A guide to gambler’s fallacy

If you’ve ever seen any Hollywood film about gambling or betting, the chances are that at least one of its themes was gambler’s fallacy. From Rounders to Uncut Gems and via Molly’s Game, they have all had characters that have fallen victim to the aforementioned fallacy. But what does it actually mean? Continue reading to find out, as well as the different types of gambler’s fallacy and how to avoid it.

What is a gambler’s fallacy?

Also known as the Monte Carlo fallacy, a gambler’s fallacy is the false belief that past events can influence those in the future. More specifically, it’s when a gambler expects a reversal in fortune after a long run of one outcome. So after a series of wins, they come to expect a loss or after a prolonged series of losses, expecting a win.

The simplest way of explaining a gambler’s fallacy is using a coin toss. If after three outcomes of “heads”, a gambler’s fallacy believes that the fourth toss will result in “tails” just because “it’s due”, “it’s time”, or “it’s bound to happen” to even out the series.

How the Monte Carlo fallacy applies to sports betting

In a sports betting context, the gambler’s fallacy would be to connect events that are entirely independent of reality. For example, imagine that the Pittsburgh Penguins started the NHL season 0-4.

Jack, a casual sports bettor, uses this poor form as his basis for wagering on the Penguins in their next match-up against the Colorado Avalanche. In his estimation, the Penguins are “due” a win, given their run of four successive losses. In this case, Jack has succumbed to the gambler’s fallacy, i.e., he has allowed past events to influence his bets on those in the future. That’s not to say that bets for or against the Penguins should be avoided. No, far from it.

On the one hand, betting on the Penguins to win because the Avalanche is a poor team is a sound analysis. Similarly, so is betting on the Penguins to lose because the Avalanche are a strong team.

As a series of events such as NHL games are independent from one another, then by definition the outcome of one or more games cannot influence or predict the outcome of the next event.

Is the gambler’s fallacy the same as the “hot hand” theory?

No. Rather, they’re more like cousins. Similar to Reggie Miller being “on fire” in NBA Jam, the hot hand phenomenon is also a fallacy, but one where we believe a series of successful events, e.g., four successful three-pointers, will continue.

Whereas the gambler’s fallacy applies when we expect a reversal of outcomes, not for a certain outcome to continue. In this case, if Reggie Miller had missed four three-pointers, a gambler’s fallacy would be to make a live in-game bet that he’ll make the next one just because it’s bound to happen.

How to avoid the gambler’s fallacy in sports betting?

In sports betting, punters can avoid the gambler’s fallacy by staying away from the belief that previous occurrences are an indicator of future outcomes. “Staying away” from the fallacy means that sports bettors like Jack should instead invest in independent research, including studying factors like team news, match ups, injuries, etc.

Some other strategies that are far removed from the Monte Carlo fallacy include:

Studying about randomness - simple education on random events can make punters less prone to the gambler’s fallacy. One such technique is to internalise the independence of different events, such as the roll of dice.
Using bankroll management - by investing in bankroll management, sports bettors can modulate their betting patterns rather than letting irrational/illogical outcomes influence them.
Studying standard deviation - if you want to make better sense of a large data spread, you need to factor in standard deviation. Case in point, Jack is evaluating two teammates, who are both strikers, based on their scoring averages. Although they might have the same average, one could have a higher standard deviation than the other. This usually indicates that the former is more inconsistent in front of goal, while the latter is more reliable. Therefore, the standard deviation can help identify how well a player performs on average and how predictable their performance is, which is great for planning wagers such as prop bets.
Finding expected value - by beating the closing line in sports betting, punters like Jack can extract expected value (EV) in his wagers. The more knowledge he has on a sports match-up, such as monitoring the closing line and EV, the less his emotions will come into play when it’s time to place bets.
Unearthing a long shot - everyone loves a triumph over adversity story. So why not learn how to find the best underdogs for smarter bets? Although underdogs typically don’t offer much in terms of value, there are some telltale signs that can help sports bettors find good underdogs worth taking a punt on.
Using disadvantages as an advantage - thanks to handicap betting the void between heavy favourites and underdogs can be bridged. That way, sports bettors can make more competitive and valuable wagers.