasons in the National Basketball Association (NBA). Estimating a Seemingly Unrelated Regression model using all 34 seasons, all streaks significantly impacted point spreads and difference in actual points. When estimating each season individually, differences emerged particularly examining winning and losing streaks of six games or more. The results indicate both the presence of momentum effects and the gambler’s fallacy. Full article