FINAL EXAM REVIEW - Gamblers Fallacy o This is the thought...

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Gambler’s Fallacy o This is the thought that in the long run odds tend to even/average out….FALSE! o EX. Slot machine has probability of 1:7; you lose 10 ten times, you will still have 1:7 probability of winning on 11 th try o Law of Large Numbers Difference between observed value of a sample and the true value diminishes as the number of trials increases w/o limit Hypothesized and true sample get closer as you increase number of trials Says almost NOTHING about small samples GOOD APPLICATION: when you observe 10 billion flips of a coin and 46% of time the coin is heads and 54% is tails= coin is weighted to favor tails> fair coin BAD APPLICATION: after 10 flips of coin there is 3 heads and 7 tails; the two hypothesis are predicatively equivalent (fair coin=coin is weighted to favor tails) o Hot Streak When something “good” occurs 2x in a row then the probability for it occurring a 3 rd time increases Common part of randomness; similar to gambler’s fallacy The hypothesis to this observation is nothing, it is just an instance of gambler’s fallacy (misapplication of law of large numbers) EX. Basketball player makes two shots in row and teammates keep passing him the ball assuming since he is on “hot streak” he is more likely to keep making shots= FALSE! Representational Bias o Determining the probability of an event based on assumptions/ past experience o EX. Two card hands are dealt; one impressive and one unimpressive; most people would assume the unimpressive is most likely to occur and strikes as the representative hand; however any specific hand is as likely to occur as the other Conjunction Fallacy o People tend to rank the probability of two events occurring higher than a single event
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o EX. 1) linda is A & B; 2) Linda is A; 3) Linda is B Availability Bias/ Heuristic o More available to our memory= more frequent o Making a decision based on what a person is knowledgable of other than alternative options o EX. Most ppl think that words ending in –ing are more frequent than words ending in -_n_ since words w/ -ing ending are more available to memory Medical Diagnostics o True positives: positive test results and actually have disease o False positives: those who test positive but do not have disease o Total outcomes= true positives + false positives o Favorable Outcomes= everyone who tests positive and really has disease
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FINAL EXAM REVIEW - Gamblers Fallacy o This is the thought...

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