Randomness Is Hard to Accept

Randomness Is Hard to Accept

Human nature likes order; people find it hard to accept the notion of randomness. No matter what the laws of chance might tell us, we search for patterns among random events wherever they might occur – not only in the stock market, but even in interpreting sporting phenomena.

In describing an outstanding performance by a basketball player, reporters and spectators alike commonly use expressions such as “Magic Johnson has the hot hand” or “Isaiah Thomas is a streak shooter.” Those who play, coach, or otherwise follow basketball are almost universally convinced that if a player has successfully made his last shot, or last few shots, he is more likely to make his next shot. A 1980s study by a group of psychologists, however, proves conclusively that the “hot-hand” phenomenon is a myth.

The psychologists did a detailed study of every shot taken by the Philadelphia 76ers over a full season and a half. They found no evidence of any positive correlation between the outcomes of successive shots. Indeed, they found that a hit by a player followed by a miss was actually a bit likelier than the case of making two baskets in a row. Moreover, the researchers looked at sequences of more than two shots. Again, they found that the number of long streaks (that is, hitting of several baskets in a row) was no greater than could have been expected in a random set of data (such as flipping coins where every event was independent of its predecessor).

Randomness is hard to accept. Photo by Elena

 While the event of making one’s last two or three shots clearly influenced the player’s perception of whether he would make his next shot, the hard evidence was that there was no effect. The researchers then confirmed their study by examining the free-throw records of the Boston Celtics and by conducting controlled shooting experiments with the men and women of the Cornell University varsity basketball teams. The outcomes of previous shots influenced players’ predictions but not their performance.

These findings do not imply that basketball is a game of chance rather than skill. Obviously there are players who are more adept at making baskets and free throws than others. The point is, however, that the probability of making a shot is independent of the outcome of previous shots. The psychologists conjecture that the persistent belief in the hot hand could be due to memory bias. If long sequences of hits or misses are more memorable than alternating sequences, observers are likely to overestimate the correlation between successive shots. When events sometimes do come in clusters and streaks, people look for explanations and patterns. They refuse to believe that they are random even though such clusters and streaks do occur frequently in random data such as are derived from the tossing of a coin. So it is in the stock market as well.