The Hot Hand Fallacy: Cognitive Mistakes or Equilibrium Adjustments? Evidence from Baseball

Abstract

We test for a hand'' (i.e., short-term predictability in performance) in Major League Baseball using panel data. We find strong evidence for its existence in all ten statistical categories we consider. The magnitudes are significant; being corresponds to between one-half and one standard deviation in the distribution of player abilities. Our results are in notable contrast to the majority of the hot-hand literature, which has found little to no evidence for a hot hand in sports, often employing basketball shooting data. We argue that this difference is attributable to endogenous defensive responses: basketball presents sufficient opportunity for transferring defensive resources to equate shooting probabilities across players whereas baseball does not. We then document that baseball teams do respond to recent success in their opponents' batting performance. Our results suggest that teams use recent performance in a manner consistent with drawing a correct inference about the magnitude of the hot-hand, except for a tendency to overreact to very recent performance (i.e., the last 5 attempts).