Decision-Making Under the Gambler's Fallacy: Evidence from Asylum Judges, Loan Officers, and Baseball Umpires

Abstract

We find consistent evidence of negative autocorrelation in decision-making that is unrelated to the merits of the cases considered in three separate high-stakes settings: refugee asylum court decisions, loan application reviews, and baseball umpire calls. The evidence is most consistent with the law of small numbers and the gambler's fallacy -- that people underestimate the likelihood of sequential streaks occurring by chance -- leading to negatively autocorrelated decisions that result in errors. The negative autocorrelation is stronger among more moderate and less experienced decision-makers, following longer streaks of decisions in one direction, when the current and previous cases share similar characteristics or occur close in time, and when decision-makers face weaker incentives for accuracy. Alternative explanations for the negative autocorrelation such as sequential contrast effects, quotas, learning, or preferences to treat all parties fairly, are less consistent with the evidence.

Keywords: gambler's fallacy, law of small numbers, decision-making