March Madness? Underreaction to hot and cold hands in NCAA basketball
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Authors
Stone, Daniel F.
Arkes, Jeremy
Subjects
hot hand
hot hand bias
momentum
overreaction
underreaction
NCAA basketball
March Madness
gambling markets
hot hand bias
momentum
overreaction
underreaction
NCAA basketball
March Madness
gambling markets
Advisors
Date of Issue
2017-07
Date
Publisher
Language
Abstract
The hot hand bias is the widely documented bias toward overestimation of positive serial correlation in sequential events. We test for the hot hand bias in a novel real-world context, NCAA basketball tournament seeds. That is, we examine whether teams that perform relatively well heading into ``March Madness'' are seeded too high, and/or teams with poor recent performance are seeded too low. The seeds are determined by a 10-member committee that only has implicit incentives, but these incentives are still substantial as the committee's decisions are highly scrutinized by the media, fans, and other stakeholders. We find that, contra the hot hand bias, the committee \emph{underreacts} to signals of momentum heading into the NCAA tournament. Various results indicate this behavior can be attributed both to inattention to relatively detailed information indicating momentum, and under-appreciation of the predictive value of this information. Betting markets incorporate this information efficiently, but neglect some additional information that is predictive of winning NCAA tournament games but not of beating the spread. We note that the NCAA tournament has been highly popular and lucrative partly due to the ``madness’'' (high frequency of wins by lower-seeded teams), which the bias we document contributes to, making the persistence of bias less surprising.
Type
Article
Description
The article of record as published may be found at http://dx.doi.org/10.1111/ecin.12558
Series/Report No
Department
Graduate School of Business and Public Policy (GSBPP)
Organization
Naval Postgraduate School (U.S.)
Identifiers
NPS Report Number
Sponsors
Funder
Format
44 p.
Citation
Stone, Daniel F., and Jeremy Arkes. "March Madness? Underreaction to hot and cold hands in NCAA basketball." (2017). pp. 1-44.
Distribution Statement
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.