A casino falls for the "hot hand" fallacy
We sabermetricians like to criticize sportswriters for failing to understand luck. A guy goes on a 3-for-25, and the press will be all over him wondering what's wrong with his swing and whether he should be benched. A team wins seven in a row, and we make fun of the announcer who says they're "hot" and they have "momentum" and that makes them harder to beat.
But that's the press. You'd think people that make profits by understanding how randomness works -- casinos, say – would be immune from this kind of thinking. Which makes this story so bizarre.
A high roller at Harrah's got lucky and hit a few jackpots on a video poker machine in Las Vegas. Next thing you know, Harrah's is banning him from all their properties.
Are they kidding? Yes, there is some skill to video poker, but even if played perfectly, the advantage is still with the house. Not only that, but this particular high roller says that he already lost back 80% of his winnings.
Our innate bias, the one that makes us want to attribute events to something other than random chance, must be pretty strong. Even casinos can't resist the temptation, even when they're shooting themselves in the wallet.
Hat tip: Freakonomics