Gambler's fallacy.
In plain English
The gambler's fallacy is the belief that past independent outcomes change the odds of the next one, that after several reds a roulette wheel owes you a black. Tversky and Kahneman traced this in 1971 to what they called belief in the law of small numbers: people expect short random sequences to look balanced, so a streak feels like it must reverse. It does not. A fair coin after five heads still lands heads half the time. In money, it fuels the idea that a stock that has fallen for days is now due to bounce.
01Why it matters
Treating independent events as if they owe you a correction leads to bad bets, so seeing the gambler's fallacy helps people stop reading a streak in prices or luck as a signal about the next independent outcome.
02The math, step by step
A stock drops four days running and someone buys because it is due to rebound. But each day's move is close to independent of the last; the four red days do not make a green day more likely. The sense of a debt owed by chance is the fallacy.
03What this is NOT
It is not mean reversion. Reversion is a real statistical tendency for some measured series to drift back toward an average over time. The gambler's fallacy is expecting a specific next independent outcome to correct a streak, which does not happen.
04Receipts
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