Don't Fall for The Gambler's Fallacy
I won a bunch of money for Tré Cool, the drummer of Green Day.
No, I'm not his business agent, nor am I a rock show promoter. Instead, I got on a shooter's "hot streak" at a craps table at the Mandalay Bay in Vegas, and Tré, who was playing next to me, was cashing in as I kept rolling like a champ.
If I were smart, I would have asked Tré to reciprocate and gift me a few backstage VIP passes to the Green Day show the next day, but I was only thinking about rolling a good number.
It's fun to get on a hot streak at a casino. The gambling gods were on my side for that fleeting moment. They "blessed" the dice and allowed me and my tablemates to beat the house.
However, as we all know, if you stay long enough at the casino table, the odds will change. As the saying goes, "The house always wins."
The euphoria and excitement of hitting a hot streak in Vegas is fueled by a cognitive bias called The Gambler's Fallacy.
Although fun, don't get suckered by the Ol' Gambler's Fallacy.
The gambler's fallacy is a cognitive bias or mental shortcut when a person believes a random event is no longer unexpected but rather a trend in her favor.
Although you may hit a few good rolls at the craps table or a few winning hands in blackjack, the reality is that each time a new game starts or a new deck is shuffled, the odds reset. The odds are the same each time a new game starts. The hot streak is a string of events without meaning because one game is unconnected to the next. It just so happened you won a few in a row – just like I did as Tré Cool threw the big dollar chips down on the table.
The Gambler's Fallacy bites businesspeople as well, and you must avoid getting trapped in the belief that just because an event happened yesterday, it will automatically happen again this week and next.
Here are a few examples of how The Gambler's Fallacy may negatively impact business decisions:
- Customer ordering patterns: If customers buy on the last day of the month for three months, does that mean they will order on the previous day of the following month? If you don't know for sure, and The Gambler's Fallacy bias is in play, you may have big expectations for end-of-year sales that may or may not materialize on the last day.
- "Last year was a huge success; we'll likely have another this year. Again… Maybe. Or maybe not. What if your competitors are launching compelling products this year?
- "Boy, it's been a few bad years. We're due to have a better year this year." It's essential to base your expectations on your strategy and ability to execute and not fall for the fallacy that today will be dictated by what happened yesterday.
Unlike the games in the casino, where the player has near zero control of the outcome, in business, you can control most of your destiny.
You build better predictive powers through good evaluation, analysis, and understanding of a situation. By writing goals and gaining alignment from the team on the action plan, you can implement your agenda and shape the contours of success.
However, if you let The Gambler's Fallacy bias invade your decision-making process, you'll potentially shortcut success and release control over certain business situations.
Be aware of The Gambler's Fallacy next time you are in Vegas.
More importantly, be mindful of it as a business professional. The more you can remove cognitive bias from decision-making, the more predictable and consistent your decisions will become.
Good luck making your decisions, and if you win a bunch of money for Tré Cool at the craps table, make sure you ask for some concert tickets in return.
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