‘Put Your Money Where Your Mouth Is!’: Effects of Streaks on Confidence and Betting in a Binary Choice Task

Abstract

Human choice under uncertainty is influenced by erroneous beliefs about randomness. In simple binary choice tasks, such as red/black predictions in roulette, long outcome runs (e.g. red, red, red) typically increase the tendency to predict the other outcome (i.e. black), an effect labeled the “gambler's fallacy.” In these settings, participants may also attend to streaks in their predictive performance. Winning and losing streaks are thought to affect decision confidence, although prior work indicates conflicting directions. Over three laboratory experiments involving red/black predictions in a sequential roulette task, we sought to identify the effects of outcome runs and winning/losing streaks upon color predictions, decision confidence and betting behavior. Experiments 1 ( n = 40) and 3 ( n = 40) obtained trial-by-trial confidence ratings, with a win/no win payoff and a no loss/loss payoff, respectively. Experiment 2 ( n = 39) obtained a trial-by-trial bet amount on an equivalent scale. In each experiment, the gambler's fallacy was observed on choice behavior after color runs and, in experiment 2, on betting behavior after color runs. Feedback streaks exerted no reliable influence on confidence ratings, in either payoff condition. Betting behavior, on the other hand, increased as a function of losing streaks. The increase in betting on losing streaks is interpreted as a manifestation of loss chasing; these data help clarify the psychological mechanisms underlying loss chasing and caution against the use of betting measures (“post-decision wagering”) as a straightforward index of decision confidence. © 2014 The Authors. Journal of Behavioral Decision Making published by John Wiley & Sons Ltd.