how the hot hand works
the belief in a hot hand is one shared by many gamblers and investors alike and is believed by psychologists to stem from the same source the representative heuristic for example there is data to suggest that the decision of an investor to buy or sell a mutual fund depends largely on the track record of the fund manager even though there is evidence that this factor is highly overrated 23 hence it would appear that such investors are making decisions based on whether or not they feel the fund managers are hot or not the hot hand fallacy is the psychological condition that people believe an individual is hot or cold depending on past performance when that performance has no bearing on future outcomes for instance rolling a die is independent of how you rolled it in the past evidence for and against the hot hand