Tricia has lost money on a particular stock for the past three years. Thus, she believes the stock will have a high positive rate of return this year because earning a good return is long overdue. This assumption is best described as the:

Question

Quizplus · Accepted Answer

The assumption that the stock will have a positive rate of return this year because it is long overdue is an example of the gambler's fallacy, which is the mistaken belief that future probabilities are altered by past events that are unrelated to them. Just because the stock has lost money for the past three years does not necessarily mean it will have a positive return this year. This is similar to the misconception that if a coin has landed on heads multiple times in a row, it is more likely to land on tails on the next flip.

Tricia Has Lost Money on a Particular Stock for the Past