Wednesday, May 11, 2016

- Bias #6: Gambler's Fallacy & Neglecting Probability

 Gambler's Fallacy
It's called a fallacy, but it's more a glitch in our thinking. We tend to put a tremendous amount of weight on previous events, believing that they'll somehow influence future outcomes. The classic example is coin-tossing. After flipping heads, say, five consecutive times, our inclination is to predict an increase in likelihood that the next coin toss will be tails — that the odds must certainly be in the favor of heads. But in reality, the odds are still 50/50. As statisticians say, the outcomes in different tosses are statistically independent and the probability of any outcome is still 50%.
Relatedly, there's also the positive expectation bias — which often fuels gambling addictions. It's the sense that our luck has to eventually change and that good fortune is on the way. It also contribues to the "hot hand" misconception. Similarly, it's the same feeling we get when we start a new relationship that leads us to believe it will be better than the last one.

Neglecting Probability
Very few of us have a problem getting into a car and going for a drive, but many of us experience great trepidation about stepping inside an airplane and flying at 35,000 feet. Flying, quite obviously, is a wholly unnatural and seemingly hazardous activity. Yet virtually all of us know and acknowledge the fact that the probability of dying in an auto accident is significantly greater than getting killed in a plane crash — but our brains won't release us from this crystal clear logic (statistically, we have a 1 in 84 chance of dying in a vehicular accident, as compared to a 1 in 5,000 chance of dying in an plane crash [other sources indicate odds as high as 1 in 20,000]). It's the same phenomenon that makes us worry about getting killed in an act of terrorism as opposed to something far more probable, like falling down the stairs or accidental poisoning.

This is what the social psychologist Cass Sunstein calls probability neglectour inability to properly grasp a proper sense of peril and risk — which often leads us to overstate the risks of relatively harmless activities, while forcing us to overrate more dangerous ones.

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