Fallacies that Affect Business Decision Making - Hot-Hand Fallacy and Gambler's Fallacy

Hot-Hand Fallacy and Gambler's Fallacy

A study by University College London psychology professor Nigel Harvey and graduate student Juemin Xu, published in the May 2014 issue of Cognition, found that gamblers believed in "gambler's fallacy," and this led to an opposite effect, "hot-hand fallacy".

Hot-hand fallacy occurs when gamblers think that a winning streak is more likely to continue. This is based on the idea that having already won a number of bets.

Example: 

Manager:" Increase in our product prices has already contribute a high income for our company, so we need to continue increasing the prices to get higher income."

To know more about Hot-Hand Fallacy, click https://www.youtube.com/watch?v=a0sA3GcGlYI

The gambler's fallacy is the opposite. During a losing streak, it is likely that a gambler's luck will turn around and will start winning.

Example: 
From year 2015 to 2017, company experienced a loss from the sale. Therefore, the company expected that they will get a profit from the sale in year 2018.

To know more about Gambler's Fallacy, click https://www.youtube.com/watch?v=7dKL3DsVrCI

The problem is, in most games of chance, subsequent outcomes are independent from each other. Each time the game is played, the universe forgets all previous outcomes and starts from scratch.