Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/308343 
Year of Publication: 
2024
Series/Report no.: 
IZA Discussion Papers No. 17484
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
This study examines whether complete transparency about the randomness of prediction-generating processes mitigates the hot hand fallacy and the conditions under which it may fail. In a pre-registered laboratory experiment (N=750), we showed that transparency about the prediction-generating processes reduced individuals' belief in the hot hand of fair coin flip predictions. However, this effect significantly weakened when we shifted from paying to donating for predictions. Participants exposed to streaks of accurate predictions under altruistic framing were more inclined to donate despite knowing the randomness involved. We explore underlying mechanisms and discuss implications for decision-making in economics and finance.
Subjects: 
gambler's fallacy
hot hand
full information
altruism
random streaks
karmic investment
JEL: 
C91
D03
Document Type: 
Working Paper

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