When basketball commentators used to say, “Larry Bird has the hot hand…,” the fans knew what they meant. Because Bird was sinking basket after basket, we could predict that he will do more of the same.
No, according to behavioral economists.
Where are we going? To see how the debate over whether the hot hand exists applies to more than sports. Let’s start with hot hand research.
Rejecting the Hot Hand
Using Philadelphia 76er shooting records (1980-81 season) from 48 home games and Boston Celtics free throws during the 1980s, believers in behavioral economics tried to prove that there was no such thing as a hot hand. Their focus was whether “a player’s chance of hitting a shot is greater following a hit than following a miss on the previous shot.”
Responding to doubters, researchers agreed that their data was skewed by the intensified defense from the opposing teams but still affirmed their accuracy. To others who wondered how they could challenge the opinions of knowledgeable fans, players and commentators, researchers said it was a self-fulfilling prophecy. Confirmation bias even enters the picture because the belief preceded the phenomenon that proved it.
The Hot Hand Shakes the Invisible Hand
Now classical economists are fighting back. Using two million observations and 10 criteria for batters and pitchers including on base bats, home runs, strike outs, and walks, a finance professor from Stanford and an economist from Berkeley found evidence of the hot hand in baseball stats. They say the data has to come from baseball because basketball has too many strategic responses to the hot hand. But even for basketball, rather than random, the hits and misses are an equilibrium adjustment.
Our Bottom Line: Debating Behavioral Economics
For years, behavioral economists have told us that there is no such thing as a hot streak. Basing their conclusion on their belief that many of our actions are irrational, they conclude fans are falsely bringing order to random achievements that have no predictive value.
The economists who disagree suggest that judging the extent of order in a situation, whether sports, finance, or elsewhere, should return us to Adam Smith’s invisible hand rather than random behavior. Reminding us that we need a proper diagnosis to formulate the right solution, they cite the significance of their disagreement.