A TEST OF THE GAMBLERS FALLACY - EVIDENCE FROM PARI-MUTUEL GAMES

The ''gambler's fallacy'' is the belief that the probability of an eve nt is decreased when the event has occurred recently, even though the probability is objectively known to be independent across trials. Clot felter and Cook (1991, 1993) find evidence of the gambler's fallacy in analysis of data from the Maryland lottery's ''Pick 3'' numbers game. In the Maryland lottery, the payout to all numbers is equal at $250 o n a winning fifty-cent bet so the gambler's fallacy betting strategy c osts bettors nothing. This article looks at the importance of the gamb ler's fallacy in the New Jersey lottery's three-digit numbers game, a pari-mutuel game where a lower amount of total wagering on a number in creases the payout to that number. Results indicate that the gambler's fallacy exists among bettors in New Jersey, although to a lesser exte nt than among those in Maryland.