In the casino game of craps, two six-sided chop are thrown multiple times, and players place table bets on which numbers will (or will not) be thrown. Craps players are partial to saying that the chop ‘have no memory, ha which means that you cannot tell what the next roll of the chop will be based on the last roll. Any statistician will tell you that this remark is 100% accurate, since the casino puts multiple measures in place to ensure that the flight flight of the chop are random each time they are thrown. Thus, long strings of winning numbers aren’t necessarily the result of a ‘hot’ table… rather they are the result of random possibilities lining up in a way that the chop result in many consecutive wins.
While this sounds logical enough at first, many bettors will also tell you elaborate stories of getting embroiled in the excitement of a ‘hot table’ where many people are winning in rapid succession. In this case, the emotional side in our brain that believes in a ‘hot table’ (or ‘hot market’) overrides the logical side in our brain that tells us that repeated studies in the casino (or financial markets) are independent… which means that the next trial is not influenced by the last trial. While this characteristic is true for both financial markets and casino games, superstition will always factor into both types of activity. (Many craps players take their table bets down when a player throws the chop off the table, based on the belief that the reviled ‘seven’ will show up on the next throw)
The key point this phenomenon demonstrates is that it can be very easy to get embroiled in the momentum of a ‘hot market’ or ‘hot table, ha but in both cases our fortunes be capable of turning very quickly. It was not all that way back when when individuals were reasoning that real estate values Malachite Dice could never go down, and that it was a good investment at any price… or that there was a ‘new economy’ and stock prices would increase forever. In all market situations, it is drastically important to remember that all bubbles eventually pop, trees and shrubs don’t grow to the sky, and the chop truly have no memory.