What role do behavioral economics and cognitive biases (such as the gambler's fallacy, hot hand fallacy, and near-miss effect)?

[Utul23]

Behavioral economics and cognitive biases play a significant role in influencing lottery players' decision-making and perpetuating their participation in lotteries despite the low odds of winning.

The gambler's fallacy, for example, is the belief that if a certain event has not occurred for a while, it is more likely to occur in the future. This fallacy can lead lottery players to believe that they are "due" for a win, even though each lottery draw is independent and the odds of winning remain the same each time. This can lead players to continue participating in the hopes of eventually winning.

The hot hand fallacy is the belief that a person who has experienced success in the past is more likely to continue experiencing success in the future. This can lead lottery players to believe that if they have won in the past, they are more likely to win again in the future, even though the odds of winning are the same for everyone.

 

[CR7]

Behavioral economics and cognitive biases indeed have a profound impact on lottery players' behaviors and decisions due to various psychological factors at play. The near-miss effect is another cognitive bias that influences lottery players' behaviors.

The near-miss effect refers to the perception that almost winning is a sign of being close to winning the jackpot. Lottery players can interpret narrowly missing out on winning the jackpot as a promising sign that they are on the verge of winning, leading them to persist in playing despite the statistical improbability of winning.

This cognitive bias is often exploited by the design of lottery games, where features such as symbols or numbers that are similar to the winning ones are incorporated to create near-miss situations. These near-misses can evoke a sense of excitement or hope, enticing players to continue playing in pursuit of the elusive win.

Overall, these cognitive biases and behavioral economics principles play a crucial role in shaping players' perceptions, motivations, and decisions when it comes to participating in lotteries, highlighting the complex interplay between psychology and gambling behavior.