Hey what’s up guys! I’m Kathy Gibbens, and…Are you ready to learn a new fallacy today? Let’s get right to it!
Today’s fallacy is called the Gambler’s Fallacy. The Gambler’s Fallacy happens when someone tries to predict the outcome of what is actually a random event by looking at past outcomes. I know, that sounds a little confusing. Let me give a few examples and it’ll make more sense.
Let’s say someone is flipping a coin. They flipped the coin 5 times and got ‘heads’ all 5 times. They’ll commonly say something like this: I’m sure the next one will be ‘tails’ b/c there’s no way I could get 6 heads in a row.
Ok, so let’s break this error in thinking down a bit. Each time you flip a coin, the chances are always the same: 50/50. There’s a 50% chance you’ll get heads and 50% chance you’ll get tails. So you’ve flipped the coin 5 times and gotten heads each of those times, that doesn’t mean that the 6th time you flip the coin that you have different odds! You don’t now have a 90% chance of getting tails just b/c the previous 5 flips were heads - it’s still, and will always be, just a 50/50 chance of getting tails.
The Gambler’s Fallacy happens b/c the human brain is trying to make connections. It’s trying to assign cause & effect…only in this scenario, it’s a faulty cause & effect. A legitimate cause & effect would be: I see dark clouds in the sky so I think it’s going to rain. Those two things are legitimately correlated, so this wouldn’t be a fallacy. The fallacy happens when I attempt to predict an outcome of things that are actually not related and are in fact, random.
The thing to remember with this fallacy is that it’s only applicable to events that are statistically random, like rolling the dice, flipping a coin, and...in gambling games. Now, hopefully you’re not a gambler, but, quite frankly, that’s where this fallacy came from! In fact, it has also been called the Monte Carlo fallacy b/c that was the name of one of the casinos in Las Vegas where this fallacy was first observed back in 1913.
Here’s what had happened: At the roulette table, the roulette wheel's ball had fallen on black several times in a row. This led people to believe that it would surely fall on red soon, so they started pushing their chips, betting that the ball would fall on a red square on the next roulette wheel turn. Would you believe that it took 27 turns for the ball to finally land on a red square!! And by that time, millions of dollars had been lost! It’s b/c people didn’t understand that each roll was unique and had its own set of statistics & probabilities.
Another place we see this fallacy play out is in investing. Unskilled investors often commit the gambler's fallacy when they believe that a stock will lose or gain value after a series of trading sessions with the exact opposite movement. For example, a stock could go up over the course of several days or weeks. The investor could start to get nervous, thinking, “well, it can’t go up forever, I’d better sell before it starts going down again.” The reality is, if they aren’t skilled, they have no idea whether the stock will go down or continue to go up..and even if they ARE skilled, they can’t always predict what the stock will do. But basing their prediction that the stock will go down just b/c it’s been going up is committing the Gambler’s Fallacy.
Question to ask yourself if you find yourself leaning toward the Gambler’s Fallacy is this: “Is this outcome statistically random? If so, there can be no probability build-up.” *repeat*
Alright, join me next week when I’ll be starting a mini-series on manipulation tactics - how to recognize them so you can avoid getting manipulated by them. I’m super excited about this
Remember: When you learn HOW to think, you will no longer fall prey to those who are trying to tell you what THEY want you to think and it all starts with asking one simple question: “Is that really true?”
