Escaping the Gambler’s Fallacy: Mastering Numeracy for Financial Success

If you’ve ever spent 10 minutes at a roulette table, you’ve probably seen the following scenario play out: A gambler is trying to decide whether to put their money on Red or Black. They look at the electronic sign that shows what numbers have recently hit. They see that the last four numbers were all “Black,” so they bet their money on Red because they believe “red is overdue.” Then the little white ball lands on “15-Black,” and they lose their money. “What are the odds!?” the gambler says in amazement. The odds of landing on Red were exactly 47.37%, as there are 38 total numbers on a roulette table, and only 18 are red. The odds of landing on Red would be exactly 47.37%, even if the last 500 spins landed on black. This false belief that “red was overdue” because the previous four spins landed on black is a textbook example of a cognitive bias known as The Gambler’s Fallacy, which describes how people believe the previous history of that random event influences the probability of a random event occurring in the future. In this post, I highlight how The Gambler’s Fallacy can lead to poor investment decisions and how it highlights that the most important financial skill you can develop is grade-school math. <a href="https://themakingofamillionaire.com/escaping-the-gamblers-fallacy-mastering-numeracy-for-financial-success-60f3d3062453">Click Here</a>