The Prediction Order Effect: How Our Minds Trick Us into Riskier Bets
Imagine you are predicting the results of a series of upcoming sports matches or investment decisions. At first, you favor the obvious choices—the stronger teams, the safer stocks. But as you continue, something shifts. By the time you're making your last few picks, you start taking more risks. Maybe that lower-seeded team could pull off an upset? If this scenario sounds familiar, you’re not alone.
A new study by Uri Barnea of Bocconi’s Department of Marketing and Jackie Silverman of the University of Delaware, published in Management Science, identifies a subtle psychological bias: The Prediction Order Effect. Their research reveals that people are more likely to predict improbable outcomes—like an underdog’s victory—as they move further along in a sequence of predictions. This effect persists even when people are incentivized to be as accurate as possible.
The Psychology of Sequential Predictions
Silverman and Barnea conducted six experiments in which they asked participants to make predictions in various contexts, including sports betting, lotteries, and weather forecasting. They found a consistent pattern across these different domains: early in a sequence of predictions, people mostly choose the more probable outcome. However, as they continue making predictions, they gradually favor less likely possibilities.
“We tend to believe that improbable events must happen at some point,” explains Uri Barnea. “So, as people make multiple predictions, they start feeling that an upset is due, even though each event is independent.”
This phenomenon is linked to a well-known cognitive bias called the false belief in the law of small numbers, people’s erroneous expectation that small samples will reflect the expected distribution of events in large samples or the population. For example, if someone flips a coin five times and gets heads three times in a row, they might expect tails to come next—even though the odds remain 50-50.
Real-World Consequences
The implications of the Prediction Order Effect can extend beyond sports predictions. Investors might start building their portfolios with relatively reliable stocks but later add riskier assets; managers might initially select candidates that they perceive as “safe choices” but take a chance on an applicant they are not as certain about toward the end of the hiring process.
Whether betting on sports, managing finances, or making strategic business choices, recognizing the tendency to shift toward improbable outcomes can prevent costly mistakes. As companies and policymakers control how information is communicated, they can nudge people toward more rational choices. In fact, the authors found that the prediction order effect can be reduced with a simple intervention, reminding people that each event is statistically independent.