The gambler’s and hot-hand fallacies: Empirical evidence from trading data

Abstract

I test the prediction of Rabin and Vayanos (2010) that a belief in continuation of streaks should be observed following long streaks, while a belief in reversals should be observed following short streaks. Using a unique sample of retail investor trading data, the paper provides novel empirical evidence on the gambler’s and hot-hand fallacies.