Hot Hand and Gambler's Fallacy in Teams: Evidence from Investment Experiments

In laboratory experiments we explore the effects of communication and group decision making on investment behavior and on subjects’ proneness to behavioral biases. Most importantly, we show that communication and group decision making does not impact subjects’ overall proneness to biases like gambler’s fallacy and hot hand belief. However, groups decide differently than individuals as they rely significantly less on useless outside advice from “experts” and choose the risk-free option less frequently. Finally, we document gender differences in investment behavior: groups of two female subjects choose the risk-free investment more often and are slightly more prone to the hot hand belief than groups of two male subjects.