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Hot hand Fallacy: Easy explanation [Video]

Hot hand Fallacy: Easy explanation

In this video, you will learn about hot hand and important things you should know about the fallacy.

#hothand #hothandfallacy #wallstreetmojo #bias #finance

Chapters:
00:00 – Introduction
00:35 – What is a hot hand?
02:14 – Example
03:04 – Role of hot hand in investing
04:10 – Conclusion

What is a hot hand?
Hot hand is a fallacy in which people tend to have this notion or belief that if something has had a positive outcome in the past, then it will continue to do so.

The hot hand fallacy was first introduced in the cognitive psychology article “The Hot Hand in Basketball: On the Misperception of Random Sequences.” It was authored by Thomas Gilovich, Robert Vallone, and Amos Tversky.

Academics define hot hand as a behavioral bias studied in psychology and behavioral economics.

(Explained in detail in the video)

Example
We have shown an example of the hot hand fallacy using a real-life instance. So check out that part in the video to better understand the concept.

Role of hot hand in investing
Fallacies are very much present in finance, and even professional investors fall for them.

For example, an investor may fall for the gambler’s fallacy and sell the stock while it is in an uptrend, thinking it will reverse. Or they may fall for the hot hand fallacy and buy the stock in the uptrend, thinking it will keep going up.

All this is only going to hurt rather than do any good. But to avoid falling for these fallacies, you need to make smarter decisions rather than allowing biases to take control.

This was all about hot hand. Subscribe to the channel, like the video, and share it with others.

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