Why Winners Keep Winning

Jay Caspian Kang points to a recent study that “seems to confirm one of gambling’s most ubiquitous and destructive theories: the ‘hot hand‘”:

Juemin Xu and Nigel Harvey, the study’s authors, took a sampling of 569,915 bets taken on an online sports-gambling site and tracked how previous wins and losses affected the probability of wins in the future. Over all, the winning percentage of the bets was somewhere around 48 percent. Xu and Harvey isolated the winners and tracked how they fared in their subsequent bets. In bet two, winners won at a rate of 49 percent. From there, the numbers go haywire. A player who had won two bets in a row won his third bet at a rate of 57 percent. His fourth bet won 67 percent of the time, his fifth bet 72. The best gamblers in Las Vegas expect to win 55 percent of their bets every year. Seventy-two percent verges on omniscience. The hot hand, it appears, is real.

Why would that be? Kang explains:

What the research did find was that gamblers on streaks – good or bad – acted under the influence of the gambler’s fallacy. Winning bettors began placing more prudent bets because they assumed their luck would soon run out. Losers began placing bets with longer odds because they wanted to win big when their luck finally, inevitably changed. What this means is that streaky gamblers who win do so because they expect to lose, and streaky gamblers who lose do so because they expect to win. Or, more simply put, when you’re losing, you’re wrong, but when you’re winning, you’re also wrong.